Elon Musk's Future at Tesla: The Make-or-Break Shareholder Vote

Key Decision on CEO's Compensation Could Shape Tesla's Path Ahead

Jun 13, 2024 - 07:37
Jun 13, 2024 - 07:37
Elon Musk's Future at Tesla: The Make-or-Break Shareholder Vote
Elon Musk's Future at Tesla: The Make-or-Break Shareholder Vote

Tesla's shareholders are set to decide on a monumental stock-based pay package for CEO Elon Musk. This vote is crucial as it will determine whether Musk remains at the helm of Tesla, a company he has propelled to the forefront of electric vehicles and is now steering towards advancements in AI and robotics. The outcome could also influence Musk's involvement in Tesla's future projects, including autonomous vehicles. With the vote poised to impact Tesla's legal base and shareholder value, the stakes couldn't be higher.

Shareholders to Vote on Musk’s Massive Pay Package

Tesla's shareholders are about to cast their votes on a substantial stock-based compensation plan for CEO Elon Musk. If the package is approved, it would likely ensure Musk's continued leadership at the company, which he has transformed into a leader in electric vehicles and now aims to push into AI and robotics, particularly self-driving cars. Musk views these areas as critical to Tesla’s future success.

Potential Consequences of a Rejection

However, if shareholders reject the $44.9 billion compensation plan, Musk has hinted at possibly moving his AI research to another one of his ventures or even leaving Tesla. On Wednesday night, Musk shared on his social media platform X that early voting results showed strong support for his pay package and other company initiatives, such as relocating Tesla’s legal base to Texas.

SEC and Stock Market Reactions

Musk has faced issues before for his statements about Tesla on X prior to owning the platform. On Thursday, Tesla reported his early voting comments to the U.S. Securities and Exchange Commission (SEC). Despite a 30% drop in Tesla’s stock this year, the shares saw a notable rise before the market opened, indicating investor confidence.

Analysts' Expectations

Many analysts believe that the pay package is likely to be approved at Tesla's annual shareholder meeting. Despite Musk's threats to develop AI elsewhere if he doesn’t get a 25% stake in Tesla (he currently owns about 13%), Musk’s xAI has recently secured $6 billion in funding for AI development. Wedbush Analyst Dan Ives expects that the pay package will be reapproved, helping to clear up some of the uncertainty surrounding Tesla. "This issue has been a cloud over Tesla’s stock, and resolving it will be crucial for moving forward," Ives stated in a message to investors.

Tesla’s Challenging Year

Tesla's shares have had a tough year, and the company has warned that sales growth may slow in 2024. Early indications suggest shareholders also support moving Tesla’s legal base to Texas to escape Delaware court oversight. This move follows a January court decision that invalidated Musk’s pay package, citing his excessive influence over Tesla’s board.

Investor Concerns

Some large investors have expressed concerns about Musk’s significant payout amid declining vehicle sales and stock prices. However, major shareholders like Vanguard, BlackRock, State Street, Geode Capital, and Capital Research, who collectively control about 17% of the votes, have not publicly disclosed their voting intentions. Erik Gordon, a business and law professor at the University of Michigan, believes individual shareholders, who own more than half of Tesla’s shares, will likely support the pay package. The California State Teachers Retirement System has opposed it, calling it too large and potentially harmful to other shareholders. Advisory firms ISS and Glass Lewis have also recommended voting against it.

Tesla’s Campaign for Approval

Despite the opposition, Tesla and Musk have been vigorously campaigning for the package’s approval through posts on X, TV appearances, and filings with the SEC. “Only 2 days left to protect & help grow the value of your investment in $TSLA by voting FOR ratification of the 2018 CEO Performance Award,” Tesla urged on X.

Arguments for the Pay Package

Tesla Chairwoman Robyn Denholm reminded shareholders that the package was initially approved by 73% in 2018. She argued that Musk has not been compensated for his work, which has significantly grown shareholder value, due to the court’s second-guessing of their decision. According to Tesla, the 2018 award motivated Musk to generate over $735 billion in value for shareholders over six years. If Tesla finalizes the vote to relocate its legal base to Texas before the compensation vote, the Delaware court ruling might not apply, as the company would then be governed by Texas law.

Legal Challenges

Lawyers for Richard Tornetta, who filed the lawsuit against Musk’s pay, sought an order to prevent Tesla from moving the case. Tesla assured the judge they wouldn’t relocate it, and Chancellor McCormick stated she believes their commitment. Eric Talley, a Columbia University law professor and Tesla shareholder planning to vote against Musk’s pay, expects Tesla to appeal McCormick’s ruling to the Delaware Supreme Court. He noted that while Tesla’s lawyers might not move the case, Musk’s unpredictable nature could lead to a change in legal strategy.

Also Read: Tesla Shareholders to Vote on Elon Musk's $56B Pay Package: What's at Stake?

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