Does Tesla really need Tesla's 25% voting rights? Media: Not necessary

Tesla CEO Elon Musk recently posted on X platform expressing dissatisfaction with his current shareholding and hoping to gain greater control over Tesla, aiming to increase his voting rights to over 25%. However, some media outlets have expressed doubts about Tesla's proposed shareholding percentage, as if the 2018 compensation plan is implemented, his shareholding will already exceed 20% and have a significant influence. Moreover, if Tesla's shareholding reaches 25%, it will exacerbate the company's governance dilemma.

According to a previous report by Wall Street CN, on Monday, Tesla responded to the post, stating that if Tesla becomes a leading company in the field of artificial intelligence and robotics and he does not have around 25% voting control, he would feel uneasy. Otherwise, he would prefer to develop products outside of Tesla. He stated that Tesla is not a startup but rather a dozen companies and expressed concerns about being sidelined.

Currently, Tesla holds approximately 13% of Tesla's shares, and if the Delaware court allows the 2018 compensation plan to remain unchanged, his shareholding will increase to 20.6% when exercising options according to the compensation plan.

Some media outlets believe that Tesla can at least wait until after the court ruling before requesting more shares. After all, if the court allows the 2018 compensation plan to continue, the board of directors is likely to consider granting him some new options, as he has already achieved the performance milestones required by the 2018 compensation plan and all options have been unlocked.

If the court invalidates the plan, Tesla's post has likely made it difficult for the board to easily meet his demands. In the case, one of the allegations is that "Tesla and its loyal supporters proposed the basic outline of his 2018 compensation plan before the compensation committee of the board intervened." Therefore, the media believes that the board is likely to cite Tesla's post on Monday and initiate new litigation.

The media believes that the question of whether Tesla needs more shares to have "influence" is questionable given the proposed standards by Tesla, if the 2018 compensation plan is implemented. According to data from S&P Global Market Intelligence, with Tesla's 13% shareholding, he is already the largest shareholder to date, followed by Vanguard with approximately 7%. If the plan is implemented and the shareholding exceeds 20%, according to accounting standards, he will have a significant influence. The problem Tesla faces is the possibility of the court rejecting the 2018 plan, although the solution would be for the board to develop an alternative compensation plan without shareholder interference. According to other media reports, if there is a new compensation plan this year, the amount mentioned above will only be larger than in 2018. However, even so, it will not be able to reach Tesla's 25% ownership target. The real problem for Tesla, as the media believes, lies in its corporate governance. His compensation demands will put the company's compensation committee in a dilemma. Even if the committee comes close to meeting his wishes, it seems to confirm their incompetence, which may expose them to further legal challenges. Moreover, allowing Tesla to have a quarter of Tesla's shares will only exacerbate the governance issue of how to control a CEO who controls the board through voting rights.

The implication of Tesla's post is that if he obtains more shares, he may not expand Tesla as much as he could have. However, the media believes that this would be meaningless from his perspective because Tesla's Tesla holdings (excluding options) are worth $90 billion, which is his largest source of liquid wealth. Tesla has no reason to do anything that could potentially devalue it. Furthermore, Tesla threatened to "build products outside of Tesla" if he doesn't get enough shares, but in reality, Tesla is already doing that, so this kind of rhetoric seems a bit off.

On Wednesday, Tesla's stock price fell 2.65% to $214.09. After more than doubling in 2023, Tesla's stock price has fallen by about 12% this year, wiping out over $94 billion in market value.