Tesla shareholders resolutely backed a proposal to confirm Elon Musk's multibillion-dollar pay package, according to voting details released on Friday.
A vote of confidence in Musk reduces the risk of him leaving Tesla but could also validate behavior that some investors say has harmed the automaker, analysts and investors said.
The passage of the proposal was announced at Tesla's annual shareholder meeting on Thursday without a base cap. In the end, about 72% of voting shares, excluding those owned by Musk and his brother Kimball, supported the pay package.
For months, many Tesla investors have worried how involved Elon Musk would be in the electric car company's operations after a Delaware judge invalidated his originally approved pay package in 2018.
The compensation plan requires Musk to hold the shares for at least five years before selling them, and the value of the package will continue to fluctuate before he does so. As of Friday's close, the stock was worth about $47 billion.
Speaking to shareholders after the vote, Musk pledged that he would remain committed to Tesla. He said the pay package “isn't really cash and we can't cut it and we don't want to.”
Tesla shares fell more than 2% on Friday, reversing some of the previous day's gains when Musk said the pay vote would be approved before official results are released. His supporters celebrated the vote online and analysts revised their reports on Tesla's prospects.
Vanguard, which owns a 7% stake in Tesla, making it the second-largest shareholder after Musk, voted in favor of paying the salaries despite voting against it in 2018. In a memo explaining the twist, Vanguard said it was concerned. As for package size, “the unique situation of evaluating the plan retrospectively addressed our concerns.”
Bernstein analysts wrote in a note after the results came out that they served as a “vote of confidence in Elon.” “While some uncertainty remains about the legal process and next steps, by those standards the vote was a clear pass, allaying concerns that Elon might leave the company or direct more of his energies elsewhere.”
The clear order was disappointing to investors who had hoped the vote would help Musk address slumping car sales or pressure him to spend less time on X, the social media platform he owns.
“I don’t think he’s learned any lessons,” said Ross Gerber, CEO of investment firm Gerber Kawasaki, an early Tesla investor who has recently been reducing his stake. “He will see this as a victory: ‘I’m going to keep doing what I’ve been doing.’”
Tesla's board of directors had hoped that a second confirmation of salary payments would persuade a Delaware court to overturn its ruling. The judge in the case said the compensation was excessive and was directed by Musk to a board of directors with whom he had a personal relationship.
“We believe that the ratification vote that Elon demanded and forced was seriously flawed and legally invalid,” said Greg Varallo, a lawyer for disillusioned Tesla shareholders who have challenged Musk’s pay in court. “We don’t believe it has any impact on our case,” he said. said in a statement.
The pay package will increase Musk's stake in Tesla from about 13% to 20.5%. He said in January that he wanted a 25% stake, saying “enough to have influence, but not so much that it can't be flipped.” He said that if he didn't get such a large stake, “he would prefer to build the product outside of Tesla.”
Even after this week's gains, Tesla's stock price is down 28% this year, while the broader stock market is up 14%. The company remains the most valuable automaker, with a stock market value of $568 billion, but its shares have fallen amid fears of increased competition and slowing demand for its models.
At Thursday's shareholder meeting, Musk was characteristically optimistic about Tesla's self-driving technology, including its promised robotaxi, and said the company's humanoid robot, Optimus, would grow into a trillion-dollar business in its own right.
According to FactSet, market analysts are divided on what direction Tesla will take next. About 40% rate the stock as a “buy,” 20% as a “sell,” and the rest as a “hold,” according to FactSet. The range of price predictions is wide, with the average roughly down to where the stock is currently trading.
Bernstein's price target implies a 30% decline, and analysts rate the stock “underperform.” Others are more optimistic. Analysts at Wedbush think the stock could rise 50% from here and rate it an “outperform.” The vote on pay was a “champagne-popping moment,” they wrote. “Tesla is Musk and Musk is Tesla.”
Peter Ebisu and Michael J. de la Merced contributed to the report.