Tesla’s stock market value has fallen 52% since peaking in November 2021 at $1.2 trillion — a stunning loss of $620 billion in market capitalization, according to the New York Times. Yet on June 13, CEO Elon Musk got a vote of support from Tesla shareholders for his $48 billion pay package, the Times also noted.
Does this vote mean Musk gets the extra $48 billion in Tesla stock options? What does this shareholder vote mean for people who own Tesla stock?
The short answer to these questions is: No and possibly nothing. How so?
- The Delaware ruling that struck down Musk’s pay package still stands and more litigation is likely ahead, noted the Times.
- Tesla’s stock has fallen due to the company’s disappointing performance and prospects. This vote does not change Musk’s relatively uncompelling strategy to boost growth, about which I wrote in an April Forbes post.
Musk expressed elation about the Tesla shareholder vote. After the results were announced he “appeared on stage dancing and thanking shareholders: ‘I just want to start out by saying, ‘Hot damn, I love you guys,’ ” reported the Wall Street Journal.
Tesla’s Shareholder Vote On Musk’s Pay
On June 13, Tesla shareholders “reaffirmed a pay award of more than $45 billion” for Musk at Tesla’s annual general meeting in Austin, Texas, noted the Times.
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Tesla’s board had called for the vote following the January 2024 ruling by a judge in Delaware — where Tesla is registered — striking down Musk’s 2018 pay package. The package gave Musk “stock options worth tens of billions of dollars if he hit demanding revenue or profit benchmarks and increased the company’s stock value to $650 billion,” noted the Times.
Tesla’s business improved after the 2018 approval of Musk’s pay package. During the year, Tesla was scrambling to produce its lower-priced Model 3 sedan. Tesla’s business grew rapidly soon after the approval. The company’s market capitalization topped the package’s $650 billion target long enough for Musk to collect his options, the Times reported.
At the start of 2024, Chancellor Kathaleen St. J. McCormick of the Court of Chancery in Delaware, “agreed with a group of disenchanted Tesla shareholders who contended in a lawsuit that the 2018 pay package was wildly excessive,” the Journal wrote.
McCormick ruled the 2018 pact was “tainted by the board’s failure to disclose conflicts of interest stemming from their personal and financial ties to Musk,” according the Journal.
Tesla’s Lowered Growth Expectations
Tesla’s stock — down 24% in 2024 — has not done well compared to the S&P 500, which rose 14%, noted the Times.
Tesla declining stock seems to be due to disappointing performance and prospects. As I wrote in early April, Tesla stock was falling for three reasons:
- Tesla delivered far fewer vehicles than expected and forecasts more disappointment.
- Tesla appeared hesitant about winning over value-sensitive buyers — leaving that segment of the market to lower-priced rivals such as BYD.
- Tesla’s pivot to Robotaxis had little chance of restoring revenue growth.
On April 23, Tesla reported terrible earnings and the stock soared. For example, in Tesla’s first quarter, revenue fell 9%; net income was down 55%; and the company’s free cash flow was negative $2.5 billion. What’s more, Tesla told investors its 2024 volume growth rate “may be notably lower than the growth rate achieved in 2023,” I noted in April.
Since then, Tesla’s stock has risen 28%. Why? In its April 23 investor presentation, Tesla hinted at launching more affordable models by 2025 on its existing manufacturing lines. The company also retreated from plans to produce a new vehicle priced below $25,000 in new facilities. In addition, Musk told investors Tesla “should be thought of as an AI robotics company,” Reuters reported.
It is unclear whether or when these announcements will translate into higher revenues and profits for Tesla or if they will become another unrealized hope for Musk.
A case in point among many is Tesla’s Cybertruck — which launched to much hype in November 2023 only to suffer an April 2024 recall of 3,878 of the vehicles “to repair or replace faulty accelerator pedals,” noted the Journal.
What’s Next For Musk’s Pay?
Musk’s big pay package has not been reinstated. It is unclear whether the shareholder vote will alter his commitment to Tesla. After the vote, Musk told shareholders the pay package “is not actually cash, and I can’t cut and run, nor would I want to,” the Times wrote.
What would it take for Musk to get his $48 billion? Tesla wants the Delaware court to reverse its ruling on his pay package and has “vowed to appeal the decision,” the Times reported.
Tesla expressed hope in an April regulatory filing that shareholder ratification would “resolve concerns raised by the court, including that Tesla failed to adequately disclose important details of the package to investors,” noted the Times.
Tesla might also be able to use a provision of Delaware law to ratify the pay package. Delaware’s Section 204 “allows companies to correct defective corporate actions,” the Journal reported. Since this section is generally used to address “improper documentation,” applying that legal tactic might be a stretch for Tesla.
Will Tesla Stock Rise Further?
Following the shareholder vote in favor of Musk’s pay package, Tesla stock rose. This does not make sense for investors who think earnings per share is a useful valuation benchmark. That’s because Bernstein, the asset management firm, estimated diluted earnings per share would rise about 10% if Musk’s stock options were canceled, the Journal reported.
Clearly something else moved up Tesla stock — possibly investors’ perception that the shareholder vote increases Musk’s devotion to raising the company’s stock price.
However, in a discordant note for those hoping Tesla’s EV shipments will rise, Musk told Tesla’s annual general meeting he is tired of cutting costs, according to the Journal. This could mean he may not be right person to lead the company in the face of rivalry from lower-cost producers such as BYD.
If you think Tesla needs to get out of the EV market and move into less competitive markets, Musk could be good for the stock. Indeed at the AGM, Musk said Tesla’s market capitalization could reach $5 trillion once the company “solves self-driving robotaxis” and “$25 trillion once it has also mastered humanoid robots,” the Journal reported.
Wall Street sees Tesla stock as overvalued. Specifically, the average price target is $172.92 — making the stock 3.4% too high — based on 32 Wall Street analysts offering 12-month figures, according to TipRanks.
While Tesla shareholders’ vote in favor of Musk’s pay might make him feel good, investors would be better off buying a low cost S&P 500 index fund.
