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Elon’s Golden Handcuffs: Why Tesla’s Pay Package Is Even Worse Than the GameStop ATM

Which is worse: Elon Musk’s $46 billion pay package or GameStop’s $3 billion ATM?
This article is mostly about Tesla (NASDAQ:TSLA) and Tesla stock. However, a guest essay in the New York Times by J. Bradford DeLong, an economics history professor at the University of California, got me thinking about both of these economic travesties.

With Tesla stock, its shareholders reapproved CEO Elon Musk’s $46 billion pay package originally thrown out in January by the Court of Chancery in Delaware, where Chancellor Kathleen McCormick agreed with plaintiff shareholders who argued his 2018 pay package was over the top. 

Shareholders didn’t see it this way. Approximately 72% of the votes were for the pay package, which does not include Musk’s shares or his brother’s, who sits on the board. 

Circling back to DeLong’s guest essay, he gets into the whole idea of meme stocks, using GameStop (NYSE:GME) as a classic example. Its recent use of meme-stock mania to raise $3 billion in at-the-market funding highlights the problems associated with uninformed investors buying stock not worth the paper the shares were written on. 

These two situations are examples of the outlandish misuse of shareholder funds. Here’s why Tesla’s actions are far worse for markets than GameStop’s shenanigans. 

GameStop Broke No Laws

As much as I hate to admit it, GameStop CEO Ryan Cohen took advantage of meme-stock mania, and raised $3 billion in cash for the beleaguered video game retailer, all of which could be invested in other companies. 

In late May, I discussed how the company’s ATM offering proves that public companies still matter. 

“[A] privately held version of GameStop would likely not be in nearly as good a financial position without the ability to raise cash through ATM offerings,” I wrote on May 30.  

“If you’re a longtime shareholder, especially one who bought at $80 in 2021 and still holds, the ability of a public company such as GameStop to make such a move is a tremendous godsend.”

While it boggles my mind that anyone would trust Ryan Cohen to pick stocks when he’s done absolutely nothing to fix the core business after owning shares since August 2020 and as CEO since last September, it bears repeating that GameStop’s broken no laws. 

If politicians don’t like it, they should encourage the SEC to change the rules. 

Excessive Pay Is Only an Issue If Shareholders Say It Is

Elon Musk’s pay package is obscene. There’s no other way to describe it. Paying the world’s wealthiest person, who already has $208 billion, another $46 billion on top of that, is akin to paying Happy Gilmore $100 million to join the LIV Golf tour. It makes no sense.

Yet all his sycophants trotted out their most complimentary comments before and after the result was announced. 

“‘We think that Elon is critical to Tesla’s success,’ said Tasha Keeney, director of investment analysis at ARK Invest, which counts the automaker among its largest holdings. ‘I think it’s very important that Elon stays at the helm,’” the New York Times reported on June 13. 

Keeney’s boss, Cathie Wood, appeared on CNBC on the day of the vote, suggesting that TSLA stock could reach $2,600 by 2029. Wood is known to throw out Tesla predictions, primarily because it’s such a large portion of the assets under her control. 

If Tesla has no Elon, she would probably have to close her asset management business. 

Interestingly, while shareholders had no problem voting for Musk’s pay package, the Chancery Court could stick by its ruling, which would bring Tesla’s board back to square one, searching for a way to keep the man-child focused long enough to stick around and design new, reasonably-priced, electric vehicles for mass consumption. 

The Bottom Line on Tesla Stock

Now that Musk looks prepared to stick around for 3-5 years, longtime shareholders can rest easy knowing that his attention will be EVs, not his other ventures. However, shareholders have no assurances that he won’t up and leave this time next year without warning or an explanation. 

In Q4 2021, Tesla’s gross automotive margin was 30.6%. By Q4 2022, it was 470 basis points lower at 25.9%. Five quarters later, it’s 17.4%, 43% lower over the past nine quarters. 

How is that irreplaceable? It’s a terrible message to send to front line Tesla employees. It will hurt the company more than we know.

On the date of publication, Will Ashworth did not have (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 Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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