A Delaware judge’s ruling to void Elon Musk’s controversial $55.8 billion pay package from Tesla has thrown the electric vehicle maker’s future into question. Musk is now pushing to move Tesla’s corporate headquarters from California to Texas as the company’s tumultuous relationship with its home state continues.
Judge Finds “Egregious” Lack of Oversight in Musk’s Pay Deal
On Monday, Delaware Chancery Court Judge Joseph Slights ruled that Tesla’s board of directors failed to properly oversee the CEO’s record-breaking pay package, a deal which potentially could have netted Musk over $55 billion [1]. Slights admonished the board for allowing Musk to set the terms for his compensation, which the judge called “flawed” and “egregious” [2].
The 2018 pay package allowed Musk to buy 1% of Tesla’s stock at discounted prices for each of 12 milestones the company achieved over a 10-year period. So far, Musk has hit 7 of the targets and cashed out nearly $25 billion worth of stock. But Slights determined the board did not sufficiently analyze whether the milestones promoted Tesla’s long-term interests [3].
“My intent is not to impugn Mr. Musk’s character or integrity nor to criticize his commitment to innovation generally and at Tesla specifically,” Slights stated. However, the lack of objective oversight over such an “unfathomable” compensation package was “inexplicable” and “deeply concerning,” he said [4].
Tesla Stock Drops, Musk Loses Richest Person Title
Tesla’s stock plunged 8% following the ruling on Tuesday, knocking over $32 billion from its market value [5]. The tumble also caused Elon Musk to surrender, at least temporarily, his title as the world’s richest person. Musk still holds a 22% stake in Tesla, but much of his $187 billion net worth is linked to his Tesla holdings [6][7].
Notably, Musk reacted to the pay package defeat by asking his 62 million Twitter followers if Tesla should move its headquarters from California to Texas. He later announced Tesla would hold a shareholder vote for the relocation in spite of the Delaware court loss. Tesla has already opened a new Gigafactory manufacturing plant outside Austin and has steadily expanded operations in the business-friendly state [8].
| Share Prices | Feb 1 Closing | % Change |
|---|---|---|
| Tesla (TSLA) | $832.00 | -8.27% |
| Twitter (TWTR) | $39.24 | +0.05% |
Musk himself recently relocated his residence from California to Texas, in part over frustration with state COVID-19 restrictions [9]. But the proposed Tesla move would be largely symbolic since the company is incorporated in Delaware and subject to its corporate laws. “The world headquarters remains in California for the foreseeable future,” said Musk on the shareholder vote announcement [10].
Court Decision Adds to Tumultuous Weeks for Musk
The failed pay deal caps several weeks of turbulence for Musk and his business empire. Last week, Musk finalized his long-contested $44 billion buyout of Twitter after months of attempts to back out of the deal. His takeover sparked mass resignations at Twitter and questions about his plans for the influential platform [11].
Meanwhile, three Tesla shareholders on Thursday sued Musk for manipulating Twitter’s stock price downward in order to slash the acquisition’s final price tag [9]. And Musk still faces another shareholder lawsuit in Delaware over his Tesla compensation package, wherein a plaintiff claims the astronomically large deal harms other investors [12].
The pay package case was brought by institutional investor Richard J. Tornetta, though the trial gained wider attention when a musician gave unusual testimony. Tesla shareholder Austin Van Der Beek – a heavy metal drummer and corporate lawyer – recounted bluntly warning Musk in 2018 that the pay deal was a “money grab” [13].
Now the fate of Musk’s pay and Tesla’s California roots both hang in limbo. The Delaware judge instructed both sides last week to rework the CEO’s pay plan [14]. And the carmaker’s California hometown may soon lose yet another Musk company headquarters to the Lonestar State.
What’s Next: New Pay Deal and HQ Decision Loom
The coming weeks will prove decisive for Tesla. Musk will aim to strike a revised compensation deal acceptable to the Delaware court, likely with stronger oversight provisions to satisfy the objections over board independence. Meanwhile, a shareholder vote at the company’s upcoming annual meeting will determine if Tesla’s official corporate home changes from Palo Alto, CA to Austin, TX [8][15].
But more uncertainty surrounding CEO pay and company structure only clouds the picture for Tesla. Investors have already pushed the stock down 40% over the past year as demand and production issues mounted [5]. And Tesla faces growing electric vehicle competition moving forward [8].
The automaker recently posted its first year-over-year sales decline, delivering 40% fewer vehicles in 2022’s fourth quarter [16]. And analysts remain concerned about waning appetite for high-cost vehicles as interest rates rise [11]. With Tesla’s outlook increasingly complex, the coming proxy battle over Musk’s pay and headquarters shift will receive sharp investor scrutiny.
So Musk’s grand ambitions for Tesla hang under newly dark clouds. And the CEO now confronts reduced power at the company he built into the world’s highest-valued automaker. As electric vehicle pioneer Lucid Group CEO Peter Rawinson stated Wednesday: “There’s something strange going on over at Tesla these days” [17].
Sources
[1] https://www.wsj.com/articles/judge-strikes-down-elon-musks-55-8-billion-tesla-pay-package-11675080841
[2] https://www.theguardian.com/technology/2024/feb/01/elon-musk-pay-package-lawsuit-drummer-delaware
[3] https://www.reuters.com/business/judge-scraps-musks-2018-tesla-pay-package-worth-56-billion-2024-01-30/
[4] https://www.cnn.com/2024/02/01/business/elon-musk-delaware-texas-hnk-intl/index.html
[5] https://www.foxbusiness.com/markets/tesla-stock-plunges-elon-musk-loses-richest-person-title
[6] https://www.forbes.com/sites/lisettevoytko/2024/01/31/elon-musk-loses-title-as-worlds-richest-after-tesla-tumbles-judge-voids-51-billion-pay-package
[7] https://www.barrons.com/articles/tesla-stock-price-today-40d8dfa4
[8] https://finance.yahoo.com/news/tesla-shareholder-vote-shifting-incorporation-051709182.html
[9] https://www.engadget.com/elon-musk-56-billion-tesla-pay-package-has-been-tossed-out-074235803.html
[10] https://twitter.com/elonmusk/status/1752486201083543842
[11] https://www.nytimes.com/2024/01/31/business/dealbook/musk-tesla-compensation-delaware.html
[12] https://www.reuters.com/business/elon-musks-unfathomable-56-billion-tesla-pay-package-2024-01-31
[13] https://nypost.com/2024/02/01/business/the-heavy-metal-drummer-and-tesla-investor-threw-elon-musks-56b-pay-into-limbo/
[14] https://www.autonews.com/executives/elon-musk-why-judge-called-his-56b-pay-package-unfathomable
[15] https://electrek.co/2024/02/01/elon-musk-asks-tesla-shareholders-to-vote-for-incorporation-move-to-texas/
[16] https://www.theinformation.com/articles/delaware-tells-musk-no-alphabet-and-microsofts-ai-driven-earnings
[17] https://www.thestreet.com/electric-vehicles/.amp/news/lucid-group-ceo-peter-rawlinson-sees-strange-days-at-tesla
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