Tesla CEO Elon Musk Plans to Sell 10% of Shares

On. Nov 8, TSLA (TSLA) shares fell 4.5% at the time of writing after Tesla CEO Elon Musk announced his plan to sell 10% of his shares outstanding. Based on Musk's most recent SEC filing, the sale would amount to 22.7 million shares, or roughly 2% of diluted shares outstanding as of Sept. 30. After reviewing Musk's share sale plan, we see no reason to change our outlook for Tesla. As such, we maintain our $680 per share fair value estimate. Our narrow moat rating is also unchanged.

At current prices, we view Tesla shares as overvalued, with the stock trading in 1-star territory. Even after today's sell-off, shares trade only slightly below our bull case fair value estimate of $1,200 per share. Our bull case assumes Tesla delivers a little under 11.5 million vehicles by 2030, which is below management's goal of 20 million vehicles but would put Tesla among the top global automakers in annual vehicle sales. As such, we think most of the good news is already priced in to the stock.

Musk's plan to sell 10% of his shares follows the result of a Twitter poll he created over the weekend. Musk does not receive a base salary from Tesla, so selling shares is Musk's only way to monetize his compensation. We view this as the primary driver for this share sale, rather than a statement on Tesla's valuation. However, with the stock trading well above our fair value estimate, we view the share sale as a prudent move for Musk's personal wealth.

While Musk will monetize 10% of his shares, we expect some of the proceeds would be used to buy additional Tesla stock. These shares would come from stock options granted to Musk as a result of Tesla hitting operational and market capitalization targets as a part of the 2018 CEO performance award plan.

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