The small matter of $56 billion is on the line this week when Tesla (NASDAQ:TSLA) shareholders will vote at its annual meeting on Thursday on whether to reinstate CEO Elon Musk’s pay package. Earlier this year, a Delaware court voided the original 2018 pay package and Musk has warned that if things do not go his way, he might have to take Tesla’s AI endeavors elsewhere.
Well, he better start looking for a new home for those, if Bernstein analyst Toni Sacconaghi’s prediction plays out.
“We believe that Elon Musk’s $56B pay package is unlikely to pass the shareholder vote,” said Sacconaghi. “We note that ~25% of eligible voting shares are held by either passives, who are likely to follow the ‘no’ recommendation of ISS/Glass Lewis, or institutionals who have publicly announced their intention to vote no. Tesla has never seen more than 63% voter turnout in any shareholder vote.”
Even if voter turnout increases significantly to 75%, says Sacconaghi, Tesla would still require over 73% of the remaining voters to approve the pay package for it to pass. In the initial pay package vote in 2018, Tesla only secured a 73% yes vote, when it was a far less controversial issue and included yes votes from passive shareholders.
On the other issue at stake, the likelihood of Tesla’s proposed move to Texas being approved is greater, but remains uncertain. If Tesla shareholders reject the move, approving Elon’s compensation package would require an additional legal step: a review by the same Delaware court that previously blocked the package.
Should the package be rejected, Sacconaghi expects a more than 5% drop for the stock, while approval could push shares higher, although the analyst sees such a move as “likely more muted.”
On the whole, with the risk/reward into the shareholder vote currently looking skewed to the downside, Sacconaghi thinks investors “may be underestimating the risk that Elon’s pay package is rejected.”
As for the bigger picture, Sacconaghi is hardly more upbeat. “While the narrative on Tesla has clearly turned more positive, longer term, we continue to expect little to no growth in 2024 and 2025,” Sacconaghi further said. “We also struggle to have conviction that Tesla will win in autonomy and to justify the valuation even in a scenario in which it does.”
As such, Sacconaghi rates Tesla shares an Underperform (i.e., Sell) to go alongside a $120 price target. Should that figure be met, investors could be buying shares at a 31% discount a year from now.
8 other analysts join Sacconaghi in the bear camp and with an additional 14 Holds and 9 Buys, the stock claims a Hold consensus rating. Going by the $172.92 average target, the shares are currently fully valued. (See Tesla stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
