However, the favorable vote doesn’t guarantee Musk will receive the all-stock compensation anytime soon. The package will likely remain entangled in legal proceedings in the Delaware Chancery Court and Supreme Court for months as Tesla attempts to overturn the Delaware judge’s rejection.
Earlier this year, Musk had voiced doubts about his future with Tesla. He posted on X, his social media platform, that he sought a 25% stake in the company to prevent AI development from being taken elsewhere. According to Musk, this higher stake is necessary to control AI use.
Tesla has been grappling with declining sales and shrinking profit margins amid a global slowdown in demand for electric vehicles.
During Tesla’s annual meeting held in Austin, Texas, Musk reassured shareholders that he plans to stay with the company and cannot sell any stock in the compensation package for five years.
“It’s not actually cash, and I can’t cut and run, nor would I want to,” he stated.While the vote totals on Musk’s pay package were not immediately disclosed, Tesla announced that shareholders approved the compensation plan that was initially ratified by the board and stockholders six years ago.In an April regulatory filing, Tesla valued the package at $44.9 billion. Previously, the package was worth up to $56 billion, but it has decreased in value along with Tesla’s stock, which has fallen about 25% this year.
Chancellor Kathaleen St. Jude McCormick ruled in January that Musk essentially controlled the Tesla board when it approved the pay package in 2018 and that shareholders were not fully informed when they ratified it the same year.
Tesla plans to appeal this ruling and asked shareholders to reapprove the package at the annual meeting.
A separate vote also approved moving Tesla’s legal home to Texas. This move aims to avoid the courts in Delaware, where Tesla is currently registered as a corporation.
A jubilant Musk addressed the crowd at Tesla’s headquarters and large factory in Austin, Texas, saying, “It’s incredible. I think we’re not just opening a new chapter for Tesla, we’re starting a new book.”
Not all measures went in Musk’s favor. Shareholders approved proposals that reduced board member terms from three years to one and made it simpler to pass shareholder proposals by requiring only a simple majority vote.
Legal experts suggest that the issue of Musk’s pay will still need resolution in Delaware since Musk’s lawyers have promised they won’t attempt to move the case to Texas.
Opinions are divided on whether the shareholders’ new vote will make it easier for Tesla to get the package approved.
Charles Elson, a retired professor from the University of Delaware, believes the vote might not influence McCormick, who made her decision based on the law.
Elson noted that McCormick’s ruling effectively turned the 2018 compensation package into a gift to Musk, which would require unanimous shareholder approval, an almost impossible threshold. He added that while the vote is interesting from a public perception standpoint, it does not, in his view, affect the ruling.
John Lawrence, a lawyer with Baker Botts, concurs that the shareholder vote doesn’t resolve the legal dispute or automatically grant Musk the stock options. However, he believes it provides Tesla with a strong argument to reverse the ruling.
Lawrence expects Musk and Tesla to argue that recent shareholder votes were fully informed, prompting McCormick to reconsider her decision. Meanwhile, the plaintiff will likely argue that the vote is not legally binding and has no impact on the prior ruling.
Lawrence added that the vote was conducted under Delaware law, so it should be considered by the judge.
“This shareholder vote is a strong signal that you now have an absolutely well-informed body of shareholders,” Lawrence said. “The judge in Delaware still could decide that this doesn’t change a thing about her prior ruling and doesn’t require her to make any different ruling going forward. But I think it definitely gives Tesla and Musk strong ammunition to try to get her to revisit this.”
If the ruling stands, Musk is likely to appeal to the Delaware Supreme Court, Lawrence mentioned.
Some institutional investors have opposed Musk’s substantial payout, pointing to the company’s recent struggles. However, analysts suggest that votes from individual shareholders likely outweighed the opposition, giving Musk an edge.
Earlier that Thursday, Tesla revealed that shareholders were voting in favor of Musk’s pay package by a wide margin, which caused the company’s stock to rise by 3% by market close.
After the votes were declared, Musk updated shareholders on new advancements with Tesla’s “Full Self-Driving” system. He has committed the company’s future to developing autonomous vehicles, robots, and artificial intelligence.
“Full Self-Driving” keeps improving with new versions, and its safety per mile is better than human drivers,” Musk said.
“This is actually going to work. This is going to happen. Mark my words, this is just a matter of time,” he assured.
Despite its name, “Full Self-Driving” can’t drive itself, and the company advises that human drivers must be ready to take over at any time. The hardware for “Full Self-Driving” became available late in 2015, and Musk has continued using the name as the company gathers data to train its computers on autonomous driving.
In 2019, Musk promised a fleet of autonomous robotaxis by 2020, and in early 2022, he claimed that the cars would be autonomous that same year. Last April, Musk stated that the system should be ready in 2023.
Since 2021, Tesla has been beta-testing “Full Self-Driving” with volunteer owners. U.S. safety regulators required Tesla to recall the software last year due to issues around intersections and possible traffic law violations.
Musk also shared progress on Tesla’s Optimus humanoid robot. Currently, two robots are operational at the Fremont, California factory, moving battery cells from the production line to shipping containers.
Although Tesla laid off the team working on the Supercharger electric vehicle charging network, Musk believes the company will deploy more operational chargers this year than the rest of the industry. He expects to spend $500 million on Superchargers in the second half of the year.
With AP Inputs
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