Tesla just recorded another record quarter for sales of its electric vehicles. While this is good news for the company and its investors, it comes at a big price. Some $1 billion worth of the Palo Alto based company’s shares were sold in a two-part deal—no doubt driven in part by those sales as the amount is seen as a discount.
A company sale causes a discount to the company’s stock price as it’s the first public disclosure that cash has been sold at a lower price than anticipated. In this instance, the shares sold are believed to be for $333 per share. In this way, Tesla investors are told that the company’s demand for the stock is less than market expectations. It’s a savings for investors in the form of less-worrisome financial issues. But how much does this event affect the share price? Well, since Tesla is performing so well, some investors are leaving more of their money on the table. That means, though it’s not causing a drop in the share price, it’s also not sending it much higher either.
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At the end of this week, about $1 billion will have been sold by Elon Musk and several of his directors. It’s important to keep in mind that Musk only owns 17 percent of Tesla’s shares. In other words, it’s not like he’s cashing out big time. If it’s so hard to sell shares, it’s even more important to examine why this happened.
One of the best explanations that we have are recent and upcoming government regulations. Specifically, Tesla will soon have to submit monthly audited reports to the Securities and Exchange Commission. These disclosures can sometimes be very bullish or bearish about a company’s future. This definitely becomes a potential roadblock to a stock price increase.
The statement in 2016’s 10-K filing says, “In November 2016, we experienced a critical issue with product quality related to some of our battery pack modules. This issue created the need to substantially scale production at our Gigafactory and affected our ability to generate positive free cash flow in the fourth quarter of 2016. Although this issue has been substantially resolved at our Gigafactory, we have temporarily reduced build rates of several non-Gigafactory batteries in order to address the issue.” That production issue could have translated into more sales and revenues, and a higher share price. Another clue that stock sales are part of this is the fact that Musk’s four directors, James Murdoch, Linda Johnson Rice, Robert Brunner, and Simon Peckham, have sold more than 10 percent of their shares since the beginning of the year.
There are always the share purchases of Elon Musk. In June of 2016, he purchased about $13.1 million worth of shares. Similarly, he purchased about 10 million shares in January of this year.
Now, these both represent a big number of shares when looking at the $348 billion market cap of Tesla—and even bigger if you’re the $13.1 million per share. Tesla hasn’t made a secret of the fact that it wants to raise billions of dollars more to expand production of its highly anticipated Model 3 and achieve its goals in electric vehicles.
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So, all in all, a brief break from the Tesla beat is welcomed. With this stock sale, investors are to take some time and reflect on how strongly Musk believes in the company. That should keep the share price climbing, especially if the upcoming SEC filings remain positive. But it’s hard to blame an investor in Tesla, considering that stock sales can result in more shares being outstanding, which means higher operating costs.
Original story posted at ehelpy.com