Will Tesla’s stock plummet if shareholders reject Musk’s compensation package? 🌩️

Tesla’s annual shareholder meeting, set for June 13, 2024, presents a critical juncture for the electric vehicle giant as shareholders prepare to vote on twelve pivotal proposals. These proposals encompass a range of strategic decisions that could significantly influence Tesla’s future direction, governance, and operational framework.

Election of Class II Directors

Among the key items on the agenda is the election of two Class II directors who will serve for a term of three years. This decision is crucial as it will shape the board’s composition and its strategic vision moving forward. The selected directors will play a pivotal role in guiding Tesla through its next phase of growth and innovation.

Reduction of Director Terms

Another important proposal involves reducing the terms of directors to one year. This proposal aims to increase accountability and responsiveness of the board to shareholders by enabling more frequent evaluations of director performance.

Commitment to Sustainable Sourcing

Tesla’s commitment to sustainability is underscored by a proposal to impose a moratorium on sourcing minerals from deep-sea mining. This move aligns with the company’s broader mission to minimize its environmental footprint and promote responsible sourcing practices. By adopting this policy, Tesla aims to set a precedent in the industry for sustainable and ethical supply chain management.

Collective Bargaining Policy

The proposal to adopt a collective bargaining policy highlights Tesla’s evolving stance on labor relations. This policy would formalize the company’s approach to employee negotiations, potentially fostering a more collaborative and transparent work environment. The adoption of this policy could have far-reaching implications for Tesla’s workforce and its relationship with labor organizations.

Relocation to Texas

One of the high-profile proposals is the approval to move Tesla’s state of incorporation from Delaware to Texas. Tesla has emphasized that a significant number of its manufacturing, operations, and engineering employees are already based in Texas. The company believes that Texas offers a strategic advantage for its mission to accelerate the world’s transition to sustainable energy.

“Texas is where we should continue working towards our mission of accelerating the world’s transition to sustainable energy,” Tesla stated. The relocation would support the company’s growth, including the ramp and build of factories for future vehicles, meeting the demand for energy storage, and advancing in artificial intelligence through full self-driving and the Optimus project.

Elon Musk’s Compensation Package

A focal point of the meeting is the proposal to ratify Elon Musk’s compensation under the CEO pay package previously approved in 2018. Tesla has recommended shareholders vote in favor of this package, arguing that a rejection would necessitate negotiating a replacement package, likely costing more and being more dilutive to shareholders.

Tesla asserts that the 2018 award was a result of “transformative” growth and “extraordinary” value creation for shareholders. Analysts are divided on this issue, with some predicting a potential drop in Tesla’s share price if the compensation package is rejected. Piper Sandler, for instance, believes that rejecting the package could negatively impact Tesla’s stock.

Potential for 25% Voting Control

Another critical aspect is whether Elon Musk will achieve his goal of securing 25% of the company’s voting control. This objective is seen as a means for Musk to steer Tesla’s strategic direction more effectively. However, Morgan Stanley has warned that if Musk does not achieve this level of control, Tesla may slow down or curtail its investment in advanced AI efforts.

Musk’s previous statements about being a steward of powerful AI technology indicate that he might direct AI efforts towards non-Tesla entities where he has more control. This could result in Tesla losing its AI premium, as evidenced by reports that Nvidia H100 chips, initially destined for Tesla, may have been diverted to Musk’s xAI.

Risks and Skepticism

The potential consequences of these proposals extend beyond immediate operational changes. There is a risk that Tesla’s stock price, which some believe is disconnected from traditional automotive fundamentals, could be impacted by Musk’s decisions. Gabelli Funds portfolio manager John Belton has noted the disparity between Tesla’s market valuation and typical auto industry metrics.

Additionally, there is the unpredictable variable of Musk selling Tesla shares to fund other ventures, as he did with the Twitter acquisition. Approval of the compensation package and Musk gaining 25% voting control could lead to new litigation or investor concerns over Musk’s level of influence.

Insights

1. Director election will shape Tesla’s strategic direction.
2. Reducing director terms aims to increase accountability.
3. Sustainability efforts include avoiding deep-sea mining.
4. Labor relations may improve with collective bargaining.
5. Relocation to Texas leverages strategic advantages.

The Essence (80/20)The Origins and Evolution of the 80/20 Principle The Discovery by Vilfredo Pareto In 1897, Italian economist Vilfredo Pareto uncovered a striking pattern in his study of wealth and... More

• Board Composition: Electing two Class II directors and reducing their terms to one year to increase accountability.
• Sustainability Commitment: Implementing a moratorium on sourcing minerals from deep-sea mining.
• Labor Relations: Formalizing a collective bargaining policy to improve transparency and collaboration.
• Strategic Relocation: Moving the incorporation to Texas to support operational growth and strategic advantages.
• Executive Compensation: Ratifying Elon Musk’s compensation package and securing his voting control to guide strategic direction, especially in AI.

Tesla (TSLA) Technical Analysis

Price Trend: The stock is currently trading at $177.48. It has been in a downtrend from the peak around December 2023, falling from approximately $270 to a low near $150 in late March 2024. Since then, it has been trading sideways between $160 and $190.

Moving Averages:

• The 50-day moving average (blue line) is at $175.37, indicating a near-term trend. The current price is slightly above this level, suggesting potential short-term strength.
• The 200-day moving average (red line) is at $214.84, well above the current price, indicating the longer-term trend is still bearish.

Volume: The trading volume shows a decrease in recent days compared to the spike seen in March and April. This lower volume could indicate a lack of strong buying interest or consolidation.

Relative Strength IndexIn the world of technical analysis, the Relative Strength Index (RSI) stands as a cornerstone tool for traders seeking insights into market momentum. Developed by J. Welles Wilder ... More (RSI): The RSI is at 51.84, which is neutral (neither overbought nor oversold). This suggests the stock is not currently in an extreme condition and could move in either direction.

On-Balance VolumeThe On Balance Volume indicator (OBV) is a technical analysis tool used to measure the flow of money into and out of a security over a specified period of time. It is a cumulative ... More (OBV): The OBV is relatively flat, indicating that there isn’t a significant amount of volume supporting a new trend, whether up or down.

Stochastic RSIIn the realm of technical analysis, the Stochastic RSI (StochRSI) emerges as a powerful tool for traders seeking to navigate market dynamics with precision. Developed by Tushar S. ... More: The Stochastic RSI is at 0.380, which is in the lower part of the range but not in oversold territory. This suggests there might be some buying opportunities, but it’s not a strong signal.

Average Directional IndexThe Average Directional Index (ADX) stands as a cornerstone indicator in the toolkit of technical traders, offering insights into the strength of market trends. Developed by Welles... More (ADX): The ADX is at 16.23, indicating a weak trend. An ADX below 20 typically suggests that the market is range-bound rather than trending.

Chaikin OscillatorNamed after its creator Marc Chaikin, the Chaikin Oscillator stands as a formidable tool in the arsenal of technical analysts. This oscillator is designed to measure the accumulati... More: The Chaikin Oscillator is at 10,924,893, which is positive, suggesting some accumulation. However, the value isn’t particularly high, indicating modest buying pressure.

Analysis Summary:

• 3-Month Outlook: Hold. The stock appears to be in a consolidation phase after a downtrend. Indicators suggest a lack of strong momentum either up or down. A breakout above $190 or a breakdown below $160 could provide a clearer direction.
• 6-Month Outlook: Hold. The longer-term moving averages suggest a bearish trend, but the recent sideways movement indicates potential stabilization. Monitor for changes in volume and ADX for new trends.
• 12-Month Outlook: Buy. If the stock can sustain above the 50-day moving average and show signs of breaking out of the current range, it might signal the beginning of a recovery. Long-term investors may find value if the stock starts an uptrend.

The overall recommendation is cautious, given the current indicators and trend. It is essential to watch for significant changes in volume, price movements relative to moving averages, and the ADX for stronger trend signals.

Remember, past performance is not an indication of future results. Always conduct your own research and consider consulting with a financial advisor before making any investment decisions. 🧡

Looking Ahead

Tesla’s upcoming shareholder meeting is poised to be a significant event, with decisions that could shape the company’s trajectory in profound ways. The proposals on the table reflect Tesla’s commitment to sustainability, strategic growth, and innovation while also highlighting the complex dynamics of corporate governance and executive compensation. Shareholders’ votes on these matters will determine the future path of one of the most influential companies in the world.