In April of April I published an article describing how Tesla (TSLA) CEO Elon Musk had significantly increased his personal influence. While holding well over 30 million shares in the company, a large number of these were pledged as collateral for personal loans. On Friday, the company came out with an annual filing that allows us to further investigate the situation.
First, let me quickly mention the other great news that came out late last week. With the market closed Friday, Tesla released an 8-K filing that detailed four of the board members will not be re-elected when their terms end in the next couple of years. There has been a lot of criticism about the board and its relationship with Musk, so maybe some of the big turnover will change it.
It gets me to the proxy filing also issued Friday. On page 72 of the document there is an overview of large holdings and their positions. Musk has the largest shareholding in the company, 21.7% of the shares, with the following note relating to his position:
Includes ("I") 33,824,680 shares held by record of Elon Musk Revocable Trust dated 22 July 2003; and ("II") 4,748,110 shares issued to Mr. Musk in the exercise of options exercisable within 60 days of 31 December 2018. Includes 13,394,066 shares pledged as collateral to secure certain personal liabilities.
Unfortunately, we only get this data once a year, and it is delayed by more than four and a half months since the end of the year. However, we can get an idea of how things have changed over time by tracking these items. In the table below, I have described the history of Musk's positions, followed by how the major elements appear in diagrammatic form over this time period.
* Based on the closing price of the balance sheet date. Data retrieved from Tesla proxy filings.
If you only look at the number of shares pledged as collateral, you can be glad that the number decreased by about 380,000 shares from the end of 2017 to the end of 2018. This is a decrease of nearly 2.8%. However, the Tesla shares totaled more than $ 21 in 2018, an increase of almost 6.9%. This means that the market value of pledged shares rose by nearly $ 170 million, an increase of almost 4%. As the last chart shows, the market value of pledged shares is now over $ 4.45 billion, the highest year-end.
Unfortunately for Mr. Musk, as well as all Tesla shareholders, the stock has fallen almost $ 60 so far this year, almost 18%, as the table below shows. Assuming that the market value of borrowed shares has remained the same, that would mean that the number of pledged collateral would have to increase to more than 16.31 million based on Thursday's closing price. It would be a jump of almost 22%, almost 3 million extra shares that had to be pledged, and kept everything else alike, of course.
(Source: Yahoo Finance)
Whatever your opinion of Tesla, Muscle's highly exploited nature is a major risk factor to consider, and it is in fact one of the risk factors detailed in the 10-K archive. With musk borrowing more and more to fund their other ventures, a large decline in the Tesla shares can result in a painful margin call, which may force Musk to sell millions of stocks and add a downward spiral. I'll be back in the next few days to preview Tesla's earnings report, which may have a big impact on which Tesla shares are doing the rest of this year.
Notice: I / We have no posts in any saved inventory and no plans to start any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I do not receive compensation for it (other than from Seeking Alpha). I do not have any business relations with any company whose stock is mentioned in this article.
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