We can always count on Tesla (NASDAQ: TSLA) for headlines and interesting events, but there’s actually one Tesla event that’s a bit overlooked, even though it could change the company entirely. It is the pivotal day of June 13th, on which Tesla shareholders will get to vote on several important matters, including whether to re-approve CEO Elon Musk‘s substantial compensation package. According to the investment banking giant Morgan Stanley (NYSE: MS), this vote will play a significant part in the company’s long-term strategic direction, and will change Tesla and TSLA stock forever.
The Vote Could Change the Company’s Fate
According to the Wall Street Journal, Tesla board chair Robyn Denholm, and others at the company, plan to spend the next several weeks crisscrossing the globe to rally support from shareholders. This will take shareholders back to 2018, when they originally signed off on Elon’s pay package. In 2018, Tesla had a market value of around $50 billion and was losing money. However, the company is now valued at nearly $570 billion and makes profits, so Denholm and the company are now telling shareholders that Elon deserves to be rewarded for hitting lofty goals set back then, saying he earned that pay and should get it.
However, this won’t be an easy vote, as many shareholders aren’t happy with Tesla’s current performance. TSLA stock is down about 30% this year, as sales and margins have fallen. Meanwhile, Elon’s ownership of other businesses, including social-media platform X, is causing institutional investors to think that he’s too distracted and won’t run Tesla with the same enthusiasm.
Additionally, not everyone agrees on Tesla going “balls to the wall” as Elon put it, on autonomy and robotaxis, and the recent layoffs aren’t really signaling a better future for Tesla for some investors. Therefore, in 2018, shareholders voted 73% of their shares in favor of the pay package, but this time, Tesla is bracing for a tighter vote. Back in January of this year when a Delaware judge ruled that the board’s process in negotiating the pay package was “deeply flawed,” citing the directors’ close ties to Elon as she invalidated the shareholder vote and ordered the pay rescinded.
Elon responded on X, saying “Never incorporate your company in the state of Delaware.” Therefore, the board decided that bringing up the issue again in a new shareholders vote would be a great solution, but Tesla added another issue for investors to vote on, and that’s moving the company’s incorporation from Delaware to Texas, where it has its corporate headquarters.
Morgan Stanley’s Take on the Vote
Morgan Stanley’s managing director, Adam Jonas, sees the vote as one that will have a big impact on the long-term strategic direction of the company. The chart below shows how Tesla’s institutional investors voted on Elon Musk’s compensation package in 2018, ranked by their stakes in the company, and according to Bloomberg, institutions now own 46% of all Tesla shares, down from 70% in 2018, while retail investors own 30% of Tesla.
It’s no surprise that Adam Jonas said that it’s impossible to predict the outcome, and it could go either way. However, what he knows for sure is that the event could drive material volatility in TSLA stock. As of February 2024, Elon’s ownership of Tesla stood at around 20.5% when factoring in the options granted in the 2018 award. Also, when we exclude these options, his direct ownership of Tesla amounts to roughly 13%, but, naturally, he wants to own at least 25% of the company, and this vote could help him achieve that.
According to Elon, he won’t be comfortable developing new AI and robotics technologies at Tesla if he doesn’t have 25% of the company, which is why shareholders’ say matters, and if they voted “yes” for his compensation package, it means that they still want him as CEO and want him to have a bigger stake in the company. Adam Jonas points out that within Elon’s portfolio of companies, Tesla stands out as the only one where he lacks control or a blocking minority vote. Although all of Elon’s ventures are connected to AI in some manner, his desire to own a larger percentage of Tesla stems from fears of this “powerful technology going awry.”
Adam Jonas acknowledges that while approving the compensation package wouldn’t directly give Elon a 25% voting block on its own, the analyst thinks that the consequences of it being rejected are dire ones for Tesla. Jonas answers the question of what the possible consequences are if the payment package is rejected by saying that the options will likely be unwound, making it increasingly difficult for Musk to achieve 25% ownership.
For Jonas, Tesla’s AI prospects will be limited until there is some resolution to the voting control matter, with the analyst believing that as long as the issue of blocking minority “remains in limbo,” Tesla’s share price trajectory will continue to be “dominated by the more sobering developments within the global EV industry.” With that being said, Jonas is extremely bullish on Tesla’s autonomy push, and that’s shown in his “Buy” rating and $310 price target. If his target is achieved, investors could realize a potential return of 80% over the next year.
TSLA Stock Forecast
The uncertainty behind Elon’s compensation package is one of the main reasons why TSLA stock has been experiencing some volatility, but it’s hard not to be bullish on the company’s long-term vision of fully-autonomous vehicles. Most recently, Elon confirmed on X that FSD version 12.5 will be out next month, saying that it’ll be a major improvement to version 12.4, which was already amazing and got praise from Adam Jonas, saying that it was the reason why Morgan Stanley is bullish on the company.
It’s not just Morgan Stanley who is bullish on Tesla, but Vanguard as well, as it was revealed that Vanguard bought 3.8 million Tesla shares last month, which shows that even institutional investors recommend buying the dip on TSLA stock.
To sum up, the upcoming shareholder vote on Elon Musk’s controversial 2018 compensation package has high stakes for the future direction of Tesla. According to Morgan Stanley, while some investors know about it, the event is still super overlooked. With that being said, Jonas believes that the resolution of the voting control issue is needed for Tesla to fully capitalize on AI opportunities.
While he maintains a bullish view on TSLA stock, Jonas acknowledges Tesla’s growth prospects face challenges until Musk’s ownership goals are achieved. Therefore, all eyes will be on shareholders in the coming weeks as they weigh the merits of Musk’s accomplishments against present complications in deciding the fate of his pay package.
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