Elon Musk tried to explain his strange ask for more control over Tesla, which seemingly came with a threat to divert AI products from the automaker to his new startup, during his earnings conference call.
It doesn’t look like Tesla shareholders are buying it as the stock crashed by as much as 10% this morning.
Last week, we reported on Musk bizarrely asking for a 25% voting control over Tesla because of his fear that some entity could take over the company to control its AI projects.
He warned that without this level of control, he would “prefer to build products outside of Tesla”. Musk owns an AI startup called xAI, which has made some Tesla shareholders uncomfortable since the CEO also describes Tesla as an “AI/robotics company.
By saying that, Musk is basically confirming that he has a conflict of interest between Tesla and xAI. You could even make the argument that he is breaking his fiduciary duty to Tesla investors.
Shareholders asked Tesla if they should be worried about Musk’s comments. Over 4,000 Tesla retail investors voted for the question to come up during Tesla’s earnings call yesterday.
Musk tried to explain his position:
Let me explain why. What my concern is here, which is that, you know, I see a path to creating an artificial intelligence and robotics juggernaut of truly immense capability and power. And my concern would be I don’t want to control it, but if I have so little influence over the company at that stage that I could sort of be voted out by some sort of random shareholder advisory firm.
The CEO added:
You know, we’ve had a lot of challenges with Institutional Shareholder Services, ISS. I call them ISIS and Glass Lewis, you know, which there’s a lot of activists that basically infiltrate those organizations and have, you know, strange ideas about what should be done. So, you know. I want to have enough to be influential – like, if we could do a dual class stock, that would be ideal. I’m not looking for additional economics; I just want to be an effective steward of very powerful technology. And the reason I just sort of roughly picked approximately 25% was that -that’s not so much that I can control the company even if I go bonkers. And if I’m, like, mad, they can throw me out, but it’s enough that I have a strong influence. That’s what I’m aiming for – a strong influence but not control. There’s some way to achieve that, that would be great.
For Musk to get 25% voting control, he would need to receive a stock package worth about $60 billion. He says that he doesn’t want more money, just voting control, but dual-class voting shares are not really possible to structure post-IPO.
More shares would appear to be the only way for Musk to get more control over Tesla after he sold billions worth to acquire Twitter.
Tesla’s stock crashed as much as 10% this morning following Tesla’s earnings.
Let me start by stating the obvious: no one currently has more control over Tesla than Elon Musk. He is the CEO and largest shareholder.
Secondly, he will gain even more control as he exercises more shares from his previous compensation plan.
ISS companies have tried some shareholder activism at Tesla, but they have been extremely unsuccessful for the most part. It’s ridiculous to compare their intentions to a terrorist organization, but even if you forget about their intentions, there are serious doubts about their effectiveness in affecting Tesla in any serious way in the first place.
They are certainly not a reason to give 25% control over Tesla to Musk. Even if it was, it doesn’t really answer the bigger problem: the conflict of interest Musk has between Tesla and xAI, which I think was more what the shareholders were asking about.
Musk didn’t even address that at all in his comments.
The most ridiculous thing about this whole situation and how Tesla is reacting to it, or more accurately not reacting to it, is that it shows how much control Musk currently has over Tesla.
If Tesla wasn’t under his control all the way up to the board, the Tesla board would have already, at the very least, commented on the situation. They haven’t. The CEO is publicly saying that he would prefer building products outside of the company without a 25% voting control and crickets from the board. It’s wild. Only at Tesla.
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