It's a highly relatable situation: You think you're doing great at your job, you have a lot to show for your hard work, and you're hoping to be rewarded with a nicer pay deal. And then the Delaware Court of Chancery goes and voids the unprecedented $55 billion compensation package you were hoping to lock down. We've all been there!
That story kicks off today's edition of our Critical Materials news roundup. Also on tap: a little more on General Motors' decision to go back to offering plug-in hybrid cars, and Volkswagen is getting directly into the AI game. Let's hit it.
30%: Musk's Big Payout Gets A Big 'No' In Court
Back in 2018, Tesla's board granted CEO Elon Musk the biggest executive pay package ever awarded to the chief executive of a publicly traded company, worth $55.8 billion if certain benchmarks were hit. To the Tesla board—which is infamously loyal to Musk and packed with his close supporters—it made sense, given the automaker's meteoric rise (particularly its stock price) and how it disrupted the entire industry.
But not all investors felt that way. At least one claimed the board never issued proper disclosures around Musk's giant payday, or what it would take to get there. So they filed suit in Delaware, where Tesla is incorporated, and the pay package has languished in a civil court for years.
That came to a head yesterday as Delaware Chancery Court Chief Judge Kathaleen St. J. McCormick sided with the investor, saying, essentially: nope. In fact, she called it "unfathomable." Here's a recap from Bloomberg:
The decision Tuesday, which amounts to his first major loss in court, means that more than five years after the electric-car maker’s co-founder was granted the largest executive compensation plan in history, Tesla’s board will have to start over and come up with a new proposal. Musk never attempted to exercise his options since they’d been challenged in Delaware Chancery Court. Tesla’s share price slid about 3% in after-hours trading on the news.
Musk has repeatedly urged Tesla’s board to arrange another massive stock award for him, years after he sold a significant chunk of his shares in the company to acquire Twitter. The billionaire has said he needs a bigger stake in Tesla to maintain control of the electric-car maker and expand further into artificial intelligence.
[...] “In the final analysis, Musk launched a self-driving process, recalibrating the speed and direction along the way as he saw fit,” the judge wrote in a 200-page ruling. “The process arrived at an unfair price. And through this litigation, the plaintiff requests a recall.”
Musk responded predictably on X, and also issued a poll asking if Tesla needs to change where it's incorporated:
I'm sure he's upset. You would be too, if you had to re-litigate that much money in court. And that is likely what is going to happen here, since there will almost certainly be an appeal.
As that Bloomberg story notes, this is about more than just how much Musk gets paid: it's about his near-total control of Tesla, something that sits fine with some investors and not so well with others who wonder about a post-Musk future—or even what would happen if he decided to walk. Just earlier this month, Musk began campaigning for even more of a voting control over Tesla.
Musk dictated the “framework and financial terms, which remained fundamentally unchanged” throughout the board’s approval process, Tornetta’s lawyers argued in briefs. In her decision, McCormick noted that Musk acknowledged he was basically “negotiating against myself” in the back-and-forth over his pay.
“The most striking omission from the process is the absence of any evidence of adversarial negotiations between the board and Musk concerning the size of the grant,” the judge wrote. The decision was delayed, in part, by the judge’s back surgery last year.
Musk’s defense failed to explain why the “historically unprecedented compensation plan” was necessary to motivate the CEO to achieve “transformative growth.” Musk had no intention of leaving Tesla, and his ownership stake was sufficient motivation to keep him focused on growth, the judge said.
Expect more on this from InsideEVs soon, but it does speak to the degree to which Musk and Tesla are intertwined—perhaps even permanently at this point.
60%: GM's Hybrid Comeback Is About Emissions, Fuel Economy Regs
The big news out of GM's Q4 2023 earnings call yesterday was an announcement that plug-in hybrids are coming back to The General's stable soon. I hope you read my analysis here, explaining why this is both a good move and fraught with mechanical and logistical complexity as GM has to very quickly engineer this middle ground between its current gas-powered cars and the electric future it wants, but is struggling to deliver.
One point I wish I had hit harder was the importance of tightening fuel economy and emissions rules to this decision. Luckily, Automotive News has us covered today:
GM will time the launches "to help us comply with the more stringent fuel economy and tailpipe emissions standards that are being proposed," she said, "and we plan to deliver the program in a capital- and cost-efficient way because the technology is already in production in other markets."
The EPA has proposed a fuel economy rule through the 2032 model year that would require an average annual fleetwide emissions reduction of 13 percent and a 56 percent cut in average emissions target levels from the 2026 model year. To meet those targets, EVs might need to account for as much as two-thirds of U.S. new-vehicle sales by 2032.
Basically, I think GM bet the farm on meeting those emissions rules with a proliferating EV lineup to offset its heavy reliance on gas-powered trucks and SUVs. But pivoting to EVs is proving harder than expected, and taking longer as well; plus, GM isn't sure all its customers will be "ready" by that time. Hence, it needs hybrids now as it makes that transition and still cuts down on fuel use and CO2 emissions.
90%: Volkswagen Makes An AI Bet
The big story out of CES this year was car software—specifically, the role AI will play in it. Carmakers envision a future where voice-controlled AI assistants help you do everything in your car, from recommending restaurants you like to operating various complicated vehicle functions.
And as part of its own big software push, Volkswagen is going big into that world, almost startup-style. Here's Reuters:
The company has founded a new 'artificial intelligence lab' to generate new product ideas, including possible cooperations with companies in the technology sector across China, North America and Europe, it said in a statement.
The aim is to generate early-stage prototypes in areas like AI-optimised charging cycles, predictive maintenance services and voice recognition.
"Exploratory talks are already underway with international tech companies on initial projects," it added, without providing further details.
The lab will not be housed inside Volkswagen's software unit Cariad or a specific brand, with the view of moving faster than other processes within the company would, a spokesperson said.
That last sentence is very interesting to me. That's because the VW Group reorganized its once-disparate software operations (which used to be spread across multiple brands, like Porsche and Bentley) under one division called Cariad. But Cariad has not been without its problems; indeed, it's had many reorganizations and shuffles of its own, leading to software-driven delays of key models. Putting this AI lab outside of even Cariad may say a lot here.
100%: Is Elon Musk's Payday Actually Fair?
Or should no one man have all that power—and money?
