Tesla: here's why the $56 billion granted to Elon Musk is “wind” for the moment

© Wikimedia Commons/Dan Taylor/Heisenberg Media

On June 13, Tesla's board of directors finally voted in favor of the very controversial compensation plan of its boss Elon Musk – amounting to $56 billion. This plan was decided in 2018, validated by both the board of directors and the company's general meeting.

Indexed to his performance, the remuneration plan then covered 12 tranches of stock options, the value of which was each equivalent to 1% of the company's capitalization. Leading to this unprecedented amount, more than 250 times higher than the most generous plan granted to the boss of a listed company.< /p>

Initially “modest ambitions”

At the time, however, the plan, although generous, was supposed to be for a much more reasonable amount. The shareholders were in fact betting more on an amount less than 3 billion dollars, given Tesla's then capitalization and its potential.

There was indeed an upper limit of $55.8 billion, just to provide a safeguard just in case. But the amount seemed totally unrealistic – while the very survival of the company was in question and the entrepreneur said he was sleeping in his HQ to supervise all the necessary improvements himself.

We indeed remember  its initial error around the robotization of production lines. Before realizing the impossibility of doing it… particularly on welding stations, which are far too complex to automate on large parts.

To everyone's surprise, Elon Musk had however radically changed his approach. ;support by re-employing employees, and by designing models containing ever fewer parts to simplify assembly.

Elon Musk can boast of an unexpected success

All this while aggressively pushing the internationalization of the group, including including in China, and by focusing on R&D (batteries, chips specialized in computer vision to deliver autonomous driving, in particular). Everything is placed in ambitious projects, such as robotics (the famous Optimus robot) supposed to benefit from synergies with the company.

Alongside this, the firm also invented the lucrative concept of “DLC for cars”, by selling more or less restricted vehicles, making it possible to sell options remotely, available immediately.

The entrepreneur has also deployed the world's largest fast charging network. All of this helped, among other things, to get the company out of the water. To the point of establishing itself in sales in key markets such as the United States, Europe and China.< /p>

Little by little, the capitalization of the firm regains color, and thus allows the entrepreneur to claim the maximum attributable as a remuneration plan. In January 2022, all conditions were met to deliver to the entrepreneur nearly $56 billion in remuneration.

The stone in the shoe

Elon Musk's euphoria did not last very long, however. A shareholder, Richard Tornetta, had in fact launched, in 2019, with a group of other shareholders, an action before the courts of Delaware where the automobile manufacturer is registered. With the intention of canceling the plan. And they finally got it right three years later.

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The causes are multiple. But what seems to have worked the most against Elon Musk is that Justice considered Tesla's board of directors to be not very independent. No proof of contradictory procedure surrounding the plan having, among other things, been provided.

Elon Musk gets carried away, and quickly proposes (in a spontaneous declaration of which he has the secret) a new remuneration plan. The latter should allow him to hold some 25% of the company – even though to date he only holds 17% of Tesla including options, following the particularly ruinous takeover of Twitter (finalized largely thanks to sales of his shares).

The latter then believes, a bit of an antics, that owning a quarter of the company is the best way to align his interests to transform Tesla in “leader in artificial intelligence and robotics”. And the entrepreneur to’add : “that's enough to have influence, but not so much that you can't be outvoted.”

In fact, the operation could have been (outrageously) more interesting for Elon Mus.Reaching this amount of shares would represent, with the current capitalization, some 70 billion dollars. Enough to largely compensate for the 56 billion dollars of the very expensive acquisition paid for the site founded by Jack Dorsey…

And now ?

However, this proposal will not be followed. Neither Tesla nor Elon Musk actually gave up on the matter, and have since adopted a new strategy to ensure that the payment takes place. The aim of the June 13 vote, in a context where the plan remains annulled by the courts, thus goes beyond simply passing in force (while risking heavy reprisals).

The latter relies in fact on a somewhat vague article of Delaware Business Law (Sec. 204 – DGCL) to justify this second vote. At the risk of diverting the article a little too much according to many jurists – which risks jeopardizing the decision. But a full appeal of the Delaware decision is indeed planned in parallel.

Even if the legality of the vote is questioned, the main thing is to show shareholder support for this plan. Which, Tesla and Elon Musk obviously hope, will change the balance of forces, by weakening the position of the plaintiffs. The game is thus still far from over, with a new aspect before the justice of Delaware being able to take place ;spread over several years.

We imagine that nearly 56 billion dollars are worth fighting for a while…

• Elon Musk will have to , despite the recent validation of his immense remuneration package, wait a little longer to benefit from it.
• The decision is in fact based on fragile legal bases, and mainly aims to win an appeal before the courts.
• Procedure which could still extend over several years…

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