Tesla CEO Elon Musk’s record-setting pay deal from 2018, now valued at $101.5 billion, was rejected by Delaware Court of Chancery Judge Kathaleen McCormick on Monday. This decision reaffirms her January ruling, which declared Tesla’s board was overly influenced by Musk when the original deal, worth $56 billion at the time, was approved.
- Shareholder Approval: In June, 77% of voting shareholders backed the pay deal, excluding Musk and his brother, Kimbal Musk.
- Court Rationale: Judge McCormick maintained that the shareholder vote cannot ratify the deal, given the influence Musk wielded over Tesla’s board.
- Musk’s Leverage: Before the June vote, Musk hinted at shifting Tesla resources to his privately held xAI and seeking further power with a 25% voting stake.
Implications for Tesla:
- Potential Appeal: Tesla is expected to challenge the decision in the Delaware Supreme Court.
- Dilution Reduction: The rejection could mean less dilution for existing shareholders if the pay deal is nullified.
- Cost of New Pay Package: Crafting a new compensation plan for Musk at Tesla’s current valuation would be significantly more expensive than the 2018 deal, which originally cost $2.6 billion.
Tesla Stock Performance:
- After-Hours Movement: Shares dipped 1% in late trading following the news.
- Recent Highs: Earlier in the day, Tesla stock rose 3.5% to $357.09, marking a two-year closing high.
- Analyst Optimism: Two analysts raised price targets for Tesla, citing enthusiasm around the rollout of Full Self-Driving (FSD) v13 to select external customers.
Tesla faces the challenge of either appealing the ruling or devising a new compensation package for Musk, which could significantly strain the company’s finances. Meanwhile, optimism surrounding FSD continues to fuel investor interest in Tesla’s stock.
