Elon Musk’s Warning on Tesla Stake Sparks Governance Concerns

In a surprising turn of events, Tesla CEO Elon Musk has sparked concerns among governance experts and analysts with his recent warning about the development of artificial intelligence (AI) and robotics outside of Tesla. Musk declared that he would be “uncomfortable” leading Tesla in these technologies unless he secures approximately 25% voting control within the company.

Musk, known for his outspoken nature, made this announcement on his social media platform, X, stating, “Enough to be influential, but not so much that I can’t be overturned. Unless that is the case, I would prefer to build products outside of Tesla.” This shift in stance raises questions about the automaker’s valuation and Musk’s fiduciary duties as CEO.

Shares of Tesla (TSLA.O) responded to Musk’s statement by rising about half a percent to $219.91. However, experts are now questioning Musk’s role as CEO, suggesting that his tweets indicate a conflict of interest and a violation of his fiduciary duties to Tesla.

Ann Lipton, a professor at Tulane Law School, expressed concern, stating, “The problem is his tweets suggest that in his capacity now as CEO and director, he is not only turning down profitable Tesla opportunities based on his personal preferences, but also redirecting them to his private companies.”

Furthermore, legal experts point out that CEOs and directors are prohibited from pursuing business opportunities for themselves that belong to the firm, citing the corporate opportunity doctrine. Charles Elson, the founding director of the Weinberg Center for Corporate Governance at the University of Delaware, emphasized that it would be illegal for Musk to develop technologies Tesla has touted without the company’s permission.

Musk, who is Tesla’s largest investor with a 13% stake, owns several other companies, including SpaceX, Neuralink, and xAI. However, his voting control at Tesla has diminished in the past two years due to the sale of billions of dollars worth of the company’s stock.

Analysts view Musk’s demand for increased control as a strategic move ahead of an impending Delaware court ruling related to his previous compensation package. The ruling could impact Musk’s control over the board and the company’s future compensation plans.

As Musk awaits the court’s decision on a shareholder lawsuit, some experts believe he may face opposition from major shareholders such as Vanguard and BlackRock. J.P. Morgan analyst Ryan Brinkman even speculates that Musk’s recent comments might increase the likelihood of his departure as CEO or result in a dilution of investors’ holdings.

The Tesla CEO’s statements have left many questioning the future of the company’s developments in AI and robotics. Some observers argue that Tesla may have little choice but to accommodate Musk’s demands to avoid hindering progress in these crucial areas.

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