Elon Musk stunned investors on Monday by demanding majority control of Tesla before he continues developing advanced AI and robotics technology at the electric vehicle maker. The surprise ultimatum sparked a sell-off of Tesla shares and raised concerns over corporate governance.
Musk Wants Voting Control Before Advancing Tesla’s AI
In a letter to the Tesla board and a series of tweets, Musk said he would not grow Tesla’s industry-leading AI efforts without owning at least 25% of shareholder voting power, up from his current stake of under 18%.
Musk argued he needs voting control to ensure alignment between shareholders and the company’s long-term AI strategy. However, analysts said the condition amounts to blackmail and overvalues Musk’s contribution to Tesla’s success.
“This is very concerning – essentially blackmailing the board and trampling shareholder rights,” said financial research firm Wedbush.
Tesla stock plunged nearly 9% on Tuesday based on fears Musk’s power play could distract management. Shareholders also worried about concentrating too much authority in Musk. Critics argued AI research costs do not justify Musk’s demands.
Musk countered that focusing resources on AI is vital to Tesla’s future. He warned shareholders via tweet: “Investors betting against Tesla advancing AI/robotics will lose big time.”
Musk Pay Package Tops $200 Billion
Musk’s pursuit of voting control follows years of massive pay packages that made him the world’s richest man. His Tesla compensation plan awarded stock options tied to market value and operational milestones.
With Tesla shares up over 1,200% since 2018, Musk has reaped windfall profits. His Tesla stake is currently valued at $144 billion, making up the bulk of his $209 billion net worth.
In a letter to employees, Musk wrote: “My Tesla shares are my only significant asset, so it is important for me to not risk losing control.”
But growing criticism holds that Musk’s wealth stems mainly from government policies favoring electric vehicles, along with astronomical rise of the overall stock market.
Detroit News columnist Daniel Howes wrote: “Musk is demanding the keys to the kingdom his public-sector benefactors built for him.”
Board Weighs Response as Tesla Falls from Highs
Tesla directors have not issued a formal response to Musk’s demands. But they face pressure to safeguard shareholder interests and stabilize Tesla’s falling share price.
After peaking last year, Tesla stock is down 35% as investors grow concerned over evaporating EV tax credits, competition from titans like Volkswagen, and now Musk’s power ploy.
Analysts say Tesla must focus on containing costs and boosting margins to offset revenue declines. Some argue Musk’s pursuit of side ventures like AI and space travel proves distracting.
Yale management professor Jeffrey Sonnenfeld said Musk’s sway at Tesla remains excessive: “He’s not the founder. He’s not the inventor. He fired the actual visionary founder and inventor Martin Eberhard in 2007.”
With Musk signaling plans to sell Tesla stock if denied voting control, Tesla may explore ways to boost share repurchases or pay dividends using its $22 billion cash pile. This aims to soften the stock’s landing and prevent Musk from crashing its value.
What’s Next as Showdown Looms
Musk threatened that “failure to achieve an agreement” with Tesla’s board would force him to focus resources outside the company. But analysts say Musk has few options to acquire majority control of Tesla shares.
Barring a massive buyback from Tesla itself, Musk would need partnerships with massive investment groups like Vanguard or BlackRock that hold large minority stakes. But a deal remains unlikely given widespread unwillingness to yield power to Musk.
With Tesla shares lagging, attention shifts to upcoming quarterly results as a referendum on the EV maker’s future under the cloud of Musk’s ultimatum. “Musk’s distractions will be minimized if core operations stay strong,” Wedbush analysts wrote.
For now the tech world waits anxiously as battle lines form inside Tesla’s boardroom. Musk is unlikely to back down given his long-term AI aspirations. But directors may call his bluff with a status quo stance counting on operational strength. The stakes surrounding Tesla’s AI future grow higher as Musk draws a line in the sand over control of the leading electric automaker.
Tesla Major Shareholders
|T. Rowe Price
|The Vanguard Group
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