Elon Musk’s bid to transfer Tesla’s incorporation could give him more voting power on the automaker’s board.
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Tesla’s board is at a crossroads after a hefty pay plan for Elon Musk was rejected, analysts said.After the Delaware ruling, Musk announced a shareholder vote to move Tesla’s incorporation to Texas.A new package for Musk could include more voting control and AI initiatives under Tesla.
Tesla’s board has its work cut out for it following a judge’s surprise ruling against Elon Musk’s massive payday, analysts said.
Wedbush Securities, a financial advisory firm, released a report on Friday calling the decision “an absolute shocker.”
“It now creates a tornado situation for Tesla’s Board in the next move, with [Wall] Street closely watching this poker move and potential statement,” the report said.
The report noted that Tesla has not yet made an official statement and warned that the precise ripple effects remain to be seen.
The ruling found that Musk’s $55 billion compensation package was “beyond the bounds of reasonable judgment.” The court ruled in favor of the plaintiff — a Tesla shareholder — who argued that Musk had unduly influenced the pay plan through his close personal relationships with board members.
“Put simply, neither the Compensation Committee nor the Board acted in the best interests of the Company when negotiating Musk’s compensation plan,” wrote chancery judge Kathaleen McCormick. “In fact, there is barely any evidence of negotiations at all. “
Investors had widely expected the lawsuit to be thrown out, Wedbush said.
In response, Musk has said he will push to transfer the incorporation of Tesla from Delaware, where the court ruling occurred, to Texas.
“Never incorporate your company in the state of Delaware,” Musk wrote on X shortly after the ruling was announced.
That decision will be put to a shareholder vote in May.
“Musk is Tesla and Tesla is Musk,” Dan Ives, managing director at Wedbush, told Business Insider.
Ives said that if the company left Delaware, it would have “no more headaches” and the flexibility to pursue a new compensation scheme. That scheme, he said, would likely bring Musk’s voting control to 25%, which the billionaire discussed earlier this month.
That level of control would incentivize Musk to pursue his AI initiatives at Tesla. Otherwise, Musk has said he would feel “uncomfortable” pursuing further AI and robotics work at Tesla.
However, there is concern that Musk’s efforts will face resistance from activist investors. Some Tesla shareholders might not be so keen to grant Musk that level of control, Reuters reported.
Ives, in an interview on CNBC’s “Closing Bell” last week, said that, while his short-term optimism for the EV maker had been “dead wrong,” his firm remains “firmly bullish” on Tesla’s long-term prospects.
“I view this more as an evolution into the next phase [of the company], with AI and a mass-market vehicle, sub-$30,000,” Ives said.
Wedbush said the “mantra” for Musk and Tesla’s board going into May’s shareholder meeting will be, “They started it and we will finish it,” in reference to the courts.
