In case trading in the shares of Amazon, Microsoft, Facebook, and many other billionaire-owned firms is any indication, Tesla co-founder Elon Musk selling part of his stake in the company might not be bad for the electric carmaker’s shares in the long term.
Over the last few days, Musk sold roughly $5 billion worth of Tesla shares and he will remain with approximately 15.5% of the company’s outstanding shares after the full sale is completed making him by far the largest single shareholder in Tesla.
By comparison, Amazon founder Jeff Bezos owns about 14% of the online retailer, while Mark Zuckerberg owns only 14% of Facebook parent Meta Platforms Inc (FB.O) and controls a majority of its Class B stock.
With little discernible impact on their companies’ share price, Bezos, Zuckerberg, and Microsoft’s Bill Gates have all sold billions of dollars’ worth of stock this year, as highlighted by analysts and investors.
Of course, Tesla is not easily comparable to those companies, nor Musk to their billionaire founders. Over the last two years, Tesla shares are up more than 1,400% and trade at a whopping 346 times earnings, and the company tends to elicit extreme opinions from institutional and retail investors.
For his part, Musk is notoriously active on Twitter– where he asked polled users on whether he should sell 10% of his stake last week– and is at least as divisive as the company he co-founded. His current activity raised questions about a potential violation of a 2018 settlement with the Securities and Exchange Commission requiring him to have material tweets vetted by a lawyer.
Many on Wall Street still believe the impact of Musk’s potential stock sale may be overblown. The company’s shares are down nearly 5% from their November 4 peak, falling following the Twitter poll and rebounding later in recent sessions. In choppy trading on Thursday, they were down 0.5%.
Ross Gerber, president of wealth management firm Gerber Kawasaki and a long-standing shareholder in Tesla said that given the surge in the company shares, which are up more than 50% year-to-date, it is sensible that Musk is selling 10% of his stake in the company. Gerber said:
“Every major tech entrepreneur and bitcoin owner is cashing out huge amounts of capital right now for huge profit so for Musk to take some money off the table is a smart move and he just announced it in a very Muskian way.”
In the meantime, “Bezos sells $2 billion and nobody blinks,” he added, referring to Bezos’s sale of approximately $2 billion worth of Amazon stock in early November.
This year Bezos has sold approximately $8.8 billion worth of Amazon stock and has used the proceeds from last year’s $10 billion worth sale of Amazon stake in part to fund his space tourism company known as Blue Origin.
Anthony Chukumba, an analyst at Loop Capital said that those sales have likely had a “negligible” impact on the stock price of Amazon.com. This year, Amazon’s shares are up 7.8%, underperforming the S&P 500’s 23.8% gain as investors have moved into cyclical stocks and rotated out of last year’s strong performers. He said:
“No one really … thinks Bezos has less confidence in the company’s prospects. Amazon is so big and so liquid it doesn’t move the needle.” In the meantime, through a periodic sale agreement, Zuckerberg has sold shares nearly every day this year. Joe Bonner, an analyst at Argus Research said those sales have had no “discernable” impact on the company’s share price. The company’s shares are up 20.7% this year.
Bill Gates, who divested his ownership in Microsoft by selling more than 20 million shares each quarter for more than a dozen years, maybe the closest comparison to Musk’s decision to sell part of his stake, analysts highlighted.
Dan Ives, an analyst at Wedbush Securities who has an outperform rating on Tesla shares said despite that consistent selling, Microsoft’s shares continued to rise in part since investors saw the sales as part of Gates’ plan to give to charity and not an indication of his faith in the company.
Apart from Musk’s selling, investors who have a bone to pick with Tesla have found plenty of targets.
Head of Schultze Asset Management, George Schultze said the share sales, together with Tesla’s high valuation at a time when automakers such as General Motors (GM.N) are expanding into the electric vehicle market, suggest Tesla’s rally may cool.
“If you put it all together it’s a sign of a potential market top in Tesla stock,” he said.