🧵 No way to sugarcoat this, the shareholder vote to reinstate Elon’s 2018 compensation plan has a very real chance of failing this year. If it fails, Elon will have received no pay for the past 6 years, and he might just quit. Let’s go through why it might not pass. First, we need to understand who owns Tesla. There are 3.185 billion shares outstanding. Elon Musk owns 411 million of them (12.9%), and the Tesla board and senior execs own 10 million (0.3%). Institutional investors own 1.392 billion shares (43.7%). The other 43% is owned by retail investors and others. Elon and Kimbal will recuse themselves, so it’s basically 50/50 institutional and retail. Institutional investors typically have a vote turnout of 91% compared to retail investors at 29%. So the vote will really be driven by institutional investors. Some of these institutional investors, especially active fund managers, make these decisions for themselves, including the 4 that reached out to Tesla to express concern about the Delaware judge’s decision. But the majority of them use proxy advisory services to give them recommendations on how to vote. This is especially true for passively managed funds such as index funds. The main proxy advisors are Glass Lewis and institutional shareholder services (ISS). Elon called them out as problematic on the Q4 2023 quarterly earnings call and in a January tweet. They have caused trouble for Elon and Tesla before. They regularly recommended voting against directors (sometimes conflicting - glass says yes, ISS says no), and they both recommended against the 2018 compensation package. Studies show that an unfavorable recommendation from proxy advisors reduced favorable vote counts by 10-30 percent on a variety of vote types, and by ~20% specifically for equity compensation plans. The passive index funds almost exclusively go with proxy advisor recommendations. There is a total of $5.7 trillion worth of passive index funds tracking the S&P 500, and Tesla is approximately 1% of the S&P 500. Therefore these holders have $57 billion of Tesla stock - which is approximately the same amount as Elon - around 12% (13.4% of shares if excluding Elon and Kimbal). If the proxy advisors recommend voting against the package again and the passive funds go along with them, then the remaining shares need to vote 58% in favor. That brings me to my next point. Retail investor sentiment is at or near an all time low. On forums, there is a lot of them saying they will vote against reinstating Elon’s 2018 compensation package. The reasons are mixed, but it’s mostly because Tesla stock is at 52 week lows and there was a recent layoff of 14k+ employees (many of whom own stock). There are other reasons too. Some are upset he sold shares in 2022 and crashed the stock price, some are upset he bought Twitter, some are upset he got political, some are upset about the price cuts and earnings decline, some are upset about the perceived delay in the cheaper consumer compact car, etc. So between many institutional investors likely sticking with proxy advisors and retail shareholders having a lot of negative sentiment, this vote might actually be very close. The consequences of the vote failing would be a huge crash in TSLA price. Elon would likely quit as CEO because he would have been unpaid for 6 years. He would not leave nicely either, because shareholders would effectively have stiffed him out of compensation for work already done. That means he will poach a lot of the talent he has attracted to Tesla and he will dump his shares. See what happened last time he sold tens of billions worth of shares in late 2022. So if you are a shareholder, it is very, very important that you vote this time, and get your friends, family, and other investors to also vote. This is also why Tesla put out a website. @ValueAnalyst1 @WholeMarsBlog @TeslaBoomerMama
Further reading: Elon's tweet about proxy advisors: Elon's quote from Q4 2023 quarterly call: "You know, we've had a lot of challenges with Institutional Shareholder Services, ISS -- I call them ISIS -- and Glass Lewis, you know, which there's a lot of activists that basically infiltrate those organizations and have, you know, strange ideas about what should be done." Institutional ownership breakdown (official): nasdaq.com/market-activit… Article about the influence of proxy advisors: corpgov.law.harvard.edu/2018/06/14/the… Negative sentiment among retail TSLA holders: reddit.com/r/teslamotors/…
Further reading: Elon's tweet about proxy advisors: Elon's quote from Q4 2023 quarterly call: "You know, we've had a lot of challenges with Institutional Shareholder Services, ISS -- I call them ISIS -- and Glass Lewis, you know, which there's a lot of activists that basically infiltrate those organizations and have, you know, strange ideas about what should be done." Institutional ownership breakdown (official): nasdaq.com/market-activit… Article about the influence of proxy advisors: corpgov.law.harvard.edu/2018/06/14/the… Negative sentiment among retail TSLA holders: reddit.com/r/teslamotors/…
@climateyupa @WholeMarsBlog When do we vote? I don't think I got an email from my brokerage, but I'll look for it.
@climateyupa Resolution failing would have a blood bath. All those capable of running Tesla in Elon’s absence have left Tesla (Drew, JB). Elon quitting could be the end
@climateyupa You make very valid point and tie it all well together. I differ on the following items: - Elon and Kimbal recusing themselves - index funds using proxy advisors (the contrary is true for Blackrock, Vanguard, Geode and State Street)
@climateyupa @WholeMarsBlog Why must Elon recuse? Ultimately as a shareholder he gets a shareholder vote?