<\/span><\/h2>\nTesla has long prided itself on not relying on traditional paid advertisements. Instead, it has relied on word of mouth marketing, social media posts, and press coverage of the company\u2019s ambitious promises in order to stay forefront in the public eye. Musk has stated that he \u201chates advertising\u201d and that running ads is the equivalent of lying (even as he runs ads with lies in them).<\/p>\n
But that\u2019s changing. Tesla hired then quickly fired an ad team, but continues to do social media marketing largely on Twitter, the platform that Musk overpaid billions of dollars for and then turned into a white supremacist haven, causing advertisers to flee (who Musk told to leave and then sued to try to force them back).<\/p>\n
Of course, given that this is the internet, some of that social media marketing seems to be in the form of bots, so even the word of mouth surrounding Tesla is no longer real.<\/p>\n
After chasing away advertisers, Musk resorted to a common tactic of his \u2013 channeling money from one of his public companies into one of his private companies, in the form of paid Tesla advertisements.<\/p>\n
Most recently, those advertisements have been focused not on marketing Tesla\u2019s products to twitter users, but rather on marketing Musk\u2019s stock award.<\/p>\n
In fact, Tesla even recently broke the last bastion of its reluctance towards certain marketing efforts, and started running paid TV ads, but it wasn\u2019t to market the company\u2019s products, rather just to market Musk\u2019s $1 trillion pay package.<\/p>\n
Running any<\/em> ads in the first place for a shareholder vote seems odd \u2013 shareholder proposals usually do come alongside a board recommendation, and that\u2019s usually enough to convince shareholders to vote alongside the board (at least, if the board has proven itself to be working in the best interests of the company, which may not apply here).<\/p>\nBut it\u2019s exceptionally rare to see a company undertake a whole advertising campaign, with produced videos, paid ads, and an outside strategy firm to help, especially when those ads don\u2019t just target shareholders, but are on platforms for the general public (though this is perhaps a recognition that a huge percentage of Americans own TSLA stock via their retirement plans, whether they purchased the stock themselves or not).<\/p>\n
And the ads are\u2026 questionable.<\/p>\n
<\/span>Tesla\u2019s marketing effort has been exploitive to say the least<\/span><\/h2>\nJust about every day, Tesla has filed a new document with the Securities and Exchange Commission detailing another solicitation it has made regarding the upcoming shareholder vote.<\/p>\n
Often these are just tweets by the company or by Musk related to the shareholder vote. Musk has made several statements supporting the vote to his millions of followers on the social media app that he purchased so that he could control narratives and quash free speech on it.<\/p>\n
Tesla has also purchased several ads on Google, moving beyond just Musk-owned properties.<\/p>\n
But these solicitations also include produced videos by the company telling shareholders to vote on it. Two of these ads include testimonials by Tesla employees, stating how Tesla stock improved their lives.<\/p>\n
In the videos, the two Tesla employees state that they wouldn\u2019t have been able to own a home if it weren\u2019t for Tesla stock.<\/p>\n
One, Kiyoko, invokes her dead father, who would have been proud to see her owning a home.<\/p>\n
Another employee, Sarah, invokes her daughter, who couldn\u2019t have had a quincea\u00f1era if not for Tesla stock (notably, Musk is also the largest individual funder of a group that is racially profiling Mexican-Americans, staking out high school graduations to break up families and putting pressure on local businesses, including quincea\u00f1era dress-sellers).<\/p>\n
Put aside for a moment the nightmare scenario where housing is so unaffordable that workers need to feel lucky to be able to afford a place to live after having held a job for 12 years (and apparently are unable afford that house through salary alone, instead needing to rely on a highly overvalued stock to get them there), these emotional statements seem designed to distract from the rational case against this stock award, and to pull on heart strings instead.<\/p>\n
They also conflate stock options for the employees that keep Tesla running, and who are counting on those options to help pay for their housing, with an unprecedented stock award for its part-time CEO so he can, uh\u2026 bribe more political candidates?<\/p>\n
And if you\u2019re wondering how giving the world\u2019s richest man a trillion dollars will help Kiyoko afford a home or Sarah afford a quincea\u00f1era, you\u2019re not wrong to wonder. These ought<\/em> to be two different concepts, but because of the nefarious structure of the shareholder vote, they\u2019re not.<\/p>\n<\/span>Tesla stock helped employees. Now it can\u2019t, since Elon took it all<\/span><\/h2>\nOne of the questions being asked is whether or not to refill Tesla\u2019s \u201cgeneral share reserve\u201d of shares set aside to be granted to employees as compensation.<\/p>\n
Proposal 3 not only fills the general share reserve with 60 million shares as compensation for Tesla\u2019s current and future employees (of which the company currently numbers ~120,000 strong), but also<\/em> fills a \u201cspecial share reserve\u201d with nearly 208 million shares for one single part-time employee, Elon Musk, who mostly focuses on companies other than Tesla (and whose interests can be directly opposed to Tesla\u2019s). The board would be able to give these shares, currently worth around $91 billion, to Musk at their discretion without further shareholder approval and is not attached to any milestones, unlike the $1 trillion.<\/p>\nThis is one of many issues brought up by several pension funds who named their concerns with the shareholder proposals. Normally, it would seem reasonable to split up the \u201cgeneral\u201d and \u201cspecial\u201d share reserve votes, but Tesla has seen it fit to combine the two \u2013 such that if you want Tesla to be able to compensate employees with shares, you must also accept that Musk will have 3.5x as many shares set aside for him personally as will be set aside for every other employee at the company combined<\/em>.<\/p>\nIt must feel incredibly insulting for the engineers who actually design the cars, the manufacturing associates who build them, the software team that continues to improve the best software out there, the best-in-the-biz charging team, et cetera, to see a guy who spends most of his time working for other companies (or pretending to be good at video games on his private jet) and be told that he\u2019s worth hundreds of thousands of times more than you are.<\/p>\n
Even worse, the reason this vote is necessary is because the share reserve was recently drained\u2026 to pay Elon Musk.<\/p>\n
When Musk\u2019s friends on the Tesla board decided to hand him an \u201cInterim Award\u201d of $26 billion without a shareholder vote, the process through which they did this was to simply award shares to Musk that had previously been set aside in Tesla\u2019s share reserve.<\/p>\n
Those shares had been intended to be available for years to come, as compensation for employees, to help Tesla attract and compensate talent (as the heartstring-tugging videos above suggest). But instead, almost the entire reserve was drained to give to Musk, with only one stipulation: that he continue working at Tesla for two years.<\/p>\n
But that\u2019s only part<\/em> of the shares that Musk would get if these shareholder votes pass, because those 208 million shares aren\u2019t even associated with the separate $1 trillion award in Proposal 4, which would include over 423 million shares. So now we\u2019re up to 630+ million shares for Musk (~276B at current TSLA valuation), and only 60 million for every other employee at Tesla combined, being voted on at this shareholder meeting.<\/p>\nAnd even if<\/em> proposal 4 is voted down, the board could still give Musk $91 billion worth of stock, and it\u2019s holding employees\u2019 compensation hostage to ensure that it be able to do so.<\/p>\n<\/span>Musk gets largest payday ever for being a bad employee<\/span><\/h2>\nThe Interim Award was given with the rationale that it might \u201cfocus and energize\u201d the CEO, who has been distracted with his running of several other companies and his world famous social media addiction as Tesla earnings and sales have been dropping in an otherwise rising market.<\/p>\n
Tesla\u2019s sales drops are largely due to the brand damage Musk himself is doing, and also its lack of innovation under his direction \u2013 but at least he can sell some cars to himself to try to hide this failure.<\/p>\n
Tesla got saved in Q3 by a pull-forward in demand due to the end of US tax credits (which Musk himself backed, despite that his actions have hurt Tesla in more ways than one), but otherwise its earnings have been trending dangerously close to unprofitability. And that certainly isn\u2019t helped when the CEO spends $288M of his own money to cause a $1.4B drop in Tesla revenue.<\/p>\n
Thus, this marks not only the largest payday in the history of the world, but the largest payday given with explicit acknowledgement<\/em> that the payee is an underperforming and distracted employee, leading the company in a worse direction.<\/p>\nAnd yet, the board wants shareholders to approve even more<\/em> pay for that bad employee, and has attached no strings to require he stop distracting himself with other companies, merely hoping that the promise of a large payday will coax Musk into being less terrible at his job than he has recently.<\/p>\nBut it has to be an exceptionally<\/em> large payday if Musk is to complete his goals (and to be clear, they are Musk\u2019s<\/em> goals, not the company\u2019s), given the inflated nature of TSLA stock.<\/p>\n<\/span>This is about power\u2026 and money<\/span><\/h2>\nMusk wants this award because he wants more control over Tesla. He has stated clearly many times that he \u201cdoesn\u2019t feel comfortable\u201d with his current ownership percentage, even though it\u2019s the result of him continually selling Tesla stock to fund his white supremacist, anti-free-speech project on twitter.<\/p>\n
After his many stock sales, his ownership percentage has diluted from around a quarter of the company in 2021 to around 13% today. Musk has threatened Tesla shareholders, saying that that \u201cthe future of the world\u201d relies on him getting $1 trillion and that if he doesn\u2019t get 25% of the company he will take AI and robots elsewhere (nevermind that he already has sent Tesla resources to his private company in multiple ways, and wants Tesla shareholders to bail twitter\/xAI out, another proposal on the current slate of votes).<\/p>\n
Musk having more voting power would protect him from shareholder proposals that seek to improve Tesla\u2019s corporate governance, as several proposals in front of shareholders right now would do. These include modifications to Tesla\u2019s bylaws enabling changes through majority vote rather than supermajority vote, and repealing the threshold requirement to bring derivative actions against the company.<\/p>\n
If Musk had 25% of the company, that makes it a lot easier for him to vote a chunk of his shares towards consolidating his power, and makes him less accountable to shareholders who are rightly concerned about Tesla\u2019s current dropping sales and earnings under his direction.<\/p>\n
And given that the vote on the current pay package somehow allows Musk to vote his own shares in support of it (unlike the last one, where he was recused), there\u2019s no reason he couldn\u2019t continue to do the same in the future, and have even more opportunity to enrich himself and consolidate power at the cost of all other Tesla shareholders.<\/p>\n
(Update:<\/strong><\/em> Since this article was first published, Musk now states that the reason he wants more shares is so that he can \u201ccontrol\u201d the \u201cenormous robot army\u201d which he wants Tesla to build. Put aside for the moment whether this is realistic or not, but it does seem perhaps troubling that this guy, who has spent much of the last few years advocating for white supremacy at every turn, wants to control a private army of killer robots, and to be unassailable in his control of that private army such that he cannot be ousted from his position.)<\/p>\nBut beyond the power, it\u2019s also about money (as Fred here at Electrek <\/em>pointed out). If Musk wanted to increase his ownership percentage, he could have Tesla engage in stock buybacks, which would not only decrease dilution for him but also for other shareholders who hold long term. This would also increase share prices, something shareholders might like to see (but then again, it would also require profits, which have tanked recently under Musk\u2019s direction).<\/p>\nInstead, the plan increases dilution for everyone by printing hundreds of millions of shares \u2013 dilution for everyone except Musk<\/em>, who gets far more shares than everyone else combined.<\/p>\nBut you better not bring that up, because if so, Tesla might put out a mean tweet about you.<\/p>\n
<\/span>Tesla pays for PR to attack its own shareholders<\/span><\/h2>\nWe covered a group of pension funds who brought up many of these legitimate concerns in a dispassionate letter sent to Tesla investors, including the draining of the share reserve to pay Musk, the negative effect of dilution on current shareholders, and others. The concerns are well-argued and the letter is signed by several public pension funds, whose interest is generally in stable long-term returns, rather than volatility or speculation.<\/p>\n
Many public funds are required to invest significantly in funds like the S&P 500, of which TSLA is an outsized member. They are also interested in a generally less volatile economy overall, and thus, it makes sense that they would argue in favor of stability.<\/p>\n
The funds also stated that the requirements for various tranches of Musk\u2019s share reward are somewhat arbitrary, and that many could be met easily with creative interpretations. Others have pointed out the same, recognizing even meeting the easiest targets would pay Musk more than the lifetime pay of the next 8 highest-paid CEOs combined.<\/p>\n
But after these valid criticisms were lodged, Tesla responded in a way that should not be a surprise for longtime watchers of the company \u2013 by doubling down and firing back.<\/p>\n
Tesla put out a tweet titled \u201csetting the record straight,\u201d essentially just making the same argument it has already made. It claims that there is no way to creatively interpret product goals, that the board is \u201cdisinterested\u201d (that is, they do not hold a personal financial interest in the outcome, which is an odd thing to say about the personal friends and family of Musk on Tesla\u2019s board), and that this plan, which will dilute current shareholders\u2019 holdings in order to retain a bad CEO for the next decade, is \u201cin the interest of shareholders.\u201d<\/p>\n
It also claims that none of the operational milestones are \u201ceasy\u201d and that previously-cited creative interpretations would not be possible. However, even with only below-average share growth and flat vehicle delivery growth, Tesla is on course to easily reach some of the simpler milestones (well, perhaps this is<\/em> hard with a CEO who is seemingly doing his best to ruin company performance\u2026), which would still result in a record payday many times over.<\/p>\nAnd it ends the tweet with a slight against the performance of the various public funds who signed on to the letter. Tesla claims that it has provided much better returns than each of the funds, which have had 6.51%-13.3% annualized returns since 2018. Notably, these are in line with the expected returns that a public fund counts on (with S&P averaging ~8%), who typically invest in stable companies rather than speculating on high-risk investments or tech companies with unheard-of 309:1 P\/E ratios (which only gets higher as price goes up and earnings go down).<\/p>\n
Since then, proxy advisory group ISS, the largest independent advisor for institutional investors which offers disinterested insight into shareholder proposals, has also recommended against voting for the proposals. Tesla responded by attacking ISS in a tweet.<\/p>\n
(Update<\/em><\/strong>:<\/strong><\/em> Since this article was published, the second largest advisor, Glass Lewis, also issued a sober acknowledgement of what a bad idea these stock proposals are. In response, Musk went on a rant during Tesla\u2019s Q3 earnings call, where the company had announced a huge drop in earnings, despite record revenue, under his poor direction. Musk refused to acknowledge any of the myriad valid points made by ISS or Glass Lewis, and instead repeatedly called them \u201ccorporate terrorists\u201d)<\/p>\nMaking all of these statements about an active shareholder vote is already a rare move as far as public companies go, but Tesla, which does not advertise, also seems to have retained an outside firm to further publicize its rebuttal. Due to our previous article on this matter, we got an email from FGS Global, which bills itself as \u201cthe world\u2019s leading stakeholder strategy firm,\u201d directing our attention to the tweet. We asked FGS why it thought diluting shareholders by $1 trillion was truly the optimal strategy for stakeholders, and did not receive an answer.<\/p>\n
<\/span>Even if you think Musk is necessary, this isn\u2019t Tesla\u2019s best option<\/span><\/h2>\nDefenders of the plan will argue that shareholders will benefit if share targets are met. But that\u2019s a big \u201cif,\u201d and even if they are met, how much of that can we attribute to the direction of a distracted CEO (with no requirement to not<\/em> be distracted), and is it really necessary to give that CEO a full trillion dollars worth of dilution in order to get the performance requested?<\/p>\nAgain, Musk has already been given the largest payday in history out of shares that were earmarked for employees, and now a payday that\u2019s over thirty times larger than that<\/em> has been proposed. Even at the inflated share prices that would be necessary to meet milestone targets for the award, shareholders would still have their voting rights and share appreciation diluted by about 12% (and don\u2019t forget the hundreds of millions of shares he can get without doing anything at all, a retroactive reward for his distraction).<\/p>\nCould a similar goal not be achieved with much smaller dilution, say around 1%, which would still be the largest payday ever proposed for a CEO? And is Musk even worth that much to begin with, given his poor recent performance and his behavior that has proven to be hostile to his own company\u2019s interests? (via lobbying for anti-EV policy, doing Tesla brand damage, self-dealing to benefit his own private companies with Tesla\u2019s public assets, firing Tesla\u2019s best teams on an ego trip, and so on)<\/p>\n
Heck, even the option of buying xAI in an all-stock deal, at its absurd $200B valuation, would cost Tesla less than these two proposals would (~$276B, at current TSLA valuation). This idea would also do more to ensure Musk\u2019s focus as then he would no longer split his time between his private companies which have his current interest and his public one, since all would be under the same umbrella.<\/p>\n
To be clear, that would also be a terrible idea, due to ethical concerns that are currently subject to a lawsuit over Musk conflicts of interest (and surprise surprise, that terrible idea is also up for a shareholder vote). But the fact that there are potential legal problems with each of the options the board did consider is perhaps an indication that another individual, one without such a history of working in his own interests rather than the company\u2019s, would be a better fit for Tesla.<\/p>\n
<\/span>Bad for employees, shareholders, and Tesla\u2019s mission\/ethics\u2026 so why is Tesla pushing it?<\/span><\/h2>\nIt seems quite clear that the option given to shareholders is not the optimal solution, but due to Tesla\u2019s captured board, it\u2019s the option that\u2019s been put on the table. And since it benefits them (in fact, so much that the board had to return nearly $1 billion in excessive compensation) and their personal friend Elon Musk, it\u2019s the only option shareholders get to vote on.<\/p>\n
Were the board interested in Tesla\u2019s best interests, some other options might be on the table. But they aren\u2019t; they\u2019re interested in their friend Elon\u2019s best interests. The driving factor isn\u2019t the goals of Tesla or its shareholders, but the goals of Elon.<\/p>\n
If the board were independent and truly interested in Tesla\u2019s best performance, it wouldn\u2019t saddle the company with a hostile CEO for a decade, it wouldn\u2019t overpay that CEO, it would be more sensitive to dilution, it would engage in options that are less likely to result in legal challenges, it would at least<\/em> ensure that CEO work in the company\u2019s interests, and it would use a more deliberative process than having a few of that CEO\u2019s friends propose a comically large payday just so he can get himself out of the hole he dug for himself with a social media addiction so bad that he overpaid for his favorite app (twice).<\/p>\nThe only<\/em> concessions the board has made to any idea of reasonable governance is that it made the adoption of a succession plan a prerequisite for the last 2 (out of 12) tranches of stock. So Musk can still get ~558 million shares of stock without even giving a thought to what future the company might have with competent corporate governance.<\/p>\n<\/span>Will shareholders finally reject this ridiculousness?<\/span><\/h2>\nAnd yet, shareholders may vote for it, just like last time. That last vote had about the same downsides as this one, but TSLA shareholders voted for it anyway (twice, even after it was revealed they were lied to on the first vote).<\/p>\n
But shareholders must currently feel trapped by Musk\u2019s rhetoric. Even though he\u2019s a bad CEO in terms of company performance, his constant overpromising has led to high appreciation of Tesla stock, with the market seeming much more interested in Musk\u2019s constantly-delayed fantasies than in Tesla\u2019s current performance. Essentially, Musk is saying \u201cgive me $1 trillion or I won\u2019t lie for you anymore.\u201d<\/p>\n
Shareholders are worried that if Musk is gone, the market will no longer overvalue its future performance, and there might be a correction towards more realistic share price levels. Even though a competent CEO might benefit Tesla\u2019s financial performance as a company, it may harm TSLA\u2019s status as a meme stock. <\/p>\n
And that\u2019s what this particularly frothy market has become. Rather than investing in a company to focus on its products or even its future, \u201cinvestors\u201d have become consumers of the stock first, and focused on maintaining whatever illusions have resulted in these absurd price levels. TSLA shareholders have made the wrong decision before on an intrinsically similar issue, so it wouldn\u2019t be a big surprise if they do the same here, only even dumber and ~20x bigger.<\/p>\n
It is<\/em> perhaps heartening that Tesla has seen it necessary to market the award so heavily, as Tesla can see results as they come in.<\/p>\nThe more Tesla markets, the more it may suggest that the company may not like the numbers its seeing, and is desperate to swing the vote in its favor. (Either that, or the whole thing is engineered to give Musk something to act victimized about after the fact, when inevitably the award sees legal challenges again.)<\/p>\n
For Tesla\u2019s sake, for the EV transition as a whole, and perhaps for the future of the world, let\u2019s hope it\u2019s the former.<\/p>\n
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