Tesla Shareholder Meeting: Astronomical Compensation Plan Approved, Can Musk Stop the Decline in Sto

The Tesla shareholder meeting was held on Thursday Eastern Time in Austin, Texas, USA. The meeting voted on twelve proposals, with the two main proposals being approved: Tesla shareholders approved CEO Elon Musk’s $56 billion compensation plan and supported Tesla’s relocation of its headquarters from Delaware to Texas.

During the meeting, Musk also elaborated on Tesla’s vision, stating that the current weekly production of the Cybertruck has exceeded 1,300 units. He mentioned the need to produce different versions of the Cybertruck for the EU and China, accelerate the production of the Semi truck, and that there are three new products to be released in the future.

A roller-coaster journey for the astronomical compensation

In 2018, Tesla shareholders approved Musk’s astronomical compensation plan with 73% of the vote.

The plan stipulates that starting from January 21, 2018, Musk would receive company stock options whenever Tesla simultaneously reaches two progressive milestone targets. Each time a target is met, Musk would be awarded options equivalent to 1% of the company’s total outstanding shares.

There are a total of 12 milestone targets, each including:

1. An increase in the company’s market value by $50 billion.
2. Simultaneously meeting two operational indicators: revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA).

If all 12 milestones are achieved, Tesla’s revenue would increase by 21 times compared to 2017, EBITDA would increase by 17 times, and the market value would increase 11 times. In this case, Musk would cumulatively receive stock options equivalent to 12% of the company. Considering Musk already owns 13% of Tesla’s shares, his holding would increase to 25% once the compensation is realized.

When this compensation plan was announced in early 2018, Tesla’s market value was only around $59 billion. To many, the plan seemed nearly impossible to achieve, with news media at the time using the term “laughable” to describe it.

Despite the skepticism, Musk indeed accomplished it.

Since 2018, Tesla’s business has been booming, with the company’s market value peaking at over $1 trillion. Even though the company’s stock price experienced a significant decline in 2023, it still maintains a market value of over $600 billion today, which is more than ten times its 2017 value.

According to the original 2018 compensation plan, Musk had already achieved the previously established milestone targets, allowing him to secure 12% of the company’s stock. However, in January of this year, a judge in Delaware invalidated the 2018 compensation plan, rendering the astronomical compensation null and void. The court found significant issues with the approval process of the compensation plan, including misleading information disclosure and a lack of independence in the board’s decision-making.

Unfazed, Musk responded on the social platform X, stating that he would no longer register the company in Delaware. After gaining widespread support from netizens, Musk decided to move Tesla’s registration to Texas and asked shareholders to vote again on the compensation plan at the shareholder meeting.

Although this vote was seen as a referendum on Musk’s leadership style at Tesla, most individual investors supported Musk. Some institutional investors, however, expressed their opposition to the plan, believing that Musk’s compensation package was excessively high.

“Firstly, this sends a message that Tesla’s retail shareholders indeed approve of the company’s current trajectory. Once the exact voting ratio is announced, it will provide us with more interesting information,” said Lindsey Stewart, Director at Sustainalytics.

On the eve of the June 14 shareholder meeting, Musk stated on X that the compensation plan would be approved. The final outcome, as everyone now knows, confirmed his prediction.

Meeting Content and Results

At this conference, Tesla shareholders voted on 12 proposals, covering aspects of corporate governance, executive compensation, and sustainability.

Proposal 1: Elect two Class II directors for a three-year term Tesla proposed to elect two directors—Kimbal Musk, Elon Musk’s brother, and James Murdoch, son of media mogul Rupert Murdoch—for a term of three years or until their respective successors are duly elected and qualified.

• Board: Approved
• Shareholders: Approved
• Result: Passed

Proposal 2: Approve executive compensation plan on a non-binding advisory basis

• Board: Approved
• Shareholders: Approved
• Result: Passed

Proposal 3: Approve the relocation of Tesla’s headquarters from Delaware to Texas

• Board: Approved
• Shareholders: Approved
• Result: Passed

Proposal 4: Approve the 2018 shareholder-approved Elon Musk 100% performance stock option award

• Board: Approved
• Shareholders: Approved
• Result: Passed

Proposal 5: Approve PricewaterhouseCoopers LLP as the independent registered public accounting firm for the fiscal year 2024

• Board: Approved
• Shareholders: Approved
• Result: Passed

Proposal 6: Shareholder proposal to reduce the term of directors to one year

• Board: Opposed
• Result: Passed

Proposal 7: Shareholder proposal to adopt a simple majority vote standard in governance documents

• Board: Opposed
• Result: Passed

Proposal 8: Shareholder proposal to report on anti-harassment and discrimination efforts annually

• Board: Opposed
• Result: Not passed

Proposal 9: Shareholder proposal to adopt a policy for freedom of association and collective bargaining

• Board: Opposed
• Result: Not passed

Proposal 10: Shareholder proposal to report on impacts and risks associated with electromagnetic radiation and wireless technology

• Board: Opposed
• Result: Not passed

Proposal 11: Shareholder proposal to set goals and report on the feasibility of incorporating sustainability metrics into the executive compensation plan

• Board: Opposed
• Result: Not passed

Proposal 12: Shareholder proposal to commit to suspending the procurement of minerals from deep-sea mining

• Board: Opposed
• Result: Not passed

During the Tesla shareholder meeting, Musk engaged in in-depth discussions with shareholders on the company’s future, technological innovations, product planning, and his personal role. Highlights included the customization of the Optimus robot, international expansion of the Cybertruck, reduction in battery costs, and ongoing updates to Full Self-Driving (FSD) technology.

Musk announced the upcoming launch of Tesla’s Robotaxi service, detailing the technology and strategic partnerships behind it. He also addressed future strategic developments for Tesla. Analysts expect these innovations to increase Tesla’s market share and profit margins, indirectly boosting the stock price.

There is a need to produce special versions of the Cybertruck for China and the EU. Musk committed to beginning “limited production” of Optimus in 2025 and testing humanoid robots in Tesla’s factories next year. He predicted that by next year, the company would have “over 1,000 or thousands of Optimus robots working at Tesla.”

Since January, 65% of advertisers on the X platform have returned, with small companies currently contributing the majority of X’s advertising revenue. The Optimus robot could make Tesla a company worth $25 trillion.

Musk also showcased new-generation battery technology, which can significantly improve vehicle range and reduce charging time, crucial for electric vehicle users and Robotaxi operations. These measures meet investor expectations, enhancing the stock’s appeal to ESG funds and socially responsible investors.

Investors considering investing in Tesla post-shareholder meeting should proceed with caution. Besides focusing on major decisions and technological innovations discussed at the meeting, they should verify the information’s authenticity and whether the results align with expectations.

Following the shareholder meeting, Tesla’s stock price immediately rose, increasing by approximately 1.8% in after-hours trading on the day of the meeting and continuing to rise by over 3% in early trading the next day.

Investment Recommendation

Overall, the 2024 Tesla shareholder meeting had a positive impact on the stock price. Technological innovations and strategic adjustments were seen as major favorable factors by the market, driving the stock price up.

However, the court ruling and the failed shareholder proposals might lead to a prolonged legal battle for Musk, who is expected to appeal. If the appeal fails, the relocation of the company’s registration to Texas could allow Tesla’s board to restart the compensation plan in a potentially more favorable judicial environment.

In summary, the meeting demonstrated Tesla’s strong commitment to technology, strategy, and sustainability. Tesla remains a leader in the electric vehicle sector with numerous competitive advantages, including scale, brand recognition, and effective vertical integration. The sector is expected to experience long-term growth over the next several years, even decades.

As of Thursday, Tesla’s market value was approximately $580 billion, with pre-market stock prices rising over 6%. According to FactSet, the total value of the S&P 500 index currently stands at $45.5 trillion.