Musk Has Won, Tesla Has Lost
Musk Has Won, Tesla Has Lost
I fear Tesla's future is not so bright.
Musk is hugely important to Tesla, But not in the way you might think. He didn’t start Tesla, none of the meaningful patents it holds were developed by him, he did none of the engineering work, and he hasn’t written a single line of code for Tesla. He was mostly hands-off in the design work for the Model S, X, 3 and Y, leaving his engineers to figure out the best solutions. In fact, most of the technology that makes Tesla so valuable, such as gigacasting and battery manufacturing, comes from third parties. In stark contrast, Musk has had a heavy hand in developing their 4680 battery, FSD self-driving AI and the Cybertruck, demanding the projects follow his specific illogical design choices. Funnily enough, these are Tesla’s worst-performing products, as they have massively failed to meet promises and have flawed designs. You see, Musk isn’t an engineering genius, Tony Stark-esque figure. Instead, he is a risk-loving, egocentric billionaire. As such, his role in Tesla was to make the company take big risks while acting as Tesla’s own hyperactive one-man marketing team. Over the past two decades, this has benefitted Tesla massively. But as Elon’s ego ballooned, it deeply hurt the EV giant. With this in mind, is he worth his $44 billion (once $56 billion before Tesla share value dropped) pay packet? Absolutely not. Let me explain.
You have no doubt heard already of Musk’s massive pay packet. This deal was originally agreed way back in 2018. Tesla’s shareholders voted to pass the company’s board suggestion to give Musk the equivalent of $56 billion in Tesla shares if he could meet certain revenue and profit targets and raise Tesla’s overall value from $54 billion to $650 billion. Over the past few years, Tesla has hit these targets, though Tesla’s overall profitability has taken a considerable hit over the past year, and Tesla’s market value has slumped to $570 billion.
So, Musk should be getting this massive payout, right? Well, no. A court in Delaware found that 73% of the voters who had agreed to the deal were uninformed about how close Musk was with the company board. In effect, Musk had strong-armed his close mates on the board to propose this ludicrous pay package, knowing that Tesla would likely hit these targets. In a publicly traded company, the board is there to ensure the company acts in the shareholder’s best interest, not the CEO’s (reminder here that Musk only owns 13% of Tesla). As such, the board’s closeness with Musk violated their core duty, and Judge Kathaleen McCormick threw out the pay package, ruling that the board members had been insufficiently independent of Musk while negotiating the package. You see, such a vast payout could be hugely detrimental to Tesla shares and only serve to enrich Musk. So, the court insisted on another vote, but with the shareholders now knowing this worrying dynamic.
Well, this vote recently happened, and despite many major shareholders advising others to vote no, 72% voted in favour of Musk’s pay package.
Victory to Musk! Right?
Nope!
After the pay package was initially blocked, Musk threatened shareholders that he would develop AI in another company if the upcoming vote didn’t go his way. Being a car company, this might not sound like a huge issue for Tesla, but it is. Over the past year, Musk has abandoned developing Tesla’s manufacturing advantage in favour of doubling down on developing self-driving AI. He even effectively scrapped the hugely anticipated Model 2 for a self-driving robotaxi, ended gigacasting development, and disbanded the team responsible for rolling out superchargers. As almost every major EV manufacturer is now incredibly close to catching up to Tesla’s advantage in the EV market (some have even overtaken Tesla in many areas), this means Tesla’s entire future is now solely based on its AI products. In effect, Musk was holding Tesla to ransom. Pay me all these billions, or I tank the company.
This behaviour has a name, voter coercion, and it is understandably illegal. That’s not me saying that; Eric Talley, a professor at Columbia Law School, said, “To the extent Tesla is going to use this vote as a reason to reverse the chancery court’s holding, I’d expect a big argument. In particular, there is a plausible argument that today’s vote was the product of coercion … and thus not valid.” The law firm that represented Tesla shareholders who got the original pay package cancelled agreed and is making moves to block this second vote on those grounds.
So, Musk manipulated his position with the board to get this insane pay packet passed, had it thrown out due to this manipulation, then engaged in aggressive voter coercion to ensure it got reinstated, and could have it thrown out again due to this morally corrupt behaviour…
Such questionable business practices should render this vast pay packet null and void. He has demonstrated that he has used his stewardship of Tesla to enrich himself at the cost of the company and the law. But if that doesn’t swing it for you, how about the fact that Tesla shares are down by $94 billion so far in 2024? This is partially thanks to falling sales and shrinking profit margins, partially caused by the failure of the 4680 battery to bring costs down as promised and the failure to offer affordable models. It’s also down to Musk refocusing Tesla’s time and money on self-driving AI and betting the future of the company on this being a profitable business model. Investors are deeply sceptical of this move as Tesla is no longer a leader in automotive automation, and there is zero proof that Tesla’s vision-only approach can actually meet legal safety requirements. In fact, under Musk’s leadership, Tesla’s self-driving AI is under investigation by multiple governmental bodies for fraud and possible manslaughter charges over how unsafe Autopilot and FSD are. There are also many class action lawsuits over the real-world capability and safety of these systems compared to what has been advertised. There is also the fact that Tesla is no longer a rock-solid leader in the EV world, with BYD outselling them and companies like Hyundai offering cars with better technology for less money (800v architecture and V2L).
This brings me back to the article’s title because it doesn’t matter if Musk deserves this insane pay package. Musk has won. Over the past few years, he has demonstrated incredibly irresponsible, egotistical and damaging leadership. His approach may have grown Tesla at a lightning pace, but it is now also eroding Tesla’s trustworthiness and core business just as fast. This second vote was an opportunity for Tesla shareholders to hold him accountable and demand a more level-headed Musk. But that hasn’t happened. Even if the court overrules its outcome because of voter coercion, the cult of Musk has validated his damaging behaviour. As such, Musk’s ego won, and Tesla’s future just got bleaker.
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Sources: Mashable, FT, Bloomberg, The Telegraph, The Guardian, BBC, Will Lockett, Fortune