Tesla Inc.'s shareholder vote on Elon Musk's pay is, in some ways, a referendum on the performance of the company and its chief executive officer.
But even before the vote closed on Thursday, Tesla's share price suggests investors have plenty of doubts about Musk and the electric car maker's prospects.
Tesla's shares are down nearly 30% this year, even as the broader stock market rises 14%. At its peak in 2021, Tesla's market capitalization was $1.2 trillion, putting it on par with tech giants like Microsoft, Apple, and Google. Tesla's value has since plummeted to about $576 billion, putting it in the same league as lesser known companies like Visa and Walmart.
The reason is concerns about Tesla's business.
The company is facing tougher competition and, although its flagship models are selling extremely well, demand appears to be waning, price cuts to generate interest are eating into profit margins and analysts say no new models are coming soon that could spark a new buying frenzy.
“Tesla is really struggling to grow,” said Toni Sacconaghi, a Bernstein equity analyst who covers Tesla. “Part of the reason they're struggling to grow is because they don't have new models.”
Tesla's first-quarter profit fell 55% to $1.1 billion from the same period a year ago, and sales fell 9% to $21.3 billion. The company said it plans to lay off 10% of its workforce, or 14,000 employees.
Investors may be shying away from Tesla stock because they believe it's overvalued: It trades for roughly 50 times the earnings per share that analysts expect the company to generate next year, compared with a much lower 20 times the broader stock market.
But some analysts still recommend buying Tesla's stock, believing that growth will rebound once the company launches lower-cost electric vehicles. “We see strong volume growth ahead for Tesla,” says Garrett Nelson, who covers Tesla for CFRA.
Nelson said he also expects Tesla to see increased revenue from sales of software designed to help Tesla owners drive their cars.Some on Wall Street are hoping Tesla will one day follow through on its plans to build a large fleet of self-driving taxis. Ark Invest, an investment firm led by longtime Tesla fan Cathie Wood, thinks the so-called robotaxis could drive Tesla's stock price to $2,600, about 15 times its current value.
Tesla's current slump is a stark contrast to the bull market that saw the company's stock price soar and enabled Musk to win all of the stock options for the awards on which it was voting.
Shareholders approved the compensation package in 2018, but a Delaware court invalidated it in January, in part because Musk had effectively overseen his own compensation plan. Tesla expects a court would reinstate it if shareholders again support the package. Some big investors have said they will vote against the compensation deal, now worth about $45 billion, because it is too big.
Tesla's stock price decline highlights the flaws in a compensation plan that relies on stock price movements: Executives typically don't have to give up their pay if the stock price falls below the price at which they earned it.
Tesla's stock market value is currently at a level that would have made Musk ineligible for any part of the package, but because the market value reached the target value within the time frame set out in the package, Musk gets to keep it.
Musk's actions may have also weighed on Tesla's stock price.
In 2021 and 2022, he sold about $38 billion in Tesla stock to fund his acquisition of Twitter (now known as X). His Tesla holdings, once around 30%, are now 13% excluding the shares backing the 2018 package and 20% with the backing.
Musk has said he wants a 25% stake. “Not enough for me to control the company if I go crazy,” he said in January, “but enough to have a significant influence.”
Musk and Tesla's public relations department did not respond to requests for comment.
The immediate question is whether Tesla's stock price could fall if Musk loses the vote on his compensation package. Investors might sell their shares if they think Musk is crucial to the company's future. But with most of his wealth in Tesla, Musk might see little reason to sell.
During an investor call in April, Mr. Sacconaghi asked Mr. Musk whether he was considering reducing his involvement in Tesla, to which Mr. Musk replied, “I have to make sure that Tesla is very thriving.”