Tesla shareholders approve pay deal in referendum on Musk’s leadership

Tesla held its annual general meeting (AGM) on Thursday (13 June) and all eyes were on the company’s controversial chief executive, Elon Musk. 

The AGM sat in the eye of a legal storm between Musk and the Delaware court that blocked his pay deal earlier this year. Tesla’s board wanted to award Musk stock options valued at $56 billion – the largest compensation package in US history. 

Shareholders originally approved the terms on which Musk is paid back in 2018 but, in January this year, Judge Kathaleen McCormick ruled that the “unfathomable sum” was unfair. The ruling came against a backdrop of poor performance from the Magnificent Seven tech stock. 

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McCormick said that Tesla’s board was too close to Musk, with board members left “starry eyed” by his “superstar appeal”. Musk’s brother sits on the board, as does his close personal friend James Murdoch, son of media tycoon Rupert Murdoch. Another board member, Antonio Gracias, regularly holidays with Musk. 

Musk has been campaigning against the decision ever since and railed against the state of Delaware on his platform X, formerly known as Twitter. “Never incorporate your company in the state of Delaware,” he wrote. “I recommend incorporating in Nevada or Texas if you prefer shareholders to decide matters,” he added. 

Musk has been threatening to do just that, and put the matter of his pay and the location of Tesla’s incorporation to shareholders on 13 June. Onlookers were calling the vote a referendum on Musk’s leadership – and shareholders came out in his favour. 

This shareholder vote is not legally binding and does not overturn Judge McCormick’s ruling. At the moment, it is unclear how it will be treated under Delaware law. If Musk was awarded the package of stock options, it would take his ownership of Tesla from around 13% to 20%, giving him significantly more voting power. 

We look at what lies ahead for Musk and his company. Plus, should you invest in Tesla? 

Tesla AGM: what does the shareholder vote mean for Musk?

“Hot damn I love you guys,” Musk said to the audience of investors after the votes came in.

Shareholders gave the green light on both key resolutions. The pay package passed by a 3.3-to-1 margin, according MarketWatch. Meanwhile, the move to Texas passed by a 4.1-to-1 margin. 

Even if the vote wasn’t unanimous, it is a major coup for Musk. In the leadup to the AGM, proxy advisory firms Glass Lewis and Institutional Shareholder Services (ISS) both encouraged shareholders to vote against Musk’s pay deal. But investors seem to have made up their own minds on the matter. 

Musk’s ongoing popularity is perhaps surprising given the performance issues Tesla has suffered so far this year. Its share price has plummeted more than 25% year-to-date and 55% from its November 2021 peak. The company slipped out of our “most popular stocks” list last month. 

"The decision to pay Mr Musk – and back his decision to switch Tesla's state of origin to Texas from Delaware – is a major show of faith in him on behalf of shareholders,” says Russ Mould, investment director at AJ Bell. 

"Shareholders clearly feel he is worth the money and worth backing even as he wrestles with what to do with X and multiple other projects, and even as Tesla faces ever-greater competition”, he adds. 

This competition may be the very reason shareholders deem Musk so necessary to Tesla’s success, in Mould’s view. He points to several challenges the company is grappling with right now – from proving it is still in the AI race to living up to its promises on autonomous driving. 

This could lead shareholders “to feel they need Mr Musk's vision, drive and leadership more than ever," he explains. 

Should you invest in Tesla?

MoneyWeek has explored the investment case for Tesla at length in recent months – and there are a lot of factors at play. 

On the one hand, the company is navigating a string of challenges at the moment including losing market share to competitors in the key market of China. What’s more, profits have declined sharply as consumers delay expensive purchases against a tough economic backdrop. 

On the other hand, the electric vehicle market should grow enormously if countries keep current targets in place. On top of this, Musk has announced plans to launch more affordable models by early 2025. This could help Tesla regain market share in areas where it is currently being priced out by cheaper competitors. 

Despite the decline in Tesla’s share price since late 2021, Morningstar analysts currently rate the fund as fairly valued. In a research note published on 14 May, they confirmed their fair value estimate for the stock is still $200. 

Morningstar’s estimate is only slightly higher than Tesla’s current share price, which is around $182 at the time of writing. This suggests investors might not be getting that much bang for their buck. It also doesn’t give them much wriggle room if Tesla continues to face challenges from here.