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Bernstein maintains Tesla shares target amid Elon Musk pay vote

EditorEmilio Ghigini
Published 06/10/2024, 05:25 AM
© Reuters.

On Monday, Bernstein, a financial research firm, maintained its Underperform rating on Tesla (NASDAQ:TSLA) with a price target of $120.00 for the shares. The firm's analysis suggests that the likelihood of Tesla CEO Elon Musk's $56 billion compensation package passing the upcoming shareholder vote is low.

This assessment is based on the distribution of Tesla's eligible voting shares, with approximately 25% held by passive investors likely to adhere to the 'no' recommendation from advisory firms ISS/Glass Lewis, or by institutional investors who have already expressed their intention to vote against the package.

According to the firm, Tesla has historically seen no more than 63% voter turnout for shareholder votes. Even with an optimistic projection of 75% turnout, the company would require over 73% of the remaining voters to approve the package for it to pass.

The precedent set by the 73% affirmative vote on Musk's initial pay package in 2018, which was less controversial and had the support of passive investors, suggests that achieving such a majority may be challenging.

The firm also commented on the potential financial implications if Musk's pay package is rejected. It could lead to a 9% reduction in Tesla's diluted share count, which would in turn increase earnings per share (EPS) by approximately 10%. Additionally, Tesla might have to restate historical financials, primarily adjusting general and administrative (G&A) expenses and diluted share count downwards.

The analyst anticipates that if shareholders do not approve the pay package, Tesla's stock could decline, potentially by more than 5%, due to concerns that Musk might depart from the company. Conversely, if the vote is in favor of the compensation package, the stock is expected to react positively, though the extent of the reaction may be limited.

The approval of Tesla's proposed re-domestication to Texas is considered more likely, but it remains uncertain. If the move to Texas is not approved, and the pay package is rejected, the next step would involve a review by the Delaware court that previously blocked Musk's compensation.

In other recent news, Tesla Inc. has delayed the refresh of its Model Y, as confirmed by CEO Elon Musk. This development comes amidst a decline in global vehicle deliveries for the first time in nearly four years.

Meanwhile, the Norway sovereign wealth fund, Tesla's eighth-largest shareholder, has expressed its intention to vote against the ratification of Musk's $56 billion compensation package.

Tesla is also contesting a $5.6 billion legal fee requested by the attorneys who challenged Musk's compensation package, proposing a significantly lower amount in a recent court filing.

In addition, Tesla has introduced advanced navigation features in its vehicles in China, aiming to improve the driving experience by incorporating lane-level guidance. This update addresses feedback from Chinese users regarding the detail in Tesla's in-car navigation maps.

Investor Ron Baron has voiced his support for Musk's controversial compensation plan, emphasizing Musk's critical role at Tesla. These are recent developments that have occurred within Tesla, Inc.

InvestingPro Insights

As Tesla (NASDAQ:TSLA) faces a pivotal shareholder vote on CEO Elon Musk's compensation package, investors are closely monitoring the company's financial health and market performance. According to InvestingPro data, Tesla holds a market capitalization of $566.02 billion, with a P/E ratio of 41.23, reflecting a premium valuation in the market. Despite concerns over Musk's pay, Tesla's robust revenue growth of 10.12% over the last twelve months as of Q1 2024 demonstrates its continued business expansion.

Two InvestingPro Tips that are particularly relevant to the article's context include Tesla's significant cash position relative to debt and the expectation of net income dropping this year. These insights could influence how shareholders view the prudence of approving a hefty compensation package amid financial shifts. Additionally, with 18 more InvestingPro Tips available, investors can delve deeper into Tesla's financial metrics and market standing by using coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

While the outcome of the shareholder vote remains uncertain, Tesla's ability to cover interest payments with its cash flows and the fact that its liquid assets exceed short-term obligations may reassure investors about the company's financial resilience, regardless of the executive compensation decision.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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