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Tesla's scare tactics worked to win shareholder approval of Elon Musk's pay, but problems remain

By Therese Poletti

The company's board and Musk himself are among the biggest concerns

Many Tesla Inc. shareholders bought into the veiled scare tactics about keeping Chief Executive Elon Musk motivated at the electric-vehicle maker, as they ratified his massive, $46 billion stock plan Thursday. But events at the annual meeting did nothing to remove the many issues hanging over the company.

Musk himself confirmed that he is not going anywhere in a Q&A session, when asked if he plans to take his children to Disneyland with his billions. "It is Tesla stock I have to own for five years, it is not exactly cash," Musk said. "I can't cut and run, nor would I want to."

Also read: Tesla shareholders approve Elon Musk's huge pay package, but legal fight 'far from over.'

But as much as Tesla's (TSLA) big PR campaign to win approval of the package focused on Musk and his importance to the company, and "motivating someone like Elon," it became apparent that some investors - including former fanboys - have become disillusioned with Musk and Tesla's board.

There were no pledges by Musk at the meeting to spend more time at Tesla, while he is involved in several other of his companies, including X, the former Twitter.

And this is tolerated by the company's board, where each director has made millions of dollars from Tesla stock. "The board continues to allow Musk to be overcommitted, not demanding that he devote his attention to his role as CEO and 'Technoking' of Tesla," wrote a coalition of eight investors in a letter urging investors to vote against Musk's pay package. The group, which included Amalgamated Bank and Nordea Asset Management, also recommended voting against reelecting his brother, Kimbal Musk, and James Murdoch as directors.

"Early on...the view was more nuanced, we recognized his innovation," said Stephen Diamond, an associate professor at Santa Clara University School of Law, who represented an investor group at a Tesla shareholders meeting years ago. Today, he said "we are in a much different position," with some questioning whether "his era running the company [is] at an end."

Among Tesla's issues: falling revenue and car sales, tough competition from EVs in China and a range of issues with the Cybertruck. Musk, however, continues to make often outlandish claims about Tesla's future. He sees its future driven by autonomous vehicles, robotaxis and humanoid robots, while at the same time he is also operating another startup, xAI.

At Thursday's meeting, Musk again described Tesla's future robotaxis as a combination of Uber and Airbnb, and added that its Optimus humanoid robots will perform "a wide range of tasks" by 2026.

He said he believes the value of Tesla can grow at least by 10 times, "just based on vehicle autonomy," citing Cathie Wood's latest valuation report at ARK Invest as being the most accurate analysis of the impact autonomy will have on Tesla. But Musk has been talking about robotaxis for years, since his infamous projection in 2019 that Tesla would have 1 million robotaxis by 2020, among his other pie-in-the-sky statements.

"I admit I am a little optimistic sometimes," Musk said Thursday.

The issue of Tesla's non-independent board will also persist as long as the current crop of directors remain on the board. A proposal, introduced by shareholder advocate James McRitchie, to elect each director annually actually won shareholder approval. But McRitchie said in an email that he doubted it won 67% of the shares outstanding, even though it got a majority vote. "Therefore, it will probably go to a vote again," McRitchie said.

Thursday's vote ratifying Musk's pay will not end the company's current legal battle, in which a Delaware judge voided his pay package, originally worth $56 billion, after a group of shareholders sued. Tesla said in its proxy filing that it will use the second shareholder-ratification of Musk's pay package to prove that his pay should be remedied, and "any wrongs found by the Delaware court in connection with the 2018 CEO performance award should be cured."

But even if Tesla wins in that effort, it is now facing another serious lawsuit, this time about Musk's loyalty to Tesla. Another group of Tesla stockholders filed a derivative shareholder lawsuit this week, alleging Musk breached his fiduciary duties by poaching Tesla employees and funneling Tesla resources for his other companies, including diverting GPUs purchased from Nvidia Corp. (NVDA) to his other companies.

While Musk and his fanboys may be celebrating, Thursday's win was not enough to remove all the clouds that hang over Tesla right now.

-Therese Poletti

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

 

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06-14-24 0546ET

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