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Failure to approve Musk comp plan a 'critical source of downside risk' for Tesla

Published 12/06/2024, 11:24

Barclays analysts identified that the potential failure to approve Elon Musk's compensation plan is "a critical source of downside risk" for Tesla (NASDAQ:TSLA) stock.

While the base case remains that the plan will be ratified, a growing list of institutional investors voting "no" casts significant doubt.

Barclays notes that the ratification of Musk's compensation plan is likely priced into the stock. A failed vote could lead to significant downside, raising questions about Musk's future at Tesla. Recent data indicates mixed institutional support and lower-than-expected retail participation, increasing the risk of a negative outcome.

Investor feedback ahead of Thursday's AGM has revealed concerns. "Tesla must receive over 50% of voted shares in favor of ratification," Barclays explains, with Elon Musk and his brother, Kimbal, abstaining from the vote.

Retail shareholders, who hold about 40% of the ownership, are crucial for approval. However, historically low participation and difficulties faced by non-American shareholders pose significant risks.

Institutional support is also mixed, with passive investors, comprising about 30% of the float, potentially voting in line with proxy advisors like ISS and Glass Lewis, both of whom recommend voting "no." Larger funds have taken both sides, with notable "no" votes from Norges Bank and CalPERS/CalSTRS.

While Texas reincorporation approval appears positive, the potential failure of Musk's compensation plan remains a critical risk for Tesla's stock.

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