DETROIT (AP) — If Tesla shareholders vote Thursday against reinstating Elon Musk’s $44.9 billion pay package, the CEO could make good on threats to bring artificial intelligence research to one of these other companies. Or he could even run away.
If they approve the all-stock compensation package thrown out by a Delaware judge in January, it would all but guarantee he would stay with the company he built into a global leader in electric vehicles and move into AI and robotics, including autonomous vehicles. which Musk says is Tesla’s future.
But even with reapproval at Thursday’s annual shareholders meeting, which many analysts say is likely, there would be uncertainty. Musk has threatened on X, his social media platform, to develop AI elsewhere if he doesn’t get a 25% stake in Tesla (he now owns about 13%). Musk’s xAI recently received $6 billion in funding for artificial intelligence development.
Wedbush analyst Dan Ives said he expects the package to be overwhelmingly reapproved, ending much of Musk’s uncertainty. “This issue has overshadowed Tesla’s stock price, and this will be important in putting this distraction in the rearview mirror,” Ives wrote in a letter to investors.
The shares of Tesla Inc. are down more than 30% this year, with the company warning of “significantly lower” sales growth this year.
Also on the shareholder ballot is the related issue of moving the electric vehicle manufacturer’s legal home from Delaware to Texas.
The move is aimed at escaping Delaware court oversight and possibly a ruling by Chancellor Kathaleen St. Jude McCormick that invalidated Musk’s pay package. In a January opinion on a shareholder lawsuit, the judge ruled that Musk controlled Tesla’s board and is not entitled to the landmark package that was once worth nearly $56 billion.
Multiple institutional investors have spoken out against this significant payout, with some citing declining car sales, price cuts and Tesla’s plummeting stock price. But Tesla’s five largest institutional shareholders, Vanguard, BlackRock, State Street, Geode Capital and Capital Research, either said they would not reveal their votes or would not comment. They control about 17% of the votes.
Erik Gordon, a business and law professor at the University of Michigan, said individual shareholders are likely to vote in favor of the package, and that they own more than half of Tesla’s stock.
One investor that has spoken out against the package is Norway’s sovereign wealth fund, managed by Norges Bank Investment Management. Last weekend it was said that a no vote would be taken on Thursday.
“While we appreciate the significant value generated under Mr. Musk’s leadership since the award date in 2018, we remain concerned about the overall size of the award, its structure given performance triggers, dilution and the lack of mitigation of key person risk,” says Norges. Bank Investment Management said in a prepared statement.
In May, two major shareholder advisory firms, ISS and Glass Lewis, recommended voting against the package.
But Tesla and Musk have unleashed a furious lobbying effort to get the package approved, in posts on X, television appearances and in proxy filings with the U.S. Securities and Exchange Commission.
“Only two days left to protect and grow the value of your $TSLA investment by voting FOR ratification of the 2018 CEO Performance Award,” Tesla wrote on X early Tuesday.
Tesla Chairman Robyn Denholm wrote in a letter to shareholders that the package was approved by 73% of the vote six years ago. “Because the Delaware court questioned your decision, Elon has not been paid over the past six years for his work for Tesla, which helped generate significant growth and shareholder value. That seems to us – and the many shareholders we have already heard from – fundamentally unfair and contrary to the will of the shareholders who voted for it,” she wrote.
Tesla has said the 2018 award has incentivized Musk to create more than $735 billion in value for shareholders in the six years since it was approved.
If Tesla completes the vote on moving the company’s legal home to Texas before the vote on Musk’s pay package, and it manages to file the paperwork in Austin and get approval for the move, then the effect of the decision of the court in Delaware may be questionable. Reauthorization of the pay package would then be done as a Texas corporation and could fall under the jurisdiction of the Texas courts.
Anticipating swift action from Tesla, lawyers for the shareholder who filed the lawsuit to block Musk’s pay deal, Richard Tornetta, filed motions in Delaware last month seeking an injunction to stop Tesla from making the move the case. Tesla responded in letters to the judge that there is no reason for such concerns because they will take no action. Furthermore, Tesla would still be a Delaware corporation at the time of this week’s shareholder vote, they wrote.
In an order denying Tornetta’s requests, Chancellor McCormick wrote that she interprets Tesla’s letters to mean that the company has no intention of moving the case to Texas. “The defendants’ statements are very reassuring to me,” she wrote.
Eric Talley, a law professor at Columbia University, said the attorneys are unlikely to try to move the case because they make their living by trying cases in Delaware courts.
But it is also possible that the unpredictable Musk will change lawyers.
McCormick, Talley said, tells the lawyers, “Okay, I’m going to believe you, but I’m going to get really annoyed if this is a big warning about the things you said you wouldn’t do.” ”
Talley, who is also a Tesla shareholder and currently said he plans to vote against Musk’s pay, expects Tesla will continue to challenge McCormick’s ruling in the Delaware Supreme Court.
