Future of Elon Musk and Tesla are on the line as shareholders vote on massive pay package

DETROIT– If Tesla shareholders approve a compensation package for CEO Elon Musk which was thrown out by a Delaware judge this yearwould almost guarantee he would stay at the company where he grew to become the global leader in electric vehicles, and move into AI and robotics, including autonomous vehicles, which Musk says is Tesla’s future.

If Tesla shareholders vote against reinstating Elon Musk’s $44.9 billion pay package on Thursday, the CEO could make good on threats to bring artificial intelligence research to another of his companies. Or he could even run away.

Late Wednesday, Musk said on his social media platform

Musk has gotten into trouble for statements about Tesla he made on X before he took ownership of it, and on Thursday the company filed Musk’s comments on the preliminary results with the US Securities and Exchange Commission.

Shares of Tesla Inc., which have fallen 30% this year, rose sharply before the opening bell.

Even if shareholders officially approved his compensation package at Tesla’s annual shareholder meeting on Thursday, which many analysts have said is likely, there would be uncertainty. Musk has threatened on X, his social media platform, to develop AI elsewhere if he so chooses will not receive a 25% stake in Tesla (he now owns about 13%). Musk’s xAI recently received $6 billion in financing to develop artificial intelligence.

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. have fallen this year as the company warned of “significantly lower” sales growth in 2024.

According to Musk, early indications indicate that shareholders also support moving Tesla’s legal home to Texas and out of Delaware.

The measure is intended to escape the supervision of the court in Delaware and possibly a statement from 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 institutional investor that has spoken out against the package is the California State Teachers Retirement System. The major pension fund said Tuesday it would vote against Musk’s pay “based on its sheer size, and because the reward to shareholders would be extremely dilutive. We are also concerned about the lack of focus on profitability for the company.”

In May, two major shareholder advisory firms, ISS and Glass Lewis, recommended to vote 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 more days to protect & help increase the value of your investment in $TSLA 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.