July 13, 2024

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What’s next for Tesla stock as shareholders and Wall Street pros ponder

What’s next for Tesla stock as shareholders and Wall Street pros ponder

Although Tesla ( TSLA ) shareholders voted to reinstate Elon Musk’s pay package Thursday afternoon, some investors and analysts told Yahoo Finance they remain skeptical.

“It’s all a game of chance, and shareholders have backed out,” said Ibrahim Al-Husseini, one of Tesla’s early investors. “Fear of losing is a great motivator, and Elon used this psychological mechanism to his advantage.”

The venture capitalist said he voted unenthusiastically in favor of the $56 billion package.

“The deal was made in 2018 when the milestones seemed almost impossible and he achieved it,” said Al-Husseini, who first invested in Tesla in a Series C funding round. “He made a deal, he executed it, and this is his reward.”

Tesla stock is down about 30% year to date, and was down about 2.5% on Friday. Now that the vote is over, Al-Husseini said the stock should remain flat until its next quarterly earnings announcement, as he expects the stock to “fall due to another failure in deliveries and margin.”

Tesla said that 77% voted in favor of Musk’s salary package. According to the filing, investors who own 1.76 billion shares voted to approve the deal, while 528.9 million shares voted against it. 20.6 million shares did not vote.

“I just want to start by saying, ‘Oh my God, I love you guys,’” Musk said on stage at the shareholder meeting. The package, consisting of options, was originally worth $56 billion, but is now worth about $46 billion due to Tesla’s declining market value.

In January, Delaware Chancery Court Judge Kathleen McCormick ruled that the original pay package, which was approved by 73% of the shares voted in 2018, was not negotiated fairly.

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A vote to reinstate the package does not necessarily mean Musk will receive the historic pay. Voting in favor of the resolution does not resolve the legal challenge, and likely will not change the judge’s mind. Legal experts say the final decision will be up to the Supreme Court and the Delaware Court of Chancery.

File Photo: Tesla CEO Elon Musk gets into a Tesla car as he leaves a hotel in Beijing, China on May 31, 2023. REUTERS/Tingshu Wang/File Photo

Tesla CEO Elon Musk rides a Tesla car while leaving a hotel in Beijing, China on May 31, 2023. (Reuters/Tingshu Wang/File Photo) (Reuters/Reuters)

New York City Comptroller Brad Lander, who was among shareholders urging a vote against the package, called the approval a “mistake.” Lander offshores several pension funds that own about 3.4 million shares of Tesla stock.

“We’ll see how Musk moves forward, if that leads to him focusing on Tesla and setting clear plans for growth,” Lander told Yahoo Finance. “But if it turns into another fight, distraction, Twitter spat, more ego — it won’t be good.”

Tesla’s largest outside institutional shareholder, Vanguard, was pivotal in getting the deal through. Vanguard, which owns 7% of Tesla shares, initially voted no in 2018, citing volume concerns regarding the company’s performance.

Longtime Tesla investor Ross Gerber questioned Vanguard’s move. “Index funds are supposed to represent the public, and they often have corporate governance expectations for companies. It seems a bit strange that they voted for the pay package and said it aligned with shareholder incentives — which it does, but at an exorbitant value.” “He told Yahoo Finance.

Gerber, who co-founded investment firm Gerber Kawasaki, voted yes in 2018 but called for a no vote this time. He began investing in Tesla in 2014, and his company owns 332,000 shares as of March 31.

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“The package is atrocious and he has performed horribly over the last three years,” Gerber said. “But I believe in elections, so if that’s what shareholders want, that’s fine.”

Investors also passed a proposal to reincorporate Tesla from Delaware to Texas, which Musk pushed for after a judge invalidated his pay deal.

“That’s part of the problem with distraction,” Lander said. “Delaware has a relatively conservative set of laws that are the foundation of shareholder capitalism. Then you pack up your marbles and move to Texas because you’re angry at a judge who said you have to follow the rules, and the question is, how are you going to reset yourself?”

Lander says he sees a strong foundation on which Tesla can build despite some troubling signs, adding that they have no immediate plans to change their investment strategy.

“Elon deserves a huge share of the credit,” Lander said. “It’s not a $56 billion share, but it’s a pretty big share.”

Analysts say shareholders’ decision to restore Musk’s compensation package is a win for investors.

George Giannaricas, managing director of Canaccord Genuity, who has a buy rating on the stock, told Yahoo Finance he was “very encouraged” by the vote of confidence in Musk’s leadership.

“Elon Musk is critical to Tesla’s success in the past and in the future,” Giannaricas explained.

Giannaricas said Tesla’s prospects for developing full self-driving set the automaker apart from competitors, putting the company in an “incredibly enviable position.”

Wedbush’s Dan Ives, a longtime Tesla supporter, called the approval a “celebration moment” for Musk and shareholders. Approval of the pay package removes $20 to $25 from the stock backlog, he said.

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“This is just the beginning of the next chapter, as Musk calls it, in Tesla’s growth story. “It’s one of the best disruptive names in the world,” Ives said. “It’s one of the best AI toys on the market.”

Ives, who warns that a no vote could have led to Musk leaving Tesla, sees Tesla’s valuation exceeding $1 trillion in 2025 as Musk devotes more time and focus to the automaker.

“You’re seeing old-school Musk coming back now… Tesla needs Musk and Musk needs Tesla,” Ives added.

But Dave Harden, chief investment officer at Summit Global, cautioned against buying Tesla shares right now.

“It’s a huge dilution potential for shareholders, and it makes one want to do risky things,” Harden said.

Harden says the company has not proven itself in the field of artificial intelligence and robotics, and there has already been significant growth in the field of electric cars.

“I think there will be more chatter and more opportunities to engage when you can clearly see that growth is going to happen,” Harden said.

He added: “I recommend holding Tesla and waiting. If you own the shares, I would probably sell them.”

Yasmine Khorram is a senior reporter at Yahoo Finance. Follow Yasmine on Twitter/X @Yasmine Khorram and on LinkedIn. Send important advice to Yasmine: [email protected]

Sina Smith He is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSSmith. Advice on deals, mergers, activist positions, or anything else? Email [email protected].

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