Elon Musk's Demands for Increased Voting Power at Tesla Raises Eyebrows
Elon Musk's demands for increased voting power at Tesla to pursue his AI ambitions has caused stock to plummet. Wall Street analysts view Tesla's AI technology as a disruptive force.
Troy D. Hanson
January 16, 2024
Threatening to Take His AI Ambitions Elsewhere
Elon Musk, the CEO of Tesla, has taken to his social-media platform X to deliver a bold message to the company's board of directors regarding executive compensation. Musk's strong statement has caused Tesla stock to plummet.
Musk has made it clear that he wants more voting power within the company in order to pursue his vision of turning Tesla into a prominent player in artificial intelligence (AI) and robotics. His implicit message is simple: if he doesn't have the necessary shares, he will explore other avenues to fulfill his AI-related ambitions.
This announcement has left investors grappling with the implications. Pre-market trading on Tuesday saw a 1.2% decline in Tesla stock, marking its fifth consecutive drop, while futures for the S&P 500 and Nasdaq Composite indexes were down 0.3% and 0.4% respectively. Consequently, as of Tuesday, Tesla's stock has already experienced a 12% slump this year.
With his current stake in the company standing at 13%, Musk aims to gain approximately 25% of voting control to feel comfortable advancing Tesla's AI aspirations.
It is worth noting that Musk already possesses around 300 million unexercised stock options, which account for roughly 9% of Tesla's total outstanding shares of 3.2 billion. Collectively, this means that the world's wealthiest individual governs approximately 20% of Tesla stock – however, he believes this is insufficient.
In a post on X, Musk stated, "I am uncomfortable growing Tesla to be a leader in AI and robotics without having ~25% voting control. Enough to be influential, but not so much that I can't be overturned." Musk emphasized that if this condition is not met, then he would prefer to explore opportunities outside of Tesla to actualize his AI ambitions.
Musk also mentioned in his post that the Tesla board is commendable and that the delay in discussing a new compensation plan is due to a pending decision in a lawsuit concerning his current compensation package. The lawsuit, filed in 2018 by Tesla shareholder Richard J. Tornetta, alleges that the compensation committee lacked independence and was influenced by Musk when granting him stock options.
Cautioning against a voting power of 15% or less, Musk argued that such a scenario would make the company highly vulnerable to takeover by questionable entities.
The situation remains fluid as Musk's demands for increased voting power reverberate through Tesla's boardrooms. Investors and analysts will closely monitor developments, recognizing the potential ramifications for the electric-vehicle maker and its AI ambitions.
Wall Street Sees Tesla's AI Technology as Disruptive Force: Analyst
In a recent report, Wedbush analyst Dan Ives discussed how Wall Street perceives Tesla not just as a car company, but as a pioneering force in the field of AI technology. He highlighted Tesla's use of its AI computing platform for training its autonomous driving software.
According to Ives, any AI initiatives undertaken by Elon Musk outside of Tesla could significantly impact the company's stock. He emphasized that both the board and top shareholders are fully aware of this potential risk.
One possible solution suggested by Tesla's board is the issuance of supervoting stock, which would grant Musk more voting rights than regular shares. This would allow him to maintain approximately 25% control without the need for excessive additional shares. Musk has indicated his willingness to consider a dual-voting class share structure in one of his tweets.
Tesla has not yet responded to requests for comment on compensation issues early this week.
Ives characterized the tweet and subsequent conversation as a "distraction" for investors, creating yet another "firestorm." Despite this, Ives maintains a "Buy" rating on Tesla shares with a price target of $350.
Interestingly, Musk recently sold billions of dollars' worth of Tesla stock in 2022 to finance his acquisition of Twitter, now known as X. As a result, his ownership stake in the company decreased by approximately 3-4 percentage points. However, when accounting for his remaining stock and options, Musk's ownership would still be close to the 25% mark.
Before the market opened, U.S.-listed Chinese EV stocks experienced declines following a slump in Asian markets. Li Auto fell by 4.8%, NIO declined by 1.7%, and XPeng was down 6%. Hong Kong-listed shares of EV leader BYD also experienced a decrease of 0.8%.