Tesla CEO Elon Musk
Tesla CEO Elon Musk (File photo | AP)

Elon Musk wins USD 56 billion pay vote but is it downhill from here?

Even as late as 2022, the EV maker held 62 percent share of the EV market in the United States.

Elon Musk has hogged corporate headlines in recent days over his $56 billion payout package; and he once again proved he never fails to surprise!

The Tesla chief executive had given himself corporate America’s largest pay packet in 2018 of $56 billion, but it was struck down by a Delaware judge earlier this year. She called it “an unfathomable sum” and an amount unfair to shareholders. Not deterred, Musk called for a shareholders’ vote.

The controversy accelerated when Norway’s $1.7 trillion sovereign wealth fund operated by Norges Bank Investment Management (NBIMM), said it will vote against ratifying the pay package. The Fund, the 8th largest investor in Tesla, said it while it appreciated “the significant value generated under Mr. Musk’s leadership since the grant date in 2018, we remain concerned about the total size of the award, the structure given performance triggers, dilution, and lack of mitigation of key person risk.”

But egalitarianism and socialism be damned. Small investors, who make up the bulk of Tesla’s large investor base, had other ideas. Though several US pension funds joined the Norwegian fund in calling on shareholders to reject the pay package, Elon Musk sailed through. For small shareholders, Musk became a cause; and social media was abuzz with calls to ‘remedy the injustice’ and vote ‘Yes’ for Musk.

What resonated with shareholders was Elon Musk’s success story of building the company from scratch to a capitalization of $650 billion, and the largest seller of EVs in the world. The company’s pitch that without the package, Musk – crucial to Tesla’s future – might quit, worked. There is still a legal question mark on his humungous pay package, but Musk now knows, the bulk of the investors are behind him.

What’s behind the $56 billion package?Musk was given 10 years of performance targets, which when reached would result in a payout of stock options linked to a set of targets based on market capitalization, income and revenue. When Tesla hit $650 billion in market value in late 2020, it met all earnings milestones. This released Musk’s stock options that roughly translate to $56 billion.

As one business commentator described it, the package was essentially Musk’s bet on himself to take Tesla’s stock from $60 billion to $650 billion, a 983% rise. He was given 10 years to reach that target. He achieved it in 3 years.

Competition sharpens

But hereon, the story might go cold. Facing intense competition, especially from Chinese electric car makers like BYD, and a less-than-expected rise in demand for EVs, Tesla reported its first 2024 first quarter earnings plunged 48%, falling short of lowered Wall Street forecasts. The company reported a 9% drop in total revenue, and its profit margin declined by 2 percent.

In April this year, Tesla reported its first year-on-year decline in global sales since the pandemic and unveiled plans to cut more than 10% of its staff or about 14,000 employees. It’s continued price cuts in various models raising doubts whether the company would be able to sustain its earnings for the remainder of this year.

Even as late as 2022, the EV maker held 62 percent share of the EV market in the United States. By 2023, the share had dropped to 55 percent. China’s BYD actually took away the reins of ‘largest EV maker’ from Tesla for the last quarter of calendar 2023, before handing it back in 2024.

An import element in the Tesla strategy has been its affordable model car – sometimes called Model 2, and expected to cost around $25,000. Corporate pundits hopedit would bring back the drive in the company as a mass producer. The company says it would go into production in the second half of 2025, but Reuters, quoting company sources in the first week of April this year, said those plans had been suspended.

Robotaxi to the rescue

Though he denies it, Elon Musk is not for a mass production strategy. He has also been side-stepping promising but more regulated markets such as India. This strategy is antipathic to growth and will leave Tesla struggling in its traditional markets.

Market research firm TrendForce’s February 2024 report says though Tesla with a 19.9 percent share still holds the top slot, Chinese manufacturers hold three of the top five spots for global market share – BYD at 17 percent, GAC Aion at 5.2 percent and SAIC-GM-Wuling at 4.9 percent. German manufacturer Volkswagen is in the fifth spot with a market share of 4.6 percent. On time span, Chinese manufacturers had a very small 0.1 percent of global EV sales in 2012. It has taken them just 12 years to get where they are.

But we should not be in a hurry writing Musk’s epitaph. The man has an uncanny knack of making a comeback. To the mountains of criticism of not following a growth path on EVs, Musk’s counter-narrative has been to plan the commercial launch of the robotaxi. Powered by AI, and virtually driverless, the new form of mobility, the Tesla boss hopes, would make cars, as we know them, redundant. It’s a much better business plan than trying to squeeze profit out of cheap $10,000 EVs, he hopes.

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The New Indian Express
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