Tesla--"No" Vote Against Musk Comp Plan Begins to Look Possible
Daily tweets by Musk & top Tesla executives to "vote yes" for Musk's $47 billion comp plan to be re-ratified shows intense fear of a "No" vote at Tesla
While I thought the upcoming shareholders’ vote on Musk’s $47 billion compensation package getting re-ratified this Thursday would be a coin toss, I’m beginning to think that a “No” vote may be more probable. This is because of the intensifying pace of tweets from Musk and top executives at Tesla (many of which don’t normally tweet) over the past 10 days or so.
Before getting into the estimates I have for the shareholder vote in Figure 11, please look at the chronology of the “Vote Yes” pump (Figures 1 through 9) to get a feel for the pure panic at Tesla, who can see the votes in real-time.
It should be noted that the Supply Chain VP in Figure 5 had only tweeted 12 times in the past six years before suddenly posting a “vote yes” tweet over the weekend.
Figure 1: Ron Baron on CNBC Says “Vote Yes” (June 5th)
Rumor has it that Baron asked CNBC to show up and pump the “Yes” vote.
Figure 2: Tesla Chairwoman on CNBC Says “Vote Yes” (June 6th)
Figure 3: Musk Begs for “Yes” Votes Via Factory Tours (June 8th)
Figure 4: Head of Autopilot Says Musk Didn’t Ask Him to Write This (June 8th)
Figure 5: Tesla Supply Chain VP Says “Vote Yes” (June 9th)
It should be noted that Karn Budhiraj had only tweeted 12 times in six years up until the above “vote yes” post.
Figure 6: Musk’s “Fixer-In-Chief” on How Hard Musk Works (June 10th)
Figure 7: Sales & Service Exec Says “Vote Yes” (June 11th)
Figure 8: Tesla Posts 2,814-Word Ode To Musk’s Achievements (June 11th)
My estimates currently show that Musk may not win the vote to have his compensation re-ratified. The calculations in Figure 11 show a Yes vote of only 46% and a No vote of 54%. My assumptions are largely based on voter type (Figure 9) and voter turnout (Figure 10) estimates. My estimates are listed below in Figure 11.
Figure 9: Breakdown by Tesla Shareholder Type
Source: Tipranks
Figure 10: Recent Voter Turnout—Retail vs Institutions
Source: Broadridge ProxyPulse
My estimates of a 46% “Yes” to 54% “No” vote are based on the following assumptions and calculations in Figure 11:
At 46% of shares outstanding, individual investors’ ownership of Tesla shares is higher than the institutional investors’ 40% stake. This means that individual investors’ voter turnout is a critical figure. I assume that the turnout rises to 44.4% of total individual investors, which is a 50% increase from last year’s estimated 29.6% turnout.
Musk recently tweeted that “roughly 90% of retail who have voted have voted in favor”. This threw a lot of people off as it sounded like 90% of retail had voted yes, which would point to a resounding “Yes” vote. I assume that 90% of the retail turnout of 44% votes “Yes” in Figure 11. As can be seen in Figure 10 above, retail voter turnout is usually around 30%.
Mutual funds hold 13.6% of Tesla’s shares and I’m estimating that 40% vote “Yes” while 60% vote “No”. The reason for this is that Capital Group, with its 1.4% stake, is the largest mutual fund shareholder and they voted “No” in the 2018 vote. I also think that Musk’s antics over the past two years since he bought Twitter and Tesla’s plummeting profits thereafter have irked a lot of the other mutual funds (watch this pre-IPO shareholder’s rant on CNBC here).
Other Institutional Investors (ETFs, etc.) are passive investors and tend to vote with the guidance given by the two major proxy advisors, ISS and Glass, Lewis & Co. Both have advised investors to vote “No” for Musk’s compensation package to be reinstated. In the 2018 vote for the original package, BlackRock voted “Yes” for Musk’s grant plan and, at 5.9% they are the second largest shareholder after Musk’s 20.5% stake and Vanguard’s 7.3% stake (Vanguard voted “No” in 2018). This is why I assume only 90% of passive investors vote “No”.
Insiders make up 13.6% of Tesla’s shares, but as in 2018, Elon and Kimbal Musk have recused themselves from this time’s vote, so the insiders’ vote is miniscule at only 0.6%. Naturally, I assume 100% of them will vote “Yes”.
Figure 11: Estimates for “No” Vote on Musk’s Comp Plan
The biggest swing factors to my estimates above are as follows:
If the individual investors’ voter turnout is 57.5% versus my estimate of 44.4% (a 50% increase over 2023’s turnout), then the “Yes” vote would narrowly pass with a 50.1% majority (all else being equal).
If mutual funds vote 60% “Yes” rather than my estimate of only 40%, then Musk’s pay package being reinstated would win by a 50.1% majority (all else being equal).
And this is the most critical factor: if 20% of “other institutional investors”, i.e. passive funds, ETFs, etc. vote “Yes” rather than my assumption of only 10% voting “Yes”, this small change would flip the vote to a 50.1% majority “Yes” vote (all else being equal).
What this sensitivity analysis shows is that, while retail investors hold the largest stake in Tesla at 46%, passive institutional investors (“Other Institutional Investors” in Figure 11) who vote in herds with the advice of proxy advisors are a bigger swing vote because of their higher turnout. If BlackRock votes “No” this time versus “Yes” in 2018, it could massively dilute any increase in retail voter turnout, roughly 90% of which Musk said is voting “Yes”.
Stock Price Reaction: Still a Coin Toss But Still a Short
While I wrote that I’d be taking off most of my short exposure going into Thursday’s vote (here), I’ve decided to add a small amount of weekly puts at strikes that are roughly 15% below VWAP the day before of the June 13th vote announcement.
Naturally, this would be an amount that I could stand to lose, so don’t think that I’m trying to swing for the fences, as this is still a coin toss and all of my analysis above could be wrong (and probably will be: one should assume that anyone who still owns Tesla is stupid and votes “Yes”).
Yes Vote Reaction: If Musk gets a majority “Yes” vote for his comp plan being reinstated, I expect a surge in the stock price given how much Tesla has underperformed the market in the past week due to rising fears of a “No” vote. However, because the Delaware Court’s ruling that voided Musk’s comp package in January cannot be overturned by a shareholders’ vote, I will short the relief rally as it should fade as this realization quickly settles in.
Narrow Majority Yes Vote Reaction: The original grant plan in 2018 passed with a 73% “Yes” vote. If the June 13th vote is less than that—or even worse, in the 50-percent range—this would be almost as bad as a “No” vote, as it would show a massive decrease in confidence in Musk and the Board among shareholders.
No Vote Reaction: If Musk gets a majority “No” vote for his comp plan, I’d expect Tesla to drop at least 15% in the following days, if not more. While some might say that a “No” vote is already factored in, I would argue otherwise. Most assume that if 73% of shareholders voted “Yes” back in 2018, how could that drop below 50%?
Moreover, there are fears that Musk may leave Tesla in the event of a “No” vote because he’s threatened to take his AI “know-how” elsewhere if he doesn’t get more shares and this would lead to him selling his shares before he leaves. Given how much retail investors believe that there is no Tesla growth without Musk and the fact that they own nearly half of Tesla’s shares, retail dumping on a “No” vote could tank Tesla’s stock price.
tesla have the live results of the vote right? if they knew it was going to pass they wouldnt be running campaigns in the final days. would Elon have had a big apple tantrum the other day if the numbers looked promising?
there's also a coordinated pump today with the MS and ARK investor notes (i believe MS financed his twitter deal?). at the very least, it will be tight and all the signs are pointing to that.
Im short a fuckton of stock. Im going to get margin'd if it passes lmao. I'll just weather the storm. The Texas vote has no shot at passing and the Delaware judge moves fast -- vote gets thrown out by next Friday I reckon.
I'm glad the index fund I have a small part of is likely, on past behaviour, to vote no.