Tuesday, March 5

Musk demands larger stake in Tesla as price for AI work

Tesla Chief Executive Elon Musk stunned investors by demanding that the company’s board give him stock worth more than $80 billion if it wants it to continue expanding products based on artificial intelligence.

In the latest display of his disregard for conventional means of communicating with investors, Mr. Musk said Monday evening on X, the social networking site he owns, that he needed to own 25 percent of Tesla to avoid the takeovers and having sufficient control over the company. as it develops robots and other artificial intelligence technologies.

If his demands are not met, Mr. Musk said, he would pursue unspecified projects outside of Tesla. In addition to electric cars, Tesla is developing a humanoid robot called Optimus and using artificial intelligence to develop autonomous driving technology, a cornerstone of the company’s strategy. These companies are owned by Tesla, and Mr. Musk couldn’t just walk away with them.

The company’s stock market valuation of nearly $700 billion – more than twice that of Toyota Motor, the world’s largest automaker by annual car sales – is based in part on investors’ belief that the company will lead the rest of the industry in developing cars that can drive from one place to another without human intervention. Investors are also betting that advanced automation will allow Tesla to make cars much more efficiently and profitably than its competitors.

Mr. Musk owns 13% of Tesla after selling a substantial portion of his stake to fund his $44 billion acquisition of Twitter, which he renamed X. The social media site struggled under his leadership and lost value. Another 12% of Tesla would be worth $83 billion at the current share price, recouping Mr. Musk’s investment in Twitter — which he said he regrets — and much more.

“I’m not comfortable making Tesla a leader in AI and robotics without having about 25% voting control,” Mr. Musk wrote on X. “Enough to have influence , but not so much that it cannot be knocked down.”

He continued: “If that’s not the case, I would prefer to make products outside of Tesla. ” But he also said the board would take no action until a Delaware judge rules on a lawsuit filed by a Tesla shareholder challenging an earlier compensation plan that helped make M .Musk the richest person in the world.

Mr. Musk testified in the Delaware case in late 2022. Gregory Varallo, who represents shareholders in the lawsuit, said he did not know when there would be a decision. No documents have been filed in this case since July.

Tesla did not respond to a request for comment.

Mr. Musk’s request shows the extent to which Tesla, which sold 1.8 million vehicles last year, is subject to his impulses.

“You never really know what you’re going to read from Elon Musk when you get back to the office after a three-day weekend,” said Ben Rose, president of Battle Road Research, which advises institutional investors. Mr. Rose called Mr. Musk’s request “curious and ill-timed,” given that Tesla faces growing competition and tough economic conditions.

Tesla’s success under Mr. Musk has forced traditional automakers to begin offering electric vehicles, key to reducing transportation-related greenhouse gas emissions. But Mr. Musk’s behavior and statements weighed on the stock price and landed him in trouble with regulators.

Tesla shares fell when Mr. Musk sold part of his stake to buy Twitter. Stocks also suffered after Mr. Musk said in 2018 that he had the money to take Tesla private and delist it from the stock market. Mr. Musk was unable to execute the plan. The privatization declaration led to a lawsuit by the Securities and Exchange Commission, which Tesla settled for $40 million while agreeing to have lawyers review what Mr. Musk says on Twitter. It was not clear whether Mr. Musk’s statement about X on Monday evening had been approved by lawyers.

It would be difficult for Tesla’s board, which has been criticized for not doing enough to control Mr. Musk, to grant his wish immediately or unconditionally. The company is expected to issue new shares, said Mr. Rose of Battle Research. This would dilute the value of existing shares without raising additional capital for Tesla, and could result in shareholder lawsuits.

But Mr. Rose added that the board could grant Mr. Musk stock options that he would only receive if he hits certain milestones over five years or more. This would be similar to compensation Mr. Musk received in 2018, which was contingent on Tesla achieving stock valuations considered at the time to be unrealistic and ambitious. Mr. Musk became the world’s richest man by defying expectations and achieving his goals.

The company’s shares have fallen about 11 percent so far this year, but are up about 70 percent over the past 12 months.

Mr. Musk did not specify what products he might develop outside the company. He has already launched a separate artificial intelligence company called X.AI, which launched the Grok chatbot to selected users last year, although he has also highlighted the dangers of the technology in public comments.

Tesla’s primary use of artificial intelligence is in its Autopilot and fully autonomous driving systems, which assist drivers by taking over certain tasks in certain driving situations. Mr. Musk has said several times over the years that the company is close to perfecting the technology that would allow a car to drive itself completely. But self-driving technology has taken longer to perfect than Mr. Musk predicted, and many experts say it will still take years to get there.

The automaker is also working on a robot called Optimus. The device can fold a shirt, according to a video Tesla posted to X on Monday, but has not become a significant source of revenue.

On X, some of Mr Musk’s fans applauded his demand for a 25 percent stake, saying he had earned the money. But others said it was his fault that his stake in the business failed. “They didn’t force you to sell your shares,” one user wrote, adding, “why should the board do anything to rectify this for you?”

A stake of less than 15% in the company, Mr. Musk said, “makes it too easy for dubious interests to take control.”