Submitted by QTR's Fringe Finance
Today’s read is from my friend Montana Skeptic - a strident critic of Tesla and Elon Musk who has appeared on my podcast numerous times. He is one of the most thoughtful analysts I’ve come to be a frequent reader of and I find his perspective on the continuing Tesla saga to be a must, whether you’re a bull, bear or otherwise.
He has a J.D. degree from Yale Law School, practiced for 30 years as a trial lawyer in commercial cases, and in the decade that followed managed a $1B+ portfolio for a family office.
For my further analysis of Tesla, entitled “Tesla’s Truth Can Not Long Be Hidden”, is available to read here: Tesla's Truth Can Not Long Be Hidden
The Dark Stain on Tesla's Directors
The gambits to “ratify” the compensation package awarded to Elon Musk in 2018 (the 2018 Grant) and to reincorporate Tesla in Texas now being attempted by Tesla’s Board of Directors are the most shameful acts of corporate governance I have ever witnessed. They combine a terribly unfair price with a hideously flawed process and immensely misleading disclosures.
In criticizing these gambits, I am far from alone. Tesla’s largest individual shareholder has publicly announced he will vote against the ratification proposal. Eight of Tesla’s largest shareholders have filed as proxy materials a letter setting forth in great detail their objections to both ratification and reincorporation. Scholars such as Professor Ann Lipton and Professor Charles Elson have castigated the Board both for the proposals and the process by which the Board arrived at them.
Most recently, the proxy advisory firm of Glass Lewis has urged shareholders to reject both proposals, pointing to the “excessive size” of the compensation and the “additional risk” to shareholders of moving to Texas.
I. The Elephants in the Room
We will examine the price, process, and disclosure analyses in that order. In considering each of them, we cannot ignore the two enormous elephants in the room, neither of which is ever mentioned, never mind addressed, by the Board in the proxy statement.
A. Musk’s Threat to Deprive Tesla of Its Business Opportunities
First is the corporate opportunity elephant. Musk has quite publicly stated that unless he is given at least a 25% ownership share of Tesla (he now owns 11.8% when excluding the rescinded options), he will cease developing artificial intelligence (AI) and robotics technologies at Tesla, and instead to move them “outside Tesla,” presumably to one or more companies in which he owns a much larger interest.
As I've said before, I think Optimus will be more valuable than everything else combined. Because if you've got a sentient humanoid robots that is able to navigate reality and do tasks at request, there is no meaningful limit to the size of the economy. So, that's what's going to happen. And I think Tesla is best positioned of any humanoid robot maker to be able to reach volume production with efficient inference on the robot itself.
Musk made clear that the “inference” efficiency arises from Tesla’s AI capabilities:
I mean, this, perhaps, is a point that is worth emphasizing Tesla's AI inference efficiency is vastly better than any other company.
Is it clear enough that Musk’s vision for Tesla depends on AI and robotics? In case it’s not, try this statement on for size:
Like really, we should be thought of as an AI or robotics company.
For Musk to take these Tesla technologies elsewhere, or otherwise to hamper Tesla’s further development and exploitation of them, would be a brazen and immense breach of his fiduciary duty.1
For Musk even to threaten to do so makes the entire shareholder vote coerced. He is announcing that, unless shareholders buckle under in the face of his threat, he will violate the well-established corporate opportunity doctrine. If one needed any further evidence that the Tesla Board is entirely controlled by Musk, willing do his bidding at every turn, and determined never to take a single action to police his misdeeds, the Board’s complete failure to address Musk’s lawless threat is that evidence.
B. The Inevitable *Next* Compensation Package
Even restoring the 2018 Grant will not get Musk close to the 25% voting control he is demanding. As jaberwock has explained in an astute analysis, assuming the rescinded options were restored, then upon their exercise, Musk would need to sell more than half of the 304 million shares he receives in order to pay the strike price and taxes. At today’s share price, that would bring Musk’s percentage ownership in Tesla only to about 17%.
Obviously, what Musk is demanding is...(READ THIS FULL ANALYSIS HERE).
