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Investors Giving a Car Maker More Money to Ruin the Company

Tesla (TSLA) shareholders have voted to reinstate Elon Musk’s compensation package, but skepticism remains among some investors and analysts. Ibrahim AlHusseini, an early Tesla investor, expressed his reservations to Yahoo Finance. “It’s a high-stakes game, and the shareholders gave in,” AlHusseini remarked. “The fear of losing motivated them, and Elon leveraged that to his advantage.” Despite his doubts, AlHusseini voted in favor of the $56 billion package, acknowledging Musk’s achievement of seemingly impossible milestones set in 2018.

Tesla’s stock has declined nearly 30% year to date and fell around 2.5% on Friday. AlHusseini expects the stock to remain steady until the next quarterly earnings report, predicting a drop due to missed delivery and margin targets.

Tesla reported that 77% of shareholders supported Musk’s pay package, with 1.76 billion shares voting in favor, 528.9 million against, and 20.6 million abstaining. Musk enthusiastically addressed the shareholders, saying, “I love you guys.” The package, initially valued at $56 billion, is now worth about $46 billion due to a decrease in Tesla’s market capitalization.

Tesla investors

In January, Delaware Chancery Court Judge Kathaleen McCormick ruled that the original pay package, approved by 73% of voting shares in 2018, was not fairly negotiated. Although the recent vote supports reinstating the package, it does not resolve the legal challenge, which may ultimately be decided by the Supreme Court and Delaware Chancery Court.

New York City Comptroller Brad Lander, representing several pension funds owning about 3.4 million Tesla shares, criticized the approval as a mistake. Lander hopes Musk will focus on Tesla and develop clear growth plans but fears potential distractions from Musk’s other activities.

Vanguard, Tesla’s largest external institutional shareholder, played a crucial role in passing the deal. Vanguard, which holds 7% of Tesla stock, initially voted against the package in 2018 due to performance-related concerns. Longtime Tesla investor Ross Gerber questioned Vanguard’s change in stance, emphasizing the need for corporate governance.

Gerber, who co-founded Gerber Kawasaki and voted in favor of the package in 2018, advocated for a no vote this time. His firm holds 332,000 Tesla shares. Gerber criticized the package as excessive and Musk’s recent performance as poor, but he respects the shareholders’ decision.

Investors also approved a proposal to move Tesla’s incorporation from Delaware to Texas, a move Musk supported after his pay deal was voided by the judge. Lander criticized this decision, emphasizing Delaware’s shareholder-friendly laws.

Despite concerns, Lander sees a solid foundation for Tesla, giving Musk credit for the company’s success, though not justifying a $56 billion reward. Analysts view the reinstatement of Musk’s compensation package as a positive for investors.

George Gianarikas of Canaccord Genuity, who rates Tesla stock as a Buy, praised the vote of confidence in Musk’s leadership, highlighting Tesla’s leading position in developing full self-driving technology. Wedbush analyst Dan Ives, a longtime Tesla supporter, called the approval a “celebration moment,” noting it removes a significant overhang on shares. Ives believes Tesla’s valuation could exceed $1 trillion by 2025 if Musk focuses more on the automaker.

However, Dave Harden, chief investment officer of Summit Global, advised caution, warning of potential shareholder dilution and risks. Harden suggested waiting for clearer signs of growth before investing in Tesla shares or selling if already invested.


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