Tesla shareholders' vote on Elon Musk's salary is, in some ways, a referendum on the performance of the company and its CEO.
But even before voting concludes on Thursday, Tesla's stock price shows that investors have many doubts about Musk and the electric car maker's prospects.
Tesla shares are down nearly 30 percent this year, even as the broader stock market is up 14 percent. At its peak in 2021, Tesla's stock market value was $1.2 trillion, putting it in the company of tech giants like Microsoft, Apple and Google. Since then, its value has plummeted to around $576 billion, placing it alongside less daring companies like Visa and Walmart.
Blame concerns about Tesla's business.
The company faces tougher competition and although its main models have sold very well, demand appears to be declining. Price cuts aimed at stimulating interest are eating into profit margins. And analysts say there will be no new models coming soon that could trigger another wave of buying.
“They've really struggled to grow,” said Toni Sacconaghi, a Bernstein stock analyst who covers Tesla. “And part of the reason they've had a hard time growing is because they don't have new models.”
Tesla's first-quarter profit fell 55 percent to $1.1 billion from a year earlier, while revenue fell 9 percent to $21.3 billion. The company revealed plans to lay off 10 percent of the workforce, or 14,000 people.
Investors may also be avoiding Tesla stock because they think it is overvalued. It is priced at about 50 times the earnings per share that analysts expect Tesla to generate next year. The broader stock market trades at a much lower multiple: 20 times.
But some analysts still recommend buying the stock, because they expect Tesla's growth to rebound when it finally launches a lower-cost electric vehicle. “They still have significant volume growth ahead of them,” said Garrett Nelson, who covers Tesla for CFRA.
Nelson said he also expected Tesla to earn more by selling software designed to help Tesla owners drive their cars. And some on Wall Street hope Tesla will one day make good on its plan to build a huge fleet of self-driving taxis. Ark Invest, an investment firm run by longtime Tesla fan Cathie Wood, believes so-called robotaxis could lift Tesla shares to $2,600, nearly 15 times their current value.
Tesla's current crisis is quite different from the intense optimism that propelled its stock to a meteoric rally and allowed Musk to win all the stock options in the award up for voting.
Shareholders approved the pay package in 2018, but a Delaware judge struck it down in January, arguing that, among other things, Musk had effectively overseen his own compensation plan. Tesla hopes that if shareholders again support the package, the court will reinstate it. Some big investors say they will vote against the wage deal, currently valued at about $45 billion, because it is too big.
Tesla's stock decline points to a flaw in pay packages that depend on stock price performance: Executives generally don't have to repay pay if shares fall back below the price at which they earned them.
Tesla's stock value is now at a level that would not have allowed Musk to qualify for part of the package. But he can keep it because the market value met the targets within the time frame stipulated in the package.
Musk's actions may have also weighed on Tesla shares.
In 2021 and 2022, he sold about $38 billion in Tesla stock to help finance his purchase of twitter, now called the shares underlying the 2018 package, and 20 percent. with that.
Musk has said he would like to take a 25 percent stake. “That doesn't mean so much that he can control the company even if I go crazy,” he said in January. “But it is enough that it has a strong influence.”
Musk and Tesla's press department did not respond to a request for comment.
A pressing question is whether Tesla shares could fall if Musk loses the vote on the pay package. Investors could sell if they believe it is crucial to the company's future. But with much of his wealth sitting in Tesla, Musk could see little reason to deviate.
Sacconaghi asked him on an investor call in April if he was thinking about reducing his stake in Tesla. “I have to make sure Tesla is very prosperous,” Musk said.
