It’s time Elon Musk faced a blunt truth about Tesla

It’s time Elon Musk faced a blunt truth about Tesla

Elon Musk speaks at the “Cyber Rodeo,” a grand opening event for Tesla’s new factory in Austin, Texas.

Tesla’s shareholders will be offered a free tour of a Tesla factory, perhaps a blue tick on X, the site formerly known as Twitter, or even a trip in one of his space rockets.

Elon Musk is doing everything he can to win shareholders’ backing for his bumper $56bn (£44bn) pay package for running the electric car manufacturer ahead of a crucial vote on the issue in less than two weeks from now.

But while Musk is one of the great entrepreneurs of the century, and has been crucial to the company’s success, the blunt truth is that no one is worth $56bn, or anything even close to it.

It is shaping up into an epic contest, with shareholders lining up on both sides of the issue. Musk’s massive payout for driving the Tesla share price up, first agreed back in 2018, was overturned by a judge in Delaware, where the company is incorporated, who ruled that the company’s boss had put too much pressure on a largely supine board to agree to the deal.

In response, Musk plans to move its base to the far friendlier Texas. While that will not necessarily remove the veto, it will make it far easier to push it through.

Shareholders are being lobbied furiously to approve the move. Only last week, the influential proxy adviser ISS told shareholders to vote against the pay package, while a week earlier, its fellow adviser Glass Lewis said the award was of an “excessive size”, which seems a mild description of $56bn.

Against that, Tesla has taken out adverts and built a website to support the move and poured huge sums of money into getting private investors on board.

With the blunt language that is so often characteristic of the Musk team, Robyn Denholm, Tesla’s chairman, has dismissed criticism of the package as “crap” and “total BS”, while Musk himself has started dropping heavy hints that he would rather go off and concentrate on his other businesses if he doesn’t get the rewards he feels he is entitled to for running Tesla.

In fairness, if anyone is worth a pay package of that size it is probably Musk. Tesla’s share price rose from $1.40 back in 2010 to more than $400 at their peak. The value of the company, admittedly briefly, went over $1 trillion. Along the way, it has created a new luxury auto brand with a global presence, the first major new player in the industry since the Japanese manufacturers rose to global prominence in the 1960 and 1970s.

It has been a fantastic achievement, and one that has taken the kind of obsessive determination that Musk exemplifies. He is, without question, one of the great entrepreneurs of the century so far.

Yet there are three big problems with the award as it stands. First, Musk has always multi-tasked furiously, and yet since the package was first agreed he has started to spread himself even more thinly.

The takeover of Twitter has consumed vast amounts of his time and energy. His SpaceX rocket business has become bigger, but it is also taking up more of his time. He has just raised $6bn for his artificial intelligence start-up xAI, and presumably that will take up a few hours a month as well.

Meanwhile, we learned last week that he might take a role as an official adviser to the Trump White House, should the former president win re-election in November (and, heck, who knows, if the boss is detained in court perhaps he will run the country).

The list of jobs gets longer and longer all the time. For $56bn you might be hoping to get an executive’s full-time attention, and yet that is clearly not true of Musk anymore. If he spends less and less time on Tesla, he can’t expect to be paid quite so extravagantly.

Next, it diverts too much money away from shareholders. In fairness, Musk does not draw a salary, but the shares he will be awarded under the proposed plan will dramatically increase his stake in the business. That comes at the expense of the existing shareholders who, obviously enough, will end up owning far less. That hardly seems fair.

Perhaps most significantly, the company is clearly losing its edge. The sales of EVs are falling off a cliff as buyers worry about charging, about the cost of repairs and insurance, and as governments, fretting over vanishing fuel tax revenues, start to impose more and more taxes on them.

The competition looming from China is brutal, with a whole range of well-designed battery powered cars, with a huge domestic market behind them, coming on to the global market. And Tesla seems unable to make up its mind whether it wants to move into the mass market with cheap EVs or to stay in the luxury market, turning itself into an electric BMW or Mercedes. The price for that kind of strategic confusion is typically a high one, and companies that can’t settle on a clear strategy rarely prosper.

The shares have more than halved from the 2021 high as investors, quite rightly, grow more and more worried about the challenges it is facing, and whether it can be consistently profitable. Against that backdrop, perhaps a change at the top is overdue anyway.

In reality, Musk’s threats are mostly bluster. It is very hard to see him walking away from a business to which he has committed most of his adult life, which briefly made him the richest man in the world, that has allowed him to branch out into other industries, and which is likely to provide him with the legacy he craves.

It would be too much to give up. The shareholders are quite right to hold their ground, and keep rejecting the package. No one is ever worth that kind of money.

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