Musk Is Holding Tesla To Ransom
What is his real motivation?
Elon Musk is an odd character, to say the least. His erratic behaviour, megalomania and the constant stream of bullshit promises should, by all merit, destroy any company he is attached to. But the opposite is true; these career-ending attributes have created an air of mystique around him, painting him out to be a misunderstood genius years ahead of his time, and as such, a fever pitch of hysteria surrounds him, Tesla, SpaceX and all his other forgotten side projects. But occasionally, this fog clears, and we get to see the true Elon. Such a mask-off moment happened recently when Musk effectively threatened to dramatically devalue Tesla unless he is given $81 billion worth of Tesla stock for free… Yeah, let’s unpack that.
In a recent Tweet (or Xeet? Change it back Elon, X is a dumb name), the Tesla CEO said that he would be “uncomfortable growing Tesla to be a leader in AI & robotics without having ~25% voting control. Enough to be influential, but not so much that I can’t be overturned. Unless that is the case, I would prefer to build products outside of Tesla. You don’t seem to understand that Tesla is not one startup but a dozen. Simply look at the delta between what Tesla does and GM.” Why this demand? Well, Musk also stated that the current structure leaves Tesla vulnerable to a “takeover by dubious interests”, and as he sees his AI development at Tesla as highly risky, he wants more control to avoid AI disasters in the future. More on that in a second.
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But, once upon a time, Musk had close to this level of voting control. In 2014, he owned roughly 22% of Tesla stocks and therefore had 22% of the voting rights as Tesla has a single-class share structure, which Musk decided on when he took the company public (remember that for later). But he has sold billions of dollars worth of this stock over time, most notably to pay for his inane $44 billion purchase of Twitter. Now, Musk has only around a 13% stake in Tesla, which still makes him the majority shareholder and one of the wealthiest men in the world, but apparently, it is not enough.
After a company has gone public, and the shares are being traded, you can’t change this class structure of the shares. If you could, then Musk would only need to dedicate a set amount of Tesla shares that would give up their voting rights and give them to his shares. But for obvious reasons, such a move is highly illegal, as it screws over investors. So, in effect, Musk is saying that he needs to be given $81 billion worth of stock; otherwise, he will move away from Tesla. That is one hell of a payday.
If you think such a statement from a CEO (threatening to undermine a company unless they get a colossal compensation) can’t possibly be legal, you’d be right. Governance expert Professor Ann Lipton said, “The problem is his tweets suggest that in his capacity now as CEO and director, he is not only turning down profitable Tesla opportunities based on his personal preferences, but also redirecting them to his private companies” and “That’s a conflict of interest that suggests a violation of his fiduciary duties to Tesla.” So, yet again, it seems like Musk might be butting heads with the authorities.
How Musk plans on getting these shares is anyone’s guess. He doesn’t have the type of cash lying around, and no one will loan him $81 billion after he racked up the debt to buy Twitter and now can’t pay the bills. One of the only viable ways for him to get his hands on them is by people either donating the money or the shares to him.
But people won’t do that… Surely?
Well, they might. Particularly if they are heavily invested in Tesla and understand why Tesla is valued so highly.
You see, Tesla is valued 9 times higher than equivalent automakers (in terms of sales and technology assets). Why? Because people believe that its self-driving AI could rocket the company’s revenue in the future. Musk has even gone on record as saying that without self-driving cars, Tesla would be worth nothing. As such, he has repeatedly claimed that they could soon have millions of robotaxis on the road very soon, or even sell Teslas at zero profit and only make money off subscriptions to their fully self-driving software. Morgan Stanley, who is a significant Tesla shareholder, has followed this same line of thought and has said that Tesla’s Dojo supercomputer, which will be used to train their AI faster, could boost its market value by almost $600 billion (total projected valuation over £1.2 trillion, nearly twice what it is today). Ark Invest, another massive Tesla shareholder, thinks robotaxis could add $613 billion to their revenue by 2027. This, in turn, pushes the valuation of Tesla stock up today as people speculate on far higher future valuations.
But, notice how I said there are other automakers with equivalent technology. Tesla is no longer a stand-out leader in EV technology, as there are competitors from the West and East that cost less, go further on a single charge, charge faster and have higher performance than an equivalent Tesla (namely Zeekr, Volvo, Hyundai and even VW). But they also aren’t a leader in self-driving cars, and this idea that they are close to fully autonomous robotaxis is utterly baseless.
For one, VW and Mercedes are already ahead. Tesla’s FSD (Full Self Driving) is still classified as a Level 2 system, where it can only operate as driver assistance, and you still have to pay attention and keep your hands on the wheel. VW (in the guise of Audi) and Mercedes both have Level 3 systems, which are considered proper autonomous driving systems, as you can take your hands off the wheel and eyes off the road in certain circumstances.
What’s more, the Level 2 system Tesla does have is arguably a bit crap. There are 830,000 Teslas with self-driving features in the US, and they have got into well over 300 self-driving accidents, some fatal. This is a far higher ratio of crashes during self-driving than with any other manufacturer, leading to multiple probes by governmental agencies into the software, which could result in criminal charges such as manslaughter or fraud (as Tesla and Musk have overstated the capability of their system).
Why has this happened? Well, Musk kneecapped Tesla’s self-driving ability in 2021 when he went against his engineers and removed the ultrasound and radar sensors from the system, leaving them with just cameras to understand the world around them. This “vision-only” system was meant to make production of the cars cheaper, but it also makes the AI’s job far harder, and makes consistent performance almost impossible due to a lack of redundancy (if the camera can’t see it, the radar could have). As such, multiple Tesla engineers have gone on record saying that since 2021, Tesla’s self-driving systems have become more dangerous. In contrast, all other manufacturers are adopting more sensors, such as Lidar and even 4D radar, to make their self-driving AIs way more reliable, hence why Mercedes and VW are now ahead.
So why does everyone believe that Tesla will leapfrog everyone despite there being zero evidence they can and plenty of evidence on the contrary? The answer is Musk.
His charm and charisma make him the perfect snake-oil salesman. His over-the-top exaggerated claims are swallowed up hook, line, and sinker, and people still love him even after he doesn’t deliver on these promises. The Cybertruck is an excellent example of this; it was delivered late, and many of the promised features, such as 1MW charging and ludicrous range, were missing. If any other car company had done this, there would have been an uproar!
Take Musk out of Tesla, and the general public and investors will see past the shroud of bull Musk has built up and see the reality of Tesla’s current position. From there, people will likely sell their shares, plummeting Tesla’s value, maybe even up to as much as 90%. Major stakeholders know this, which is why they support Musk’s outlandish claims with financial predictions that have minimal basis in reality.
As such, Musk’s tweets, if he follows through with them, effectively hold major Tesla shareholders to ransom over his snake-oil empire. They know their investment wasn’t in Tesla but in Musk, his occasional genuine breakthroughs that make him just about believable (let’s not forget Tesla has been a trailblazer, not all his over-exaggerated claims have been meritless, just most of them), and his master manipulation of the public. As such, it might actually be worth it for them to hand over shares or hard cash to Musk so that he can get his 25% stake, as that might be the only way they can protect the value of their investment.
So, misunderstood genius? Or greed-driven, myopic billionaire? You decide.
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Sources: Reuters, Twitter (X), BBC, Forbes, Will Lockett, JSTOR, The Independent, The Guardian, Reuters, Planet Earth & Beyond