Tesla shareholders have boxed themselves into a corner. Investors in the unprofitable $50 billion electric-car maker convene in Silicon Valley on Tuesday afternoon for its annual meeting. Among the items on the agenda is a shareholder proposal to split the roles of chairman and chief executive.
There are plenty of reasons to back the resolution. Trouble is, investors already helped make Tesla a personality-cult stock, so any attack on Musk would come at a high price. The case for reducing Musk's role is pretty solid. First, he already has too many responsibilities.
He's CEO and lead designer for SpaceX, runs tunneling firm the Boring Company and is co-founder of a neuroscience-meets-AI startup, Neuralink. On top of that, Tesla's mass-market Model 3 has been hit by delay after delay - leading Musk to spend nights sleeping at the factory, he says. And on Tesla's first-quarter earnings call last month he cut off analysts asking what he deemed, unfairly, to be "boring, bonehead questions."
A shareholder has proposed to strip Musk of his chairmanship. That's hardly the mainstream view, though. The motion comes from an individual investor with 12 shares, Jing Zhao, better known for pushing tech companies to improve their human-rights records. It's understandable larger investors would hold back - not least because the company needs to raise capital. The Model 3 delays combined with projects ranging from a new car to electric trucks means Tesla is losing money and now has just $2.7 billion of cash after burning through almost $1 billion last quarter.
Musk insisted last month he "specifically doesn't want to" pass the cap, but Goldman Sachs analysts reckon Tesla will need $10 billon by 2020. The higher Tesla's shares trade, the better it can hit investors up. There's the rub for shareholders filling out their ballots. Tesla has reached such a high valuation - it trades at a dizzying 35 times estimated 2020 earnings - in large part because of shareholders' belief in Musk, which verges on idolatry.
Even something as simple - and helpful - as removing his chairman's title could rub away some of that magic. So at least until the company has raised a decent slug of cash, challenging Tesla's dear leader is a losing strategy. Tesla holds its annual meeting of shareholders after the market closes on June 5.
One shareholder proposal is for the electric-car maker to separate the roles of chairman and chief executive, leaving Elon Musk as the latter while appointing an independent chairman of the board. The proposer, Jing Zhao, owns 12 shares of Tesla, currently worth a total of $3,562. Proxy advisers Institutional Shareholder Services and Glass Lewis have recommended shareholders vote for the resolution. They also mostly oppose the three Tesla directors who are up for reelection this year: James Murdoch, the chief executive of Twenty-First Century Fox who joined the board last year; chef and Musk's brother Kimbal Musk; and lead director Antonio Gracias.
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