Elon Musk, who has made more than $10 billion selling Tesla stock in the past two months, what is he going to do with that money? In addition to paying huge tax bills, he is likely to put money into SpaceX, where he is also the CEO and major shareholder.
Since Nov. 8, Musk has earned $16.4 billion in revenue by selling Tesla stock, most of which will be used to pay for federal tax bills estimated at $11 billion, with the remaining $5 billion doing whatever he sees fit.
Even if he ends up paying California an additional $2 billion in income tax, Musk will receive more than $3 billion in cash. Tesla spent most of the year in California, when he was granted options that are now taxable. He recently moved his domicile and Tesla headquarters to Texas, where state income taxes are zero, which keeps him from having to pay hefty taxes.
Perhaps even more telling: Some of the footnotes in the documents revealing the details of the sale, as well as the timing of SpaceX's last two stake injections, suggest that Musk may be transferring some of his wealth from the public company Tesla to his private company, SpaceX. These deals are unique to Musk. It's the first time in 12 years since Tesla went public that he's held cash by selling shares of the company, rather than just selling shares that are large enough to pay for an upcoming tax bill.
The timing of the deal was good, Tesla performed very well on the stock market, becoming the sixth company in history to reach a market capitalization of $1 trillion, and Musk became the richest man on the planet. Meanwhile, SpaceX is raising hundreds of millions of dollars in cash in the market to raise funds for its ambitious targets. These two facts, combined with the details disclosed in the various documents, undoubtedly increase the likelihood that he will inject capital into SpaceX.
Neither SpaceX nor Tesla commented on how Musk used the proceeds from the sale of shares.
Most of the shares are sold to pay taxes
Musk recently sold 10.3 million shares of Tesla stock and exercised an option to buy 22.9 million shares of Tesla stock. The event started on November 8 and lasted until December 28 for a total of 11 days.
The options were supposed to expire on August 13, 2022, so it was reasonable for him to use those options to buy shares. But once he did, the value of the stock, minus the modest exercise price, became taxable income.
Musk sold the shares immediately after exercising the options, and the SEC filings noted that the transactions were "only to satisfy the declarant's withholding tax obligations in connection with exercising the stock option."
The most recent sale, which included 219,000 shares sold on Dec. 28, was "entirely" to pay his tax bill. He sold another 715,000 shares that day, netting $776 million, "partially satisfying" his tax bill requirements, the documents show.
This isn't the first time this year that Musk has sold Tesla stock for purposes other than paying taxes, SpaceX has followed suit with a new infusion of equity investments.
From Nov. 9 to 11, Musk sold 5.4 million shares to raise $5.8 billion. These shares are shares that he holds in a trust fund and not shares that he has just acquired as part of the exercise of options. While the sale of these shares may be much less taxed, it is still quite substantial, with about $1.2 billion in federal long-term capital gains taxes left him with about $4.6 billion left.
There is no indication in the filings as to why he sold the shares, which is the first time he has sold his long-held shares, rather than shares he acquired by exercising options.
But it's also possible that the move was motivated by providing SpaceX with much-needed cash. On Nov. 15, days after he sold his shares from his trust, SpaceX revealed that it had raised $388 million in additional equity investments from an unnamed investor.
SpaceX, which is in dire need of capital injection
The timing of this cash injection is very important. In an email sent to SpaceX employees before Thanksgiving, Musk reportedly warned that the company was facing a cash crisis due to problems with the Raptor rocket engine and Starship development needed to launch the Starlink satellite in 2022.
Musk said: "If we don't achieve starship flight speeds at least once every two weeks next year, we will face a real risk of bankruptcy." The company needs almost all employees to work during the Thanksgiving weekend to solve problems. ”
He also said the company plans to increase the output of terminals needed to connect StarLink customers to the internet. He said the company would "produce millions of units a year," which would "consume a lot of capital."
Following the email's report, Musk tweeted that the issue with Starship and its Raptor engines was "being resolved." But on Twitter on Dec. 29, he said Starship's first orbital test launch was delayed until the end of February because of the need to obtain unmanned flight approval from the Federal Aviation Administration (FAA).
If SpaceX can solve its Starship and Raptor engine problems and get Starchain up and running as planned, the company's value could skyrocket. It is estimated that the company is already worth more than $100 billion. Once the company goes public, the money musk and other investors put in could lead to huge wealth.
Earlier this year, spaceX received a $1.2 billion equity investment before the last two capital injections. Although the names of the people who purchased these additional shares were not made public, the amount of four separate capital injections was disclosed in filings with the SEC. Before Musk began selling Tesla stock on Nov. 8, it was unclear how much cash he had to invest in SpaceX.
Musk's net worth is about $275 billion, most of which come from his nearly $250 billion worth of Tesla stock and options, as well as the undisclosed value of his shares in SpaceX. If Musk is going to make an additional investment in SpaceX, selling Tesla stock is the way he's most likely to take it.
The email to SpaceX employees before Thanksgiving is reportedly not the first time Musk has discussed the financial challenges and cash losses involved in getting the StarLink Internet service up and running. He previously said: "SpaceX needs to cross the abyss of negative cash flow in the next year or so to make StarChain financially viable." All satellite Internet projects in history have gone bankrupt, and we want to be the first successful business. ”