Elon Musk’s Twitter followers say sell

Tesla shares fell nearly 5% after poll by electric carmaker’s chief executive

This is an audio transcript of the FT News Briefing podcast episode: Elon Musk’s Twitter followers say sell

Marc Filippino
Good morning from the Financial Times. Today is Tuesday, November 9th, and this is your FT News Briefing.

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The Federal Reserve has a new high-level job opening. SoftBank’s CEO says he’ll buy back stock. And Elon Musk asked Twitter if he should sell 10 per cent of his Tesla shares. A majority said yes, sell them and pay taxes on the gains.

Richard Waters
I think this is a classic case of Musk deciding the terms of the conversation.

Marc Filippino
The FT’s Richard Waters will unpack what’s really behind Musk’s latest publicity stunt. I’m Marc Filippino, and here’s the news you need to start your day.

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The Federal Reserve is losing another top official. Yesterday, Fed Governor Randal Quarles said he’s stepping down next month. This comes after a trading scandal that led to the resignation of two regional Fed presidents. And it comes amid calls for Fed chair Jay Powell to leave at the end of his term. Our Washington bureau chief James Politi said Quarles was already on the fence about leaving.

James Politi
So Quarles wore multiple hats at the Fed and his time as vice chair for supervision, so in charge of banking regulation, had already expired in October and that term had already ended. So he wasn’t doing that anymore. And his time as chair of the Financial Stability Board, which is sort of the international body that deals with financial regulation, is due to run out at the beginning of December. So in a way, he was faced with the decision of remaining as a sort of regular Fed governor or leaving, and he’s decided to leave.

Marc Filippino
So James, what does this latest resignation mean for chair Jay Powell’s future? Many progressive Democrats want him out, say Biden shouldn’t reappoint him.

James Politi
I think all signs at the moment are pointing to some kind of a package deal in which Biden possibly reappoints Powell, but then inserts some more Democrat-friendly economists and financial experts in other positions on the Fed, including vice chair for supervision. That would be sort of a way of balancing out the different interests within the Democratic party in terms of how the Fed will be sort of shaped in the coming years.

Marc Filippino
Yeah. So what does Democrat-friendly mean in these terms? Because Jay Powell did cater to a lot of what Democrats wanted in terms of loose monetary policy at the height of the pandemic. You know, what are they looking for here?

James Politi
I think in particular on financial regulation, I think we would expect tougher regulation coming from the Fed and a second Powell term with new appointees from the Biden administration. I think that there’s been a clear sign from the Democrats on the Hill that they would like to see tougher financial regulation from the Fed. Quarles in particular was considered adopting sort of a light touch when it comes to banking regulation. And I think there’ll certainly be a course correction there.

Marc Filippino
James Politi is the FT’s Washington bureau chief.

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This past weekend, Elon Musk, the founder of Tesla, asked his 62m Twitter followers if he should sell 10 per cent of his Tesla shares. Majority voted yes, sell those shares and pay the taxes. And Musk promised to do what the Twitterverse said. To figure out what’s behind Musk’s latest publicity stunt, I’m joined by the FT’s Richard Waters, who covers all things tech and Tesla. Hi, Richard.

Richard Waters
Hey Marc, good to talk to you.

Marc Filippino
So let’s start off by doing a little math here. Elon would end up selling about $20bn worth of shares and pay about $4bn in taxes. Richard, he can afford it, you know. Why doesn’t he just sell and pay?

Richard Waters
He can afford it [laughs]. He can afford anything, Marc. So I think that that’s not the relevant question here. With Musk, I think the question is always, what is he doing and why is he doing it? You know, he loves playing games on Twitter. He’s got the world at his beck and call on Twitter, and he can weave these fun games that he plays. And it’s left to the rest of us to try and work out what on earth is going on. The way he’s presented this is, he’s willingly paying tax. He’s saying, look, there’s this debate going on about whether billionaires like me should pay tax on unrealised gains because they’re not at the moment. And some people see that as tax avoidance. So he said, look, if you, the mob on Twitter, think I should pay my taxes, then tell me and I’ll sell some shares and pay the tax. So that’s how he’s couched it. And it makes it sound like, you know, he’s willing to pay tax if Twitter says he should. I mean, he’s trolling his enemies. You know, that’s one thing he uses Twitter for. He’s trolling all the critics who say, you know, you’re avoiding taxes. And he’s also getting this cover for selling his shares. So, you know, it’s quite a clever thing.

Marc Filippino
So Richard, as you’ve reported, Musk says he’s taken no salary or bonus from any of his companies, but he’s made billions of dollars by exercising stock options. Could that help explain what’s going on now?

Richard Waters
Well, Musk is in line to cash in a huge amount of stock options. Now, when he exercises those options, he will pay income tax. At least that’s what most people do with options, and we assume he, you know, he doesn’t have any clever tricks up his sleeve to avoid that. So he is facing a huge tax bill based on the options Tesla has given him, you know, sometime probably next year. So he needs cash. He needs cash to pay the tax on the options that are coming up. So in some ways, you know, maybe he’s just selling a bunch of shares he already owns, paying some tax on that, raising some money in preparation for a much bigger payday down the road.

Marc Filippino
So let’s just play a little game, a little hypothetical here, Richard. What happens if Musk says get lost to the 58 per cent of Twitter followers who voted for him to sell his stock and he doesn’t sell? Could that damage his public image or the public power he has at all?

Richard Waters
Ha. I think the bigger question, the more interesting question is whether he’s exposed himself to any litigation risk or any regulatory risk here for two reasons. I mean, first of all, you know, what he’s done is essentially promised to sell shares if certain conditions are met. That condition has now been met. So if I was a Tesla shareholder, I might argue, well, the CEO promised he’d sell, therefore he’d sell, therefore I think the shares are worth less. If he doesn’t sell, then you could say he’s misled the market and he might expose himself to a lawsuit. The other, the other question is what the SEC will think about this, you know. And Musk has trolled the securities regulators for years. He’s currently obligated to have any tweet cleared with the company. They might affect his own holdings in the company. So you could say that, you know, by throwing something open to Twitter, that’s exactly what he’s done. And so, therefore, did he follow the SEC agreement? Has he got clearance in the company on this? So, you know, Musk’s tweets, obviously are Musk’s tweets, and he seems to get away with most things. But if the regulators really want to come down on him, he might have exposed himself here.

Marc Filippino
Richard Waters is the FT’s west coast editor. He covers all things tech. Thanks, Richard.

Richard Waters
Good to talk to you, Marc.

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Marc Filippino
As one prominent founder promises to sell shares in his company, another says they’ll buy them back. SoftBank founder Masayoshi Son yesterday promised to repurchase nearly $9bn of SoftBank shares over the next 12 months. This comes after pressure from investors to boost the company’s sagging share price. It’s fallen in part because of big losses in SoftBank’s Vision Fund, which is heavily invested in Chinese tech companies. The FT’s Tokyo bureau chief Kana Inagaki asked Masayoshi Son about the move.

Kana Inagaki
In previous quarters, even when there has been decline in share prices, seems like the SoftBank’s chief executive was reluctant to carry out a share buyback. He said he still believes that the investments through the Vision Fund will pay off, but because the discount and the value of the assets has become so much bigger due to some of these issues with the Chinese crackdown, because he himself is a shareholder, he felt that this was a good buying opportunity for SoftBank shares. And therefore he decided to do the share buyback.

Marc Filippino
And Kana says Son made it clear that even after spending billions to buy back shares, the company would still have enough capital to continue investing.

Kana Inagaki
Part of that will be done through, for example, selling its investment through the Vision Fund and getting the returns through, for example, listing some of its Vision Fund investments. But some long-term investors said the strategy is not really sustainable and that there needs to be a longer term solution to lifting SoftBank share price.

Marc Filippino
Kana Inagaki is the FT’s Tokyo bureau chief.

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You can read more on all of these stories at FT.com. I say that pretty much at the end of every episode of the FT News Briefing. And if you don’t have a subscription, you’re probably like, well, I want to Marc, but there’s a paywall. Well, here’s another reminder about our offer of free access to the FT and our social governance newsletter, Moral Money. It’s a 30-day trial, just go to FT.com/cop26podcast. We’ve also put a link in the show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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