Tesla’s stock surged by 7% on Thursday following the news that Elon Musk’s proposed compensation package was nearing approval at the company’s highly anticipated annual shareholder meeting. The package, which boasts a staggering value of $46 billion based on Tesla’s current stock price, garnered significant support from major institutional investors, including Vanguard and BlackRock, according to reports from Dealbook.
The approval of Musk’s pay package comes amidst a backdrop of mixed financial results for Tesla. Earlier in the week, the electric carmaker reported fourth-quarter earnings that failed to meet expectations, triggering a sharp decline of over 5% in its share price. Tesla’s revenue for the quarter came in at $25.17 billion, falling short of the estimated $25.87 billion, while adjusted earnings per share were slightly lower than anticipated at $0.71 compared to the expected $0.73.
Despite these financial challenges, the prospect of Musk’s compensation package being approved provided a substantial boost to Tesla’s stock price, which surged to $188.31 shortly after the market opened on Thursday. Musk himself confirmed during an update on X on Wednesday evening that Tesla had received enough votes to approve the compensation plan. Additionally, Musk indicated that a vote to relocate Tesla’s corporate operations from Delaware to Texas was likely to pass as well.
The endorsement of Musk’s compensation package by passive investors such as Vanguard and BlackRock, who together own 13% of Tesla’s shares, was pivotal in securing the necessary approval. Their support underscores confidence in Musk’s leadership and long-term strategic vision for Tesla, which includes ambitious projects like the Cybertruck and the development of next-generation electric vehicles.
Analysts, including Dan Ives from Wedbush Securities, viewed the shareholder approval of Musk’s compensation as a significant positive catalyst that could alleviate investor concerns and potentially remove an estimated $20-$25 “overhang” on Tesla’s stock price. Ives reiterated his “Outperform” rating on Tesla with a price target of $275, implying a substantial upside potential of 45% from the current trading levels.
The impending approval of Musk’s pay package not only addresses lingering uncertainties among investors but also reaffirms Musk’s commitment to Tesla amid ongoing speculations about his involvement in other ventures, such as SpaceX and Neuralink. The outcome of the shareholder meeting, which is expected to finalize these decisions, holds considerable importance for Tesla’s future strategic direction and market positioning.
Overall, the positive market response to Musk’s compensation package approval reflects optimism about Tesla’s growth prospects and underscores the pivotal role of executive compensation in shaping investor sentiment and corporate governance.