Apr 18, 2024 - Business

Elon Musk's $56 billion ask

Photo illustration of Elon Musk shrugging and holding up his hands

Photo illustration: Sarah Grillo/Axios. Photo: Liesa Johannssen-Koppitz/Bloomberg via Getty Images

Elon Musk is asking Tesla shareholders to approve two proposals that would be unthinkable at almost any other public company: Moving the corporate headquarters out of Delaware, and giving the CEO billions in pay that's already been stripped from him by a Delaware judge.

Why it matters: The votes are effectively a referendum on Elon exceptionalism. He seems to be confident he's going to win them both, on the grounds that keeping Elon happy — at almost any price — is ultimately in shareholders' best interests.

The big picture: By voting yes on the two proposals, shareholders would give up more than $50 billion that currently belongs to them, in a way that provides no incentive for Musk to add value in the future. (Musk has said that he expects another huge pay package in the future, over and above the money he wants to be paid for performance in the past.)

  • They would also move Tesla out of the Delaware jurisdiction, the one place that has shown it has the ability and willingness to rein in Musk's excesses.

Flashback: In 2018, when shareholders first approved Musk's massive pay package, very few of them expected they would actually have to pay out on it. It was attached to extreme performance goals that were considered highly improbable.

  • The expected value of the package, then, was closer to zero than it was to $56 billion. By contrast, if shareholders re-vote for the package this year, they're voting for the certainty that the full value of the package will get paid to Musk.

Where it stands: In 2018, shareholders believed the package would max out only if Tesla and Musk were much more successful and focused than they are today.

  • It was seen as a promise that Musk was "not going to be off doing five other things," compensation consultant Alan Johnson told the Washington Post.
  • EVs would have to become "the overwhelming percentage of all new sales," per George Serafeim of Harvard Business School.
  • Even the market-cap targets are no longer met: While Tesla did exceed a $650 billion valuation in the past, it's not there any more.

Between the lines: There's obviously some dissembling going on in the Tesla proxy.

  • According to the proxy statement, a Tesla board committee, charged with determining whether Tesla should remain incorporated in Delaware, "started from a blank slate," considered all 50 states as possibilities, "conducted a thorough, holistic examination of all considerations it believed were relevant," and fortuitously ended up doing, in the past few weeks, exactly what Musk, the CEO, said it was going to do on Feb. 1.
  • Importantly, according to the committee, its decision has nothing to do with the Delaware ruling on Musk's pay. In no way, says the board, is the reincorporation driven by "the intent to award Musk compensation in a different jurisdiction that he could not get in Delaware." (If you believe that, I have a self-driving robotaxi to sell you.)

Reality check: As with all things Musk, logic can only get you so far. Tesla might be well off its highs, but it's still trading at a mind-boggling premium to auto industry peers, and maybe the only way to retain that premium is to give Musk anything he wants.

Tesla stock price
Data: YCharts; Chart: Axios Visuals

Follow the money: In order to win the votes, Musk is going to have to persuade institutional investors to swing his way. While Tesla's army of retail investors largely supports him, small investors vote in such limited numbers that they're very unlikely to sway the outcome.

  • Institutional investors who benchmark the S&P 500 were largely forced to buy Tesla stock when the company joined the index on Dec. 21, 2020.
  • On that day, Tesla stock opened at $216 per share — 39% higher than its current level.
  • In other words, a very large part of Tesla's institutional investor base, far from being grateful for Musk's wealth creation, is sitting on substantial capital losses. The stock trades some 63% below its all-time high.

The bottom line: In a rational world, Tesla would lose this vote. Which probably means Musk is going to win it handily.

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