Elon Musk’s exhorting to investors to keep the faith in Tesla carries little weight while he continues to secretly dump his own shares into the market. Having sold almost $40bn worth of his personal holding since 2021, his public proclamations to shareholders can be summed up simply as ‘do as I say, not as I do’, but the slump in the share price reveals the waning trust he now inspires in his previously steadfastly loyal fanbase.
Having presided over a stratospheric rise in the company’s value to over $1tn at its peak, Musk enjoyed years of goodwill and latitude from market participants, having delivered stellar returns for early investors in the stock. Now, however, shareholders have little sympathy for Musk’s excuses for why he should be allowed to cash in his chips while all other investors should remain seated at the table as the stock price keeps tanking.
Musk’s months-long flirtation with purchasing Twitter accelerated the decline in Tesla’s valuation, with investors fearful that his capricious nature could rapidly demote Tesla to an afterthought while he pursued pastures new. Against that backdrop, his sale of $22.9bn of stock in 2022 alone only exacerbated the panic, yet Musk issued all-too familiar rallying calls promising that Tesla’s price could only go one way, and that investors should sit tight and keep believing.
After his latest share sale in December, Musk made a vague promise that he “won’t sell stock [again] until… two years from now”, but given his past form and previous broken promises, his statement failed to calm sentiment around the company’s future prospects. Musk’s disregard for stock market rules and regulations famously resulted in a prosecution by the SEC after he tweeted in 2018 that he had secured funding to take Tesla private at a hefty premium to the share price, despite having no such arrangement in place at all. Quickly settling the case for $40m, Musk then waged war on the regulator, publicly decrying its role and remit and crowing about his flagrant disrespect for its investor-protecting activities.
Such a stance won him plaudits among Tesla loyalists at the time, who lauded him for his anti-establishment, renegade spirit that they believed was the key reason for Tesla’s success in shaking up and disrupting the auto industry thus far. However, sceptics were quick to seize on Musk’s unorthodoxy as a red flag, touting his erratic behaviour as unbecoming of a CEO of a market behemoth and questioning his judgment when it came to delivering long-term, sustained gains and growth.
Subsequent events have vindicated the critics to an even greater degree, as Musk struggles to convince investors that Tesla can deliver on the myriad promises he has made down the years. A slew of private lawsuits filed against Musk and Tesla over safety issues were compounded by the US Department of Justice opening a criminal investigation in 2021 into the company’s claims that its car’s Full Self Driving (FSD) system was safe to use autonomously, following a number of road accidents involving the feature.
Musk’s perennial reaction to any criticism of FSD is to shoot the messenger, entreating his legion of fans to launch mass online attacks on anyone daring to question the system’s safety. Yet his share-selling actions behind closed doors speak far louder than his stock-promoting words when it comes to showing faith in the company’s future, and despite all of the justifications he deploys for why he has to sell vast tranches of his personal Tesla holding, there appears little leeway left in the eyes of the market. Tesla’s recent decision to deeply discount the prices of its vehicles compounds the sense that demand is plummeting, and actually makes more sense as to Musk’s decision to keep selling stock than the excuses he uses in public.
Like any company board member, Musk is privy to a wealth of insider information about his firm’s true state of affairs, and – while there is no suggestion that he breached market rules when selling off his holding – the divergence is striking between what he tells investors to do with their shares and what he quietly does with his. In August of last year, Musk proclaimed “if you see people panicking… it’s a buying opportunity!” and declared “it is important to avoid an emergency sale of Tesla stock”. He then promptly traded out of $6.9bn of his own shares that same month.
Shortly afterwards, in October, he prophesised that “I see a potential path for Tesla to be worth more than Apple and Saudi Aramco combined”, implying a valuation of $4tn, yet proceeded to sell off another $3.9bn of his stock when Tesla was valued around only $800bn, followed by another $3.6bn two months later. That same day, he quipped that “Knock on wood, it looks like we’ll have an epic end of year.” His sales proved yet again that his wild predictions for Tesla’s future valuation were meant simply to dupe the investing public, rather than reflect his own true belief in the company’s future trajectory. Despite using his purchase of Twitter as the excuse for the bulk of his 2022 sales, investors punished the shares in the wake of his selling, driving the stock to two-year lows amid a wave of negativity around the company’s fate. Musk found himself out in the cold for his actions, which gave the lie once again to his 2013 declaration that “just as my money was the first in, it will be the last out”.
While Musk’s acquisition of Twitter clearly dented a huge hole in his available finances, observers queried whether a CEO truly laser-focused on his company’s long-term future should be spending time and money on an entirely tangential and whimsical new venture, especially given all of the problems dogging Tesla in recent months. With Musk distracted by a shiny new plaything, there seemed to be even less reason for hope that Tesla would recover ground anytime soon, and no one appeared to be signalling the negativity more than Musk himself as he continued to offload stock.
Tesla investors deserve better than being led up the garden path by a hypocritical CEO who repeatedly refuses to practise what he preaches, but they should also read the room for themselves rather than rely on Musk’s empty promises. By following the money – in this case the constant inflow into Musk’s personal coffers after every vast share sale – they will receive the clearest signal of all that Tesla’s bubble has well and truly burst. When even the founder and CEO is repositioning his finances and moving on to the next big thing, then the game is up and no amount of desperate tweeting to the contrary from Musk will do anything to stop the rot.