Tesla shareholders will decide next week whether to reinstate CEO Elon Musk’s unprecedented 11-figure bonus, a decision Wall Street classifies as a pivotal moment for the carmaker as the centibillionaire’s head turns to his various other endeavors.
Elon Musk appears in Indonesia last month.
AFP via Getty Images
Key Takeaways
- Musk’s compensation package, a tranche of incentive-based stock options first unveiled in 2018 and now worth just shy of $50 billion after accounting for cost of exercising, will go up to shareholder vote at the company’s annual meeting next Thursday, as Musk seeks to reverse a January ruling from a Delaware judge striking down the award as Tesla simultaneously seeks to switch its state of incorporation from Delaware to Texas.
- The pay package, which would boost Musk’s equity in Tesla from 13% to 22%, close to the 25% voting rights threshold Musk has floated to fully develop artificial intelligence at the company, will crucially go to vote shortly after Musk secured $6 billion in funding for his generative AI startup xAI and after he reportedly diverted Nvidia’s coveted AI semiconductor chips from Tesla to xAI and his social media platform X.
- The vote comes at an uneven moment in Tesla’s history, as Musk did successfully execute on the laid-out lofty market value and profit goals, causing the pay package to vest in late 2022, but shareholders are in an extended period of pain, with Tesla shares down 30% year-to-date and 60% from their late 2021 peak.
- “However ill-designed the scheme was, we believe denying Elon Musk his past compensation would look like misplaced buyers remorse,” according to Jefferies analysts led by Philippe Houchois, summarising the pervasive notion among Tesla experts that the company needs to find a way to keep Musk, who is inextricably linked to Tesla’s success, engaged.
- “Investors should pay close attention to the June 13th shareholder vote due to its significance to the long-term strategic direction of the company,” noted Morgan Stanley analysts led by Adam Jonas, whose $310 price target is the highest of any analyst polled by FactSet, perhaps influenced by his belief that “Musk needs Tesla now more than ever.”
- Tesla’s board offered its full-throated support of the package last month, while several shareholder advisory groups, including Institutional Shareholder Services and Glass Lewis, have urged investors to swat down the bonus.
Crucial Quote
Beyond the vote on Musk’s pay package, “the challenge for the board is to find ways to reward Elon Musk as tech innovator and stop punishing most other shareholders for erratic execution,” according to the Jefferies group.
Forbes Valuation
Even without his massive pay package, Musk is the richest man in the world, worth some $208 billion, according to our latest estimates. Tesla no longer accounts for a majority of Musk’s net worth, as his stake in the automaker is worth $72 billion, roughly a third of his fortune. Equity in his non-Tesla private companies comprise most of the rest of Musk’s fortune.
His 42% stake in aerospace titan SpaceX is worth about $75 billion, 60% stake in xAI is worth roughly $14.4 billion and 74% stake in social media firm X is worth about $7 billion, while he also has lower valued equity in brain and transportation startups Neuralink and Boring Company.
Big Number
48%. That’s how much lower Tesla’s net income was during the first three months of 2024 compared to 2023’s first quarter, marking the third consecutive quarter of negative annual profit growth.
Key Background
Declining earnings, which are just about the last thing investors in a growth-focused company like Tesla want to see, highlight Wall Street’s growing angst about Musk and the company’s ability to return shareholder value. Musk has described the downward trend as little more than a blip as the company rides between “two major growth waves.”
But how you value the company depends on if you believe Tesla is an AI leader on the cusp of solving autonomous driving, or a car company with stagnating revenue. For example, the price-to-earnings ratio, a popular valuation metric which measures a company’s total market value compared to its last 12-month profits, of Tesla is 45, far less lofty than AI darling Nvidia’s 69 but much pricier than Ford’s 12.
After exploding by more than 1,000% from its March 2020 bottom to its November 2021 all-time high, Tesla’s stock is mired in an extended slump, with its share price down more than 50% since the end of 2021, far worse than the S&P 500’s 15% positive return.
This article was first published on forbes.com and all figures are in USD.
