Tesla CEO Elon Musk faces legal action from a Tesla shareholder who accused the visionary CEO of neglecting the needs of investors and using the tech company for his personal enrichment.
Days after some shareholders said the time has come to oust the CEO of Tesla, Elon Musk faces yet another challenge. A new lawsuit filed in the Delaware Court of Chancery and unsealed on Thursday accuses Musk of swindling the company with his unprecedented $2.6 billion award, recently approved by shareholders, and calls for the removal of the board and the appointment of new directors to better reflect the interests of the shareholders.
“The new E. Musk compensation plan is so large it dwarfs the pay package of every other public company CEO,” the motion submitted by Richard Tornetta states.
Musk’s compensation package, approved by shareholders in March, consists of 20.3 million stock options to be granted in 12 installments if he reaches capitalization goals. The allocation of each part of his compensation depends on whether he succeeds in reaching the set market value and other financial targets within designated timeframes. The plan also stipulates that in order to receive the more than generous compensation in full, Musk will have to remain CEO of the company and chief product officer during that period. In addition, Musk will not be able sell the options for five years after they are exercised.
The company’s market value, which is now stands at $60 billion, will have to reach $650 billion by 2028, which amounts to a roughly 11-fold increase. The plan could either make Musk the richest man alive or leave him without pay if he misses the ambitious targets, as neither salary nor bonuses are envisaged for him.
Tesla responded to the lawsuit, which seeks to acquire class-action status, by reiterating the robust terms with which Musk must comply to be eligible for the award. The company alleges that the Tornetta complaint is a thinly-veiled attempt at a power grab.Photo by www.geteverwise.com
The case will be heard by the same court that in March refused to toss out another class action lawsuit against Musk over the SolarCity clean energy company acquisition that the Tesla board approved in 2016. The lawsuit claims that Musk, who served as SolarCity chairman since 2006 and held considerable stock in the company, did not act in the interests of Tesla shareholders but in his own when he pushed for a $2.6 billion deal that allowed him to convert his SolarCity shares into Tesla shares.
Tesla’s legal woes have been piling up as the company is going through a rough patch, failing to produce a quarter of the target of 400,000 Model 3 vehicles and accumulating over $2 billion in debt last year. The cost of the Model 3, which was once touted as a ‘mass-market’ car, meanwhile soared from $35,000 to $78,000.
Investors increasingly believe the company will need to raise money if it wants to survive. Goldman Sachs recently predicted it will need around $10 billion in the next two years to fund its expansion to China and its auto manufacturing plans.
Tesla’s shareholders have re-elected three directors and voted against removing Elon Musk as company chairman. He says the electric car company will solve its Model 3 production problems.
Before the meeting, several major shareholding companies had insisted that the chairman and CEO titles should not be held by a single person. Institutional Shareholder Services (ISS) said Musk is too busy with Twitter wars instead of “resolving the manufacturing challenges.”Photo by mariordo59
Investor Antonio Gracias, Tesla’s lead independent director; James Murdoch, the CEO of Twenty-First Century Fox Inc; and Elon Musk’s brother Kimbal have all been re-elected as Tesla directors. Some shareholders had raised questions about their qualifications or independence.
Musk had forecasted that Tesla would have produced 400,000 Model 3 vehicles by now, but has failed to produce even a quarter of that figure. The company has posted only two profitable quarters in its 14-year history, and losses escalated to over $2 billion last year.
At the shareholders meeting, Musk said it is “quite likely” that Model 3 production would grow to 5,000 a week from 2,270 a week in April. “This is the most excruciating, hellish several months I’ve ever had… but I think we’re getting there,” Musk said after it had been decided he would keep his post.
Speaking about the company’s failure to reach production goals, the CEO and chairman said that Tesla is more about love than finance. “At Tesla, we build our cars with love. At a lot of other companies, they’re built by marketing or the finance department and there’s no soul. We’re not perfect but we pour our heart and soul into it and we really care.”