Musk expects more from shareholders than himself

June 13, 2024 11:20 am

Elon Musk [Source: Reuters]

A deal is a deal – sometimes, it seems. Discord is growing among electric-car maker Tesla’s (TSLA.O), opens new tab investors over a Thursday vote to ratify Elon Musk’s $56 billion pay package.

In some ways, the enormous payout is so absurd, it aligns shareholders with Musk. But months of high-stakes hectoring has revealed gross hypocrisy and changed the facts. Tesla’s leader and its board have degraded credibility needed to side with Musk.

This mess started in January, when a Delaware judge struck down Musk’s 2018 incentive package, finding that it was unfair to ill-informed shareholders. Tesla put the issue back to a vote, hoping to reiterate investors’ consent from six years ago to sway the legal case. The results of that vote will be unveiled tomorrow.

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The pay appeared reasonable enough, even given the huge sums involved. Sure, it was crazy, but so was the plan’s milestones – including growing market value 11-fold. Crucially, fixing the impasse could have preceded addressing other issues and refocusing the oft-wandering executive.

And issues need addressing. Leave aside Tesla’s apparently trimmed ambitions on a super-cheap car, or whether Musk appropriately balances Tesla’s interests with his other companies’, a problem gaining urgency, opens new tab. Instead, look at Tesla’s executive departures: Drew Baglino, battery chief; Rebecca Tinucci, who led the company’s charging network; Zachary Kirkhorn, the finance chief once seen as Musk’s potential heir. In a circular argument, Musk is the crucial fulcrum on which Tesla rests by pure attrition.

The trouble is that Tesla boasts an eye-popping valuation, which is reinforced by Musk’s presence. At 62 times expected earnings, according to Visible Alpha, Tesla’s share price multiple wildly outpaces tech darlings Microsoft (MSFT.O), opens new tab and Nvidia (NVDA.O), opens new tab. The strongest argument to support Musk – as shareholders like Baillie Gifford, opens new tab seem apt to do – is retaining that magic.

Worse, the company has dug in fighting in ways that seem hypocritical. Tesla launched a PR campaign to whip the vote with greater enthusiasm than it’s ever marketed its cars, opens new tab. Musk lambasted dissenting shareholders, like California’s CalPERS, as having “no honor., opens new tab” And now, with Musk Tesla’s ever-more-key man, board missives, opens new tab imply he has “other places” he could abscond to. Worst of all, it’s still unclear whether a vote will actually sway Delaware.