The curious story of Elon Musk’s Tesla inventory gross sales and SpaceX’s fundraising

It appears attainable, perhaps even doubtless, that he is put at the least among the cash into SpaceX, the opposite firm of which he’s CEO and first shareholder.

A lot of the proceeds from his $16.4 billion in Tesla inventory gross sales since November 8 will go to pay an estimated $11 billion federal tax invoice, leaving him with greater than $5 billion to do no matter he sees match.
Even when he finally ends up paying $2 billion in extra earnings tax to the state of California, the place Tesla was primarily based for many of the yr when he was granted the choices on which he’ll now owe taxes, Musk can be left with a nest egg of greater than $3 billion. And his current strikes of each his personal residence and Tesla’s company headquarters to Texas, with its zero state earnings tax, makes it unlikely he’ll need to pay the utmost attainable tax to California.
Maybe extra telling: Some footnotes within the submitting disclosing particulars of the gross sales, together with the timing of the final two fairness infusions into SpaceX, elevate the chance that Musk is shifting a few of his wealth from publicly-traded Tesla (TSLA) into shares of his privately-held firm SpaceX.
These trades are distinctive for Musk, the nation’s highest profile CEO. It is the primary time within the 12 years that Tesla has been public that he is held onto money from the sale of that firm’s shares, relatively than promoting solely sufficient inventory to pay looming tax payments.
His timing is nice, because the gross sales release money at a time when Tesla is doing very nicely out there, changing into the sixth firm in historical past to be price $1 trillion, and lifting Musk himself to the standing of the richest particular person on the planet. And it is being executed at a time when his different excessive profile firm, SpaceX, is out out there elevating a whole lot of tens of millions in money to fund its bold objectives. These two information, together with particulars disclosed within the varied filings, definitely elevate the chance that he is pumping cash into SpaceX.
Neither SpaceX nor Tesla (TSLA) responded to requests for feedback about how Musk is utilizing the proceeds of his inventory gross sales.

Most Tesla shares bought to cowl taxes

Musk bought 10.3 million of the shares on the identical days he exercised choices to purchase an extra 22.9 million shares of Tesla inventory. The gross sales came about on 11 separate days unfold out from November 8 by December 28.

These choices had been attributable to expire on August 13, 2022, so it made sense for him to make use of them to purchase the shares. However as soon as he did so, the worth of the shares, much less the modest train value, turned taxable earnings.

Musk bought shares instantly after exercising the choices, with the SEC submitting noting that the transactions have been made “solely to fulfill the reporting particular person’s tax withholding obligations associated to the train of inventory choices.”

However not all of them.

The latest gross sales included the notation that 219,000 shares that have been bought on December 28 have been “solely” to cowl his tax invoice. One other 715,000 shares he bought that very same day, which netted Musk $776 million, went “partially to fulfill” his tax invoice, in line with the submitting.

The subsequent day, SpaceX made its personal submitting with the SEC, disclosing that it had raised $337.4 million in new fairness funding from an undisclosed investor.

And this is not the primary time this yr {that a} Musk sale of Tesla shares for functions aside from paying taxes was carefully adopted by SpaceX reporting a brand new infusion of fairness funding.

From November 9 by 11, Musk bought 5.4 million shares, elevating $5.8 billion. These have been shares he held in a belief, not shares he had simply acquired as a part of the train of choices. And whereas his tax invoice is probably going a lot smaller on the sale of these shares, it is nonetheless substantial – about $1.2 billion in federal long-term capital positive factors taxes, leaving him with about $4.6 billion.

There is not any indication within the filings as to why he accomplished these gross sales, which mark the primary time he has bought shares that he has held for an prolonged interval, relatively than these he simply acquired by the train of choices.

It could possibly be as a result of he needed to observe the result of a Twitter ballot during which he requested followers if he ought to promote 10% of his stake with a purpose to enhance his taxable earnings. However it’s equally attainable that the motivation was to supply a lot wanted money for SpaceX.

On November 15, just a few days after he made that uncommon sale of shares from his belief, SpaceX disclosed it had raised $388 million in extra fairness investments from an undisclosed investor.

A cash-hungry SpaceX

That money infusion arrived at an essential time.

In an electronic mail despatched to SpaceX employees simply earlier than Thanksgiving, Musk reportedly warned that the corporate was dealing with a money disaster attributable to issues creating the Raptor rocket engines and Starship rockets wanted to launch its Starlink satellites in 2022. Starlink is a constellation of satellites designed to supply excessive velocity Web service from orbit.

“We face a real danger of chapter if we won’t obtain a Starship flight price of at the least as soon as each two weeks subsequent yr,” in line with the e-mail reported by Area Explored and likewise by CNBC. Musk’s electronic mail mentioned that the corporate wanted nearly all workers at work in the course of the Thanksgiving vacation weekend to deal with the issues.

He additionally mentioned the corporate deliberate to ramp up manufacturing of floor stations wanted to attach Starlink clients to the Web. He mentioned it will be making “a number of million models per yr,” which he mentioned will “eat large capital.”

In a tweet that adopted studies of the e-mail, Musk mentioned that drawback with the Starship rocket and its Raptor engines have been “getting fastened.” However in a December 29 tweet he mentioned the primary orbital check launch of the Starship rocket was delayed to the top of February as a result of must get approval for the unmanned flight from the FAA.

SpaceX and NASA additionally didn’t reply to questions from CNN Enterprise concerning the electronic mail to SpaceX employees.

If SpaceX can repair the issues with its Starship rocket and Raptor engines and get Starlink up and operating as deliberate, the worth of SpaceX, already estimated to be price greater than $100 billion, may soar. The cash that Musk and different buyers have poured into it may result in a monetary bonanza as soon as the corporate goes public.

SpaceX raised $1.2 billion in fairness investments earlier this yr, earlier than these two most up-to-date capital infusions. Whereas the names of whomever bought these extra shares should not public, the quantities of 4 separate infusions have been disclosed in filings with the SEC.

It isn’t clear how a lot money Musk had obtainable to him to spend money on SpaceX earlier than he began promoting his Tesla shares on November 8.

The overwhelming majority of his estimated $275 billion internet price comes from the practically $250 billion worth of Tesla shares and choices he owns, in addition to a bit of cash from his undisclosed stake in SpaceX. If Musk was going to make extra investments in SpaceX, promoting Tesla shares was the most probably approach for him to take action.

The reported electronic mail to SpaceX employees proper earlier than Thanksgiving is just not the primary time Musk mentioned the monetary challenges and money drain concerned in getting Starlink’s web service up and operating.

“SpaceX must go by a deep chasm of unfavorable money movement over the following yr or so to make Starlink financially viable,” he mentioned in a tweet in February. “Each new satellite tv for pc constellation in historical past has gone bankrupt. We hope to be the primary that doesn’t.”