Musk wants more control at Tesla to implement AI – 01/17/2024 – Market

Tesla CEO Elon Musk surprised investors by demanding that the company’s board grant him shares worth more than $80 billion if he wants him to continue developing products based on artificial intelligence.

In the latest demonstration of his disregard for conventional forms of communication with investors, Musk said on Monday night (16) on X, formerly Twitter, that he needs to own 25% of Tesla to avoid acquisitions and have sufficient control of the company as it develops robots and other AI technologies.

If his demands are not met, Musk said he would pursue unspecified ventures outside of Tesla. In addition to electric cars, Tesla has been developing a humanoid robot called Optimus and uses AI to develop autonomous driving technology, a pillar of the company’s strategy. These businesses belong to Tesla, and Musk couldn’t just take them with him.

The company’s market value of nearly $700 billion — more than twice that of Toyota Motor, the world’s largest automaker by annual car sales — is based, in part, on investors’ belief that the company will lead the way. rest of the industry in developing cars capable of driving from one place to another without human intervention. Investors are also betting that advanced automation will allow Tesla to manufacture cars much more efficiently and profitably than competitors.

Musk owns 13% of Tesla after selling a substantial portion of his stake to finance his $44 billion acquisition of Twitter. The site has faced difficulties under his leadership and has depreciated in value. An additional 12% stake in Tesla would be worth $83 billion at the current share price, effectively recouping Musk’s investment in Twitter — which he said he regrets — and then some.

“I’m not comfortable making Tesla a leader in AI and robotics without having 25% voting control,” Musk wrote on X. “Enough to be influential, but not so much that it can’t be overturned.”

He continued: “Unless that’s the case, I would prefer to build products outside of Tesla.” But he also said the board would take no action until a Delaware judge rules on a lawsuit filed by a Tesla shareholder challenging a previous compensation plan that was instrumental in making Musk the richest person in the world.

Musk testified in the Delaware case in late 2022. Gregory Varallo, who represents shareholders in the lawsuit, said he didn’t know when there would be a ruling. No documents have been filed in the case since July.

Tesla did not respond to a request for comment.

Musk’s demand highlighted the extent to which Tesla, which sold 1.8 million vehicles last year, is subject to his impulses.

“You’re never sure what you’re going to read from Elon Musk when you get back to the office after a three-day weekend,” said Ben Rose, president of Battle Road Research, which advises institutional investors. Rose called Musk’s demand “curious and poorly timed” considering Tesla faces increasing competition and difficult economic conditions.

Tesla’s success under Musk has forced traditional automakers to start offering electric vehicles, which are essential to reducing greenhouse gas emissions from transportation. But Musk’s behavior and statements have weighed on the stock price and gotten him into trouble with regulators.

Tesla shares fell when Musk sold part of his stake to buy Twitter. The stock also suffered after Musk said in 2018 that he had the money to take Tesla private and delist it. Musk was unable to execute the plan. The privatization declaration led to a lawsuit filed by the Securities and Exchange Commission, which Tesla settled for $40 million by agreeing that lawyers would review what Musk says on Twitter. It was unclear whether Musk’s statement on X on Monday night had been approved by lawyers.

It would be difficult for Tesla’s board, which has been criticized for not doing enough to rein in Musk, to grant his wish immediately or unconditionally. The company would have to issue new shares, Rose said. This would dilute the value of existing shares without raising additional capital for Tesla and could trigger shareholder lawsuits.

Rose added, however, that the board could award Musk stock options that he would receive only if he reached certain milestones over five years or more. This would be similar to a compensation package Musk received in 2018 that depended on Tesla reaching stock market valuations seen at the time as too ambitious. Musk became the richest man in the world by defying expectations and achieving goals.

The company’s shares are down about 11% this year, but are up about 70% over the past 12 months.

On X, some Musk fans applauded his demand for a 25% stake, saying he deserved the money. But others said it was his own fault that his stake in the company fell. “They didn’t make you sell your shares,” one user wrote, adding, “why should the board do anything to fix this for you?”

A stake of less than 15% in the company, Musk said, “makes an acquisition by dubious interests very easy.”