The brother of Tesla CEO Elon Musk has been selling Tesla stock. Kimbal Musk has been offloading shares in recent months, just as Tesla stock has made a massive retreat from all-time highs that put the stock, however briefly, among the select group of trillion-dollar companies.
Should this sale from an insider — Kimbal is also a member of Tesla’s board — concern you? Maybe, maybe not — but Tesla investors should be worrying about much bigger things.
Kimbal Musk sells Tesla stock
Kimbal Musk sold 75,000 shares of Tesla stock in early February, fetching nearly $27.6 million. That sale was good for a price per share of about $367.87 — a well-timed sale, since Tesla stock now sits around $249 per share. But Kimbal’s sale was still well below the stock’s all-time high of $488.54, which was hit in just December, as the shares more than doubled since late October.
Kimbal poorly timed another sale of Tesla stock, however. In November, he unloaded 60,500 shares for about $15.1 million, netting around $250 per share.
While Kimbal may get the attention because of his last name, he’s only one of several Tesla insiders who have been selling stock in recent months.
Should you be worried by Kimbal’s sales of Tesla stock? Probably not too much. As of April 2024, Elon’s brother owned about 1.95 million shares of Tesla, so the two most recent sales represent around 7 percent of his holdings at that time.
As the old investor adage goes, insiders sell for many reasons, but they buy for only one. Kimbal’s sales could be a little bit of market timing or perhaps just prudent diversification for someone who has a heavily concentrated position in the stock and whose wealth relies heavily on it. It’s the approach that any good financial advisor would suggest for a client.
Sure, Kimbal may be selling to take advantage of the run higher, but he still has significant wealth tied up in Tesla stock, as does Elon Musk himself. While longtime bulls would probably like to see insiders buying stock, their sales — intense as they’ve been — may be nothing too worrisome in and of themselves. However, investors should be much more concerned about other factors concerning the electric vehicle maker.
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Tesla stock looks overvalued and consumers are boycotting Tesla
Instead of worrying about insider sales, investors should be paying much closer attention to the stock’s overvaluation. This situation has persisted for years, as Elon Musk has cheerleaded his stock seemingly ever higher on over-the-top promises, like robo-taxis, that had little chance of coming to fruition.
But a quick comparison of Tesla’s market capitalization and unit sales and those of other major car manufacturers can help put some context around Tesla’s valuation.
| Company | Market capitalization | Unit sales | Market cap/unit (approx.) |
|---|---|---|---|
| Tesla (TSLA) | $799 billion | 1.789 million | $446,500 |
| GM (GM) | $48 billion | 6.001 million | $8,000 |
| Ford (F) | $38 billion | 4.470 million | $8,550 |
| Stellantis (STLA) | $37 billion | 5.526 million | $6,675 |
Market capitalization is the total value of all the company’s outstanding stock, and Tesla’s total valuation still looks way too high, even though it’s already been cut by a stunning 50 percent in just the last three months. Now, this valuation does not factor in the effects of debt financing, which are substantial in the car industry.
As this back-of-the-envelope calculation suggests, Tesla still looks way overvalued, whereas the per-unit valuation of key peers are all in the same neighborhood. And again, Tesla’s valuation comes after an approximate 50 percent haircut already.
In fact, Tesla is worth more than the next nine largest car companies combined, a stunning feat given that Tesla sells just a fraction of worldwide production. And its forward-looking price-to-earnings (P/E) ratio — a measure of the price investors are willing to pay for future earnings — is sky-high.
“Tesla’s forward P/E ratio is more than nine times the average of the next 25 most-valuable automakers,” says one Reuters report on the company. And the shares still fetch 89 times its estimated earnings for the year ahead. This P/E multiple is pricey for any stock, but especially so for one with shrinking sales. While the analyst consensus expects Tesla to grow sales, investment bank UBS actually estimates that sales will fall 4 percent this year — and it could be much worse than that, as Tesla starts off the year with disappointing sales.
To put it another way, Tesla’s stock would still need to shed about 90 percent of its value just to be in line with the average automobile stock.
Tesla facing consumer backlash
At the same time, the company may be facing serious sales headwinds due to its CEO. Tesla is suffering significant reputational damage both in the U.S. and elsewhere as Elon Musk allies with President Donald Trump to slash government employment.
The company’s European sales plunged 45 percent in January, including a 60 percent drop in Germany, Europe’s largest EV market. Tesla’s February sales in Germany were down an even more stunning 76 percent as the backlash continued. In the U.S., registrations of Tesla vehicles dropped 11 percent in January.
The backlash against the company has been fierce, according to media reports. Some people are boycotting Tesla, vandalizing dealerships and even outright destroying vehicles.
The potential problems facing Tesla and its utterly massive valuation may keep many financial advisors from recommending the stock to their clients.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
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