Corporate governance is a big topic of discussion for investors in Tesla (NASDAQ:TSLA). Despite many top mega-cap tech stocks rallying nicely this year, some even exceeding the returns of the S&P 500, Tesla has lagged by a wide margin. With the market up double-digits, and TSLA stock down roughly 10% on a year-to-date basis, it’s clear many in the market are rotating into other high-growth names right now.
Some of the bearishness around Tesla appears to be related to the company’s CEO Elon Musk. The past few years have been pretty intense for the CEO, with all the product launches and strategic shifts Tesla has seen. But the CEO has been spending an increasing amount of time working on X, his social media platform (formerly Twitter), as well as his SpaceX business and newfound xAI project.
A recent proposal from Musk to push $5 billion of Tesla’s capital toward his xAI endeavor is controversial to say the least. However, it does appear that a majority of Tesla retail shareholders (at least those who voted on a poll on X) are in favor of the move. Musk plans to push this proposal to the board in short order.
Let’s dive into this proposal and what it may mean from a corporate governance standpoint.
TSLA Stock Higher on Proposed Investment in xAI
Elon Musk is truly a visionary and has created some world-class companies. But it’s also true that his and his company’s reputation for having solid corporate governance has suffered under a number of sagas. These range from his acquisition of SolarCity in 2016, through which he effectively bailed out his brother in a sector that’s suffering big time, to his pay package proposal which was already thrown out by a Delaware court.
Whether due to familial ties, or to sheepish responses to Musk’s previous threats that he’d leave, it seems the board will do whatever Elon Musk wants. If it means pushing for $50 billion-plus in compensation, or pushing a few billion to one of his other business, they’re likely to fall in line.
Based on many historical reference points, this proposal looks almost assured to go through. But for shareholders that want to see appreciation from Tesla’s stock price, I think that’s a very bad thing.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.
