Elon Musk loses $51 billion, but there’s a lot more at stake

By Liam Denning

For Elon Musk, the Delaware Court of Chancery is like a giant anti-ATM, sucking wealth away from him. Late on Tuesday, Chancellor Kathaleen St. J. McCormick voided a $55 billion compensation package that Tesla Inc. awarded the chief executive in 2018. In 2022, the same judge presided over the case in which Twitter Inc. eventually forced Musk to go through with his acquisition of the company, with him backing down before it went to trial. Twitter, now X, has not thus far been a star performer.

Musk took to the platform after the ruling to warn any unsuspecting entrepreneurs out there: “Never incorporate your company in the state of Delaware.”

His tweeting habit suggests this latest setback didn’t come as a complete surprise. Only a couple of weeks ago, he issued a thinly veiled threat to take his best artificial intelligence-related ideas elsewhere unless he was granted another giant slug of Tesla stock, claiming activists might steal in and take control. It was nonsensical on at least two levels — the value of his own Tesla stake rests on those AI dreams and his involvement as CEO and chief marketer. But it suggested some nervousness about the pending ruling.

That ruling, which will likely be appealed, effectively takes away Tesla stock options valued at about $51 billion, which he has yet to exercise. He retains a 12.9 per cent direct stake in the company, worth $79 billion at the current share price, some 58 per cent of which was pledged as collateral for personal loans as of last March. He also has other large holdings, such as in Space Exploration Technologies Corp., or Space X. He can still afford the jet, although losing the top spot in the global wealth rankings might rankle a bit.

More importantly, the travesty and paradox that is governance at Tesla is, once again, on full display.

The judge’s ruling that the board was conflicted in awarding Musk the giant compensation package will hardly surprise any longstanding Tesla watchers. The company’s board, whose longest serving member is Musk’s own brother, has long been something more like an ongoing satire of a board. It has presided over numerous Musk outrages and dubious corporate moves, not least the acquisition of SolarCity Corp. — which owed Musk money — and the supposed take-private deal that will forever be associated with the less-than-watertight phrase “funding secured.”

Presumably, the board — still with some members dating from 2018 — must now come up with a new package to supposedly keep Musk from taking his best ideas elsewhere. It’s all so — what’s the word — Tesla-ish.

Musk’s own desire for more stock comes in the wake of having sold a chunk of his Tesla holding while buying a social media platform that takes away yet more time from his main day job as an electric-vehicle tycoon and, as a bonus, may alienate the folks who tend to buy those EVs. That dumping of almost $40 billion worth of his Tesla stake, from late 2021 through 2022, coincided with a slump in the shares (see this), and this latest ruling will surely raise concerns about how his personal finances might impact the stock from here.

All of this comes at a moment of weakness on the corporate front. Tesla has just abandoned its growth target for the core autos business while it works on developing a new mass-market electric vehicle, having instead, on Musk’s orders, decided to launch the Cybertruck, which is more of just a mass.

Musk’s centrality to Tesla’s mystique means such absurdities can, and likely will, be accommodated. He is both the chief asset and chief risk; it being hard to imagine Tesla valued anywhere near $600 billion without him. That reality may represent the board’s bigger failure.