SpaceX ESPP: Yes You Should Likely Participate In It.

SpaceX has a qualified ESPP plan, and you have about 1 week to decide if you want to participate in it or not moving forward. My answer, for almost everyone reading this: yes.

I don't say that about many things. With clients who are SpaceX employees a lot of our time is focused on their long term plan and SpaceX concentration risk that has us implementing a tax-smart selling and diversification plan. So when I am advising instead to buy more of it.... it's worth understanding why.

The gist: While the ESPP is technically an investment decision, IMO I see it as an outcomes-based decision. With almost wholly good outcomes as long as you are diligent.

How an ESPP Works (The 60-Second Version)

1. You enroll during a short window and pick a percentage of each paycheck to set aside. After-tax dollars. And SpaceX has a qualified plan that limits you to $25k a year.

2. Contributions build up over an offering period. No stock yet — just cash accumulating.

3. On the purchase date, the company uses that cash to buy shares for you. And for SpaceX, they do that with both (i) a discount and (ii) a lookback provision applied (more on both below)

4. Then you own the shares. Hold them or sell them per your plan

SpaceX's Plan Is Very Employee Friendly

SpaceX's ESPP has all three features I look for that make it attractive to utilize:

1. It's a qualified plan. The IRS allows ESPP plans to be qualified or non-qualified. A qualified plan like SpaceX's has to follow the rules (including an IRS cap of $25,000 of stock per year you can purchase). But if you need that criteria it allows for the discount and lookbacks:

2. A 15% discount on purchase. 15% is the max a qualified plan is allowed to give, and SpaceX uses the max (hurrah!)

3. A lookback provision. Your 15% discount comes off the lower of two prices: the price at the start of the offering period, or the price at the end of the offering period/on the purchase date.

(If you were in SpaceX's old non-qualified ESPP: that plan was discontinued with the IPO. This is the qualified one.)

15% Discount + Lookback Provision Together: "Tails I Win, Heads I Win More"

Let's use a $170 price for SpaceX for the first day of the offering period and you contribute $10,000 (via salary deferrals). Fast forward 6 months to the purchase date, here's how the scenarios could play out:

Stock falls 20% to ~$135: You buy at $114.75, which is:

• (1) the lookback results in $135 a share, the lower of the two prices ($170 or $135), then

• (2) the discount reduced the price by 15%

Stock is flat at $170: You buy at $144.50, which is:

• (1) the lookback results in $170 a share, the lower of the two prices ($170 or $170, so the same), then

• (2) the discount reduced the price by 15%

Stock rises by 30% to $221: You buy at $144.50, which is:

• (1) the lookback results in $170 a share, the lower of the two prices ($170 or $221), then

• (2) the discount reduced the price by 15%

Did you notice how every one of these scenarios results in you buying at a discount to the stock price on the purchase date? That's the asymmetry and why the ESPP is intriguing for most folks.

What you need to be diligent on however is likely selling all of the ESPP acquired shares upon purchase date. Otherwise, this IS much more like an investment. And while a 15% (or more with lookback) discount is a great starting point, you likely already have a very large and concentrated exposure to SpaceX, in which case adding to that position by not selling is likely counter to your financial plan

It's Not a Blanket Yes

Rarely is anything ever an "always do this" kind of thing. Generally, I recommend fully participating in a qualified ESPP with a 15% discount and a lookback provision like SpaceX has when two key items are true.

1. You plan to be with the company (SpaceX in this case) through the purchase period. If you leave part way into the offering period, no purchase will occur and the cash you were having held back from your paycheck for the purchase (and which you didn't get any interest on while they were held) is refunded to you. Not worth locking up that cash + not earning any interest if you wont get to the end goal/purchase.

2. You are able to sell the shares when the purchase occurs. Some companies layer in restrictions where the shares you purchased cannot be sold for X months. Or even without that explicit restriction, some ESPP purchases can land during a companies "blackout period" and you cant sell for up to 7 weeks.

"But I Already Have Too Much SpaceX"

You probably do. Most of my SpaceX clients do. But if you sell on the ESPP purchase date your concentration doesn't change at all and you've just turned the 15% discount (and possibly more if the lookback applied) into a couple extra thousand dollars

If you want to hold some of the shares, fine — but make that a separate decision, on purpose. Holding long enough for a qualifying disposition (2 years from the offering date and 1 year from purchase) is a tax nicety. For someone already heavily concentrated, it's rarely worth the risk. Don't let taxes make the decision for you.

REMINDER: SpaceX's next ESPP window enrollment closes in about a week. As always, make the decision that is best and right for you. But per the above, their ESPP can be an attractive setup