The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Jonathan Guilford
NEW YORK, Aug 4 (Reuters Breakingviews) - A fight caused by Elon Musk’s iron grip on Tesla TSLA.O is showing just how tight his control is. The electric carmaker’s board on Monday handed its boss stock worth $29 billion to show its “good faith” in an ongoing legal dispute over a pay package worth almost twice that sum. The latest bonanza fixes none of the problems posed by a CEO who is both a burden on the company’s present and an essential fulcrum of the future hopes supporting its $980 billion market value.
The first problem is that Tesla’s “Technoking” CEO wants 25% voting control of the company. The 2018 award would have lifted his stake over 20%. But that payday has been in legal limbo since Delaware judge Kathleen McCormick last year ordered it be rescinded due to the hopelessly conflicted process by which the board made its decision. The latest “interim” payment, which will effectively be canceled if Tesla succeeds in getting the original reinstated, merely increases Musk’s ownership to around 16%. After more than a year of struggle, the question of his next incentive package remains unresolved.
The second issue is that the tech tycoon’s value to his company is increasingly double-edged. Musk once attracted a fervent following among technologists and the car-buying public. Yet brand loyalty among Tesla owners has plummeted since he jumped into electoral politics – first backing President Donald Trump and then falling out with him – Reuters reported based on S&P Global Mobility data.
Even so, Musk retains a unique aura for Tesla investors. How else to explain a stock trading at 148 times expected earnings over the next 12 months, according to LSEG data, when financial results are slumping?
He has pushed a strategy that de-emphasizes the humdrum business of selling actual cars, swapping out a path-breaking, truly cheap vehicle plan for a cut-rate model that cannot profitably hit a sub-$30,000 price. Instead, Musk now talks about Tesla building millions of humanoid robots or self-driving taxis even as it trails Google’s GOOGL.O Waymo and other rivals. Every decision - from cutting the sensors in each car to incorporating language model Grok - leads to more dependence on an artificial intelligence push that depends on raw scale. Here, Musk is among a select group of AI pioneers who can collect enough powerful semiconductors and push past pesky regulations.
Musk has even proposed that Tesla invest in his xAI business, potentially tying the carmaker even more tightly to the rest of his empire. As the standard business of selling automobiles is pushed further to the background, the company depends ever more on the peculiar whims of its CEO. His extracurricular activities - from xAI to rocket-maker SpaceX to political activism - seem likely to continue; investors in another of his companies were recently warned that Musk may re-enter the electoral arena. All the new pay package does is cement this reality, while desperately trying to rekindle the old magic.
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CONTEXT NEWS
The board of electric carmaker Tesla approved an interim award of 96 million shares of restricted stock for Chief Executive Elon Musk, according to a regulatory filing disclosed on Aug. 4. The shares vest in 2027 and Musk must pay $23.34 each to exercise them.
The exercise price is equivalent to a 2018 stock award, worth a maximum of $56 billion at the time, that is in limbo after a Delaware judge ruled that it was improperly granted. Based on the company’s share price on Aug. 1, the accounting fair value of the new interim award would have been approximately $23.7 billion, the company said in a filing.
If Musk’s 2018 pay package is reinstated, he will either return or repay the interim award.
Tesla shares were up 1.2% at $306 in early trading in New York on Aug. 4.
Tesla's declining brand loyalty https://www.reuters.com/graphics/TESLA-SALES/CUSTOMER-LOYALTY/egpbqjmnrvq/chart.png
(Editing by Peter Thal Larsen; Production by Maya Nandhini)
((For previous columns by the author, Reuters customers can click on GUILFORD/ Jonathan.Guilford@thomsonreuters.com))
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