Following a Delaware judge's decision to once again reject Tesla Chief Executive Elon Musk's 2018 pay package, a key analyst wrote that the court ruling may "test the conviction" of investors after the stock has been catapulted higher in recent weeks.
Adam Jonas, Morgan Stanley's high-profile auto analyst and a Tesla stock bull, wrote late Tuesday that the Tesla stock reaction to the Delaware court is "modestly negative," adding that the issue of voting power and control for Musk is arguably more important than compensation.
"The Delaware court ruling news may test the conviction of Tesla bulls following a doubling of the share price in the past 6 months," Jonas wrote.
Jonas added that for long-term Tesla stock investors the news "will eventually be overshadowed by fundamental developments of the business."
"We believe the issue at hand is one of control rather than capital," Jonas said. "There may be many alternative paths to achieving control."
Tesla stock advanced 1.9% to 357.20 during market action on Wednesday after dropping 1.6% on Tuesday. The stock has been consolidating around highs in recent weeks.
The Delaware Decision
Delaware Court of Chancery Judge Kathaleen McCormick, in a late Monday decision, stuck with her January decision and once more rejected Musk's $56 billion compensation package from 2018. As of Monday's close, it was worth $101.5 billion.
In a statement on X, Tesla said it will appeal the court's decision.
In June, some 77% of shareholders voting approved giving Musk his 2018 $56 billion pay package, or 72% excluding Musk and his brother, Kimbal Musk. Tesla shareholders also voted this year in favor of reincorporating the company in Texas, moving it from Delaware.
Before the June shareholder vote, Musk suggested he might shift Tesla resources to his privately held xAI if he didn't get the pay deal, as well as further power giving him a 25% voting stake.
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.
Judge Kathaleen McCormick wrote in Monday's opinion that, "Even if a stockholder vote could have a ratifying effect, it could not do so here."
Meanwhile, Wedbush Securities analyst Dan Ives, a longtime Tesla bull, wrote Tuesday that "Musk is Tesla and Tesla is Musk."
"One way or another the board is getting Musk his pay package (and another long term one for the next decade) to secure Musk will be CEO of Tesla at least through 2030," Ives wrote.
"The Delaware Court battle has become a soap opera and we expect Tesla will ultimately win this fight at the Supreme Court level given shareholders have approved this pay package twice in an overwhelming matter," the analyst said.
Tesla Is Falling Short On This Key 2024 Goal
Tesla Stock Performance
Tesla stock fell 2.1% to 345.16 last week, which included a 3.7% jump on Friday. Shares have been consolidating around 34-month highs for the past couple of weeks.
The EV giant is on a 40% tear since Trump defeated Vice President Kamala Harris in the Nov. 5 election. TSLA stock has surged in recent weeks in part on hopes that self-driving is coming soon, with the Trump administration easing the regulatory path. On Nov. 25, Tesla stock hit a high of 361.93.
Ives wrote on Sunday that Trump could "accelerate some of the FSD and autonomous initiatives for Tesla once he is in the White House."
"We believe a Trump White House helps unlock the $1 trillion of autonomous/AI value to Tesla's stock as autonomous/FSD is likely accelerated starting in 2025 and a tailwind for Cybercab timing," Ives said.
Tesla stock ranks first in the 35-member IBD Auto Manufacturers industry group. The stock has a 90 Composite Rating out of a best-possible 99. Shares also have a 96 Relative Strength Rating and a 78 EPS Rating.
Please follow Kit Norton on X @KitNorton for more coverage.
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