Semafor Signals
Why Elon Musk wants more control over Tesla
Insights from Reuters, The Guardian, and Fortune
The News
In a series of posts on X this week, CEO Elon Musk shocked investors when he stated that he is “uncomfortable growing Tesla to be a leader in AI and Robotics” and would consider building products outside of the company unless he received around 25% control, totaling some $80 billion worth of additional shares. “Enough to be influential, but not so much that I can’t be overturned,” he said.
Musk sold nearly $40 billion worth of Tesla shares between 2021 and 2022 in order to finance his purchase of Twitter and revamp it into X. He now has a nearly 13% stake in Tesla, meaning he is still the carmaker’s biggest shareholder. Governance experts warn that his calls for more control could infringe on his duties as CEO.
Musk noted that Tesla’s board won’t change anything about the company’s structure until a Delaware lawsuit is decided, in which a Tesla shareholder accused Musk of using his influence to obtain an outsized compensation package. The board would also likely have to issue new company shares, which may prompt investor lawsuits, a stock analyst told the New York Times.
SIGNALS
Experts say Musk’s rhetoric raises governance concerns
Analysts said that Musk’s posts could violate the corporate opportunity doctrine, which prohibits CEOs and directors from taking any business opportunities for themselves that may benefit their corporation. His posts suggest that he is turning down profitable Tesla opportunities “based upon his personal preferences, but also redirecting them to his private companies,” such as SpaceX, Neuralink, X, and his new artificial intelligence startup xAI, a Tulane law school professor told Reuters. That would be a “conflict of interest” and a violation of his fiduciary duties to Tesla.
Tesla faces stiff competition from Chinese automaker BYD
Chinese manufacturer BYD recently surpassed Tesla as the world’s biggest seller of electric vehicles. The Warren Buffet-backed carmaker has undercut its competitors, raising eyebrows among European regulators who suspect that Chinese state subsidies were keeping its car prices “artificially low.” In response, Tesla has also cut prices for its Model Y in Europe after reducing its Model Y and Model 3 prices in China, calling into question how much longer Tesla and Musk can withstand “the seemingly inevitable march of BYD into the West,” reported Fortune. “The fight will hurt margins for both companies, but BYD clearly believes its a price worth paying to increase market share and recognition,” a financial analyst told Reuters. Rental firm Hertz also announced that it is selling its Teslas for as low as $20,000 and cutting down on its US electric vehicle fleet, after incurring high collision and damage expenses.
Musk is also contending with numerous labor disputes
Musk is facing increasing unionization efforts and labor disputes across Scandinavia and other parts of Europe. In Sweden, more than a hundred mechanics at Tesla garages recently walked off the job over the company’s refusal to sign a collective bargaining agreement, the Associated Press reported. A wave of sympathy strikes followed, according to CNN: “Swedish dockworkers have blocked deliveries of Tesla cars at the country’s ports, electricians have refused to service charging stations, and postal workers have even stopped delivering license plates.” While Sweden represents only a small fraction of Tesla’s sales in Europe, the labor activity could potentially spill over to Germany, where workers for the car maker have been complaining about poor conditions for over a year.
