An ill-advised meme-stock variant is weirdly successful. For now.
You’ve got to give it the little weirdo, he’s got nerve. The company stock is down some 37% this year, after steep declines in deliveries, it’s laying of 10% of its workforce is cutting prices in large markets like the US and Germany, and cut-rate Chinese imports are choking market share in Asia, and, if the EU doesn’t stick to its guns, in Europe. So it was against this backdrop that the man asked shareholders to reinstated a nearly $56bl pay package previously blocked by a court order. Elon Musk may be bat-guano, but you’ve got to admire the audacity of the maneuver.
Back in 2018, the realistic value of the pay package was a lot closer to zero that $55.8bl – the for a full payout seemed pretty far-fetched. To hit a market cap of $650bn would have made Tesla the most valuable car company in the world. How it happened is God’s own private mystery, as the company doesn’t deliver that many cars. If global trends continue it’s going to deliver even fewer still.
Alan Johnson, compensation consultant, told the Washington Post that the massive package was probably the board’s way of ensuring Musk was “not going to be off doing five other things.” Like SpaceX, tanking Twitter and a perfume called Burnt Hair. It sounds like I made that last one up. I did not.
It might be worth asking the age-old question: Whiskey Tango Foxtrox? The largest compensation package in American history defied meat-hook reality. Fortunately for Musk, meat-hook common sense was not what at work here. Tesla is a sort of supercharged meme stock variant, let’s call it a Cult of Personality Stock, that plague’s tech. Somehow Donald Trump’s Truth Social is still a thing – sort of. Crypto-Guru Sam Bankman-Fried was out of central casting for exactly what he claimed to be; an awkward, unkempt nerdy super-genius who was out to make the world a better place. Playing the part is the only way these guys keep the taps open. Although, it seems that a super-genius wouldn’t have had to play the part quite so large.
As a former investment banker, I like a good “story bond” as much as the next guy, but silly hair and a certain unswept BO is not a sound business plan. Still, it might be a good short-term bet: Tesla did hit that $650bn market cap and even down to $500.3bn it is still the world’s most valuable car company. So the pay package was triggered even if a Delaware court did find that the board had not been straightforward with the investors and blocked it.
The danger of the Personality Stock is when there emerges a mysterious driver that isn’t really quantifiable, doesn’t fit on a spreadsheet and yet can’t be ignored. The VC boys are pretty dedicated to cash-flow analyst and P/E ratios – which is what you want at that point. You sure as hell aren’t going to ask a frustrated novelist with a comedy background as he’s liable to mention blind luck, good timing and pure, fickle fashion. And the fact that he’d be right won’t help. So investors attribute the unaccountable to the founder’s charisma, invest in some super-human glory and pray the halo outshines reality and common sense.
It’s never a good sign when the value of the company stock outstrips the value of what the company makes. Which is what Musk is betting on as he and the board ask shareholders to vote on the $56bn pay-out again. Along with asking to reincorporate in Texas, away Delaware which blocked the package in the first place. This time the pay isn’t framed as an incentive, but back-pay. It’s not tied to any future performance beyond the vague threat of “Give Elon what he wants or the share-price will tank.”
If the man’s Cult of Personality is all that keeping the share price up, perhaps it’s a legitimate threat. Even his weirdo razzmatazz may not be enough anymore. Deliveries are so low the company is cutting its workforce, Asia is flooded with cut-rate Chinese EV’s and Europe is about to be. And America is too big for EV’s to be really practical outside the city. With quarterly numbers coming out this week, shareholders better hope the halo can keep outshining reality.