Tesla shareholders are voting in the run-up to the June 13 annual meeting as everyone awaits the result to see if Chief Executive Elon Musk's 2018 $56 billion compensation package will be reapproved or not.
Since Tesla on April 17 requested shareholders ratify Musk's 2018 pay package despite a Delaware court voiding the plan earlier this year, the EV giant has been attempting to drum up votes of its retail investor base. Musk's compensation deal is currently valued at around $45 billion.
The vote comes after a Delaware judge ruled against the 2018 package, deciding that the package was excessive and unfair to Tesla investors. The judge criticized Musk's "extensive ties" with Tesla board members.
Tesla board Chair Robyn Denholm and other Tesla executives plan to spend the coming weeks traveling across the world to get support from shareholders, according to the Wall Street Journal. In 2018, the Tesla board won approval for Musk's 2018 pay package with 73% of the vote.
Tesla shareholders are also currently voting on whether to move Tesla from Delaware to Texas. The EV giant has been incorporated in Delaware since 2003.
The Votes Needed
Voting has been open for the past few weeks. The Tesla board has recommended "yes" votes on both reincorporating in Texas and Musk's pay.
The vote on Musk's compensation requires a simple majority of votes, excluding those owned by Musk and his brother, Kimbal Musk. Meanwhile, the vote to reincorporate Tesla in Texas necessitates a majority of all shares outstanding, with any uncast votes counted as "no."
All Tesla stockholders can vote in Tesla's annual meeting with a deadline of 11:59 p.m. Eastern Standard Time on June 12. Registered stockholders may also vote at the virtual annual meeting.
Retail, or individual investors, currently own around 30% of Tesla shares. Billionaire Leo Koguan, who reportedly holds more than 27 million TSLA shares, posted to X recently he had voted against Musk's compensation plan. Koguan also voted against incorporating Tesla in Texas and new board terms for Elon Musk, Kimbal Musk and James Murdoch.
Koguan has a net worth of $5.9 billion, Forbes estimates. He is one of the largest Tesla retail investors.
Tesla Stock: Institutional Investors
Institutional investors hold a much-larger share of Tesla stock than they did in 2018. Vanguard voted against the Musk pay package in 2018, while BlackRock and many others supported it.
Eight institutional investors have announced they oppose Musk's pay package along with the reelection of Kimbal Musk and Murdoch, according to federal regulatory filings. The investors include Amalgamated Bank, New York City Comptroller, Nordea Asset Management, AkademikerPension and SOC Investment Group among others.
Meanwhile, proxy advisory firm Glass Lewis on Saturday released a report saying Musk's pay deal is "excessive" and cited the "dilutive impact" on current shareholders.
Glass Lewis also opposed Tesla's proposal to reincorporate in Texas from Delaware. Glass Lewis is one of the two major proxy solicitation firms. The other is Shareholder Services (ISS), which has not weighed in on Musk's pay deal or reincorporating in Texas. Back in 2018, ISS recommended voting no on the pay deal.
"It's like Mount Everest. It's a huge hill to climb because getting 50% of the shareholders to vote, let alone what they vote for, is quite tough," Tesla chair Denholm told the Financial Times recently.
The Legal Situation
Meanwhile, it's still unclear how the Delaware court could respond. The judge has scheduled a July 8 hearing to decide whether lawyers for the Tesla shareholder who brought the case against Tesla will receive $6 billion in TSLA shares as a legal fee.
After that hearing, Musk can request the Delaware Supreme Court to review the case. Unless the decision is reversed on appeal, the 2018 pay package will not be recognized under Delaware law.
That's where Tesla's move to Texas comes in. If shareholders approve the reincorporation in Texas, legal challenges will be filed in that state and not Delaware.
However, Tesla shareholders could challenge the EV giant's move to Texas. If that happens that legal challenge would go through Delaware courts, according to Bloomberg.
On May 28, the Delaware judge said she did not believe Tesla would circumvent her ruling on the case, according to media reports.
Tesla wrote in court documents that it was "rank speculation" that it would attempt to bring the case back up in Texas.
Tesla Vote: Musk's Control Warning
Meanwhile, Musk has hinted throughout the year that he feels he needs more TSLA shares and voting power.
In January, Musk posted on X that he's "uncomfortable growing Tesla to be a leader in AI & robotics without having ~25% voting control." The chief executive added that he wants enough shares to be "influential but not so much that I can't be overturned."
"This is primarily about ensuring the right amount of voting influence at Tesla," Musk said. "At 15% or lower the for/against ratio to override me makes a taker by dubious interests too easy."
Musk currently has a nearly 13% stake in Tesla. Prior to selling TSLA shares to purchase Twitter, now X, for $44 billion in late 2022, Musk owned around 22% of Tesla.
Since issuing that warning, Tesla and Musk appear to be shifting toward an increased focus on autonomy, its Full Self-Driving (FSD) technology and its robotaxi program as EV demand has slowed.
His XAI startup has already hired away a number of Tesla staff.
Tesla Stock Performance And The Tesla Vote
TSLA shares edged down 0.3% to 176.19 Wednesday during market trade. The stock fell 1.4% to 176.75 on Tuesday. Tesla stock has dropped 3.9% in May and has sunk around 30% on the year.
However, Tesla reported first quarter earnings and revenue on April 23, and has rallied since then, finding support at its 50-day moving average, according to MarketSurge analysis. On April 22, Tesla stock hit a 52-week low of 138.80.
Adam Jonas, Morgan Stanley's high-profile autos analyst and a Tesla bull, wrote last week that "as investors question if the CEO's commitment is less or more, we believe Elon needs Tesla more than ever before."
"We would encourage investors to pay close attention to the June 13th shareholder vote," Jonas said. "While impossible to predict the outcome, we expect the event could drive material volatility in the stock."
This comes after Jonas said on May 10 that the Tesla shareholder vote is significant to the "long-term strategic direction of the company."
Tesla stock ranks eighth in the 35-member IBD Auto Manufacturers industry group. The stock has a weak 39 Composite Rating out of a best-possible 99. Tesla stock also has a 15 Relative Strength Rating and a 62 EPS Rating.
Please follow Kit Norton on X @KitNorton for more coverage.
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