Tesla's Lose-Lose Situation

Tesla (TSLA) investors didn't know what they were signing up for...

Back in January, CEO Elon Musk was set to earn the biggest corporate pay package of all time... nearly $56 billion.

Shareholders gave the payout a thumbs-up in 2018. Musk was allowed to buy up to 304 million shares at a preset price of $23.34. To get his $56 billion bonus, he had to bring the electric-vehicle giant's valuation up from $59 billion to $650 billion... which he did at the start of this year.

However, a Delaware judge voided the contract before Musk could get his money. Without that package, Musk hasn't made a dollar from running Tesla.

That's why last month, Tesla called for another vote on the package in June. Unfortunately for shareholders, this looks like a lose-lose situation...

The Delaware court voided the package because the original voting process was 'deeply flawed'...

Shareholders said the package was created with the help of Tesla directors who were loyal to Musk. They even started to sue the company to block the payouts.

We can see both sides of the argument. As critical as we've been toward Elon Musk, he did forego any payment from Tesla for around six years. And he did send the company's market cap soaring 10 times higher.

On the other hand, Musk spends less time on Tesla these days. He's more involved in his AI-focused businesses.

Musk himself has said he has trouble juggling everything. Shareholders have already complained about it.

And we see their point... This pay package is massive for a CEO whose interests seem to be elsewhere lately.

Even if shareholders manage to stop the payout, Musk may strike back...

He has already warned he could spend more of his time elsewhere.

Earlier this year, Musk said he may not be comfortable working on AI and robotics projects at Tesla unless he got a larger ownership stake. If this vote doesn't pass, he could stop all AI and robotics research under Tesla and move it elsewhere.

Yet if Musk gets his money, it could hurt the company, too. Tesla has made just $47 billion in net income since 2018. A $56 billion pay package would effectively undo the past six years of results.

And a big payout doesn't guarantee Musk will start focusing on the company again.

Tesla shareholders just can't seem to win here.

Regards,

Joel Litman
May 7, 2024