In Elon Musk's famous dealbook interview last year, he accused advertisers of blackmailing him by suspending advertising on Twitter. Now that Musk is reportedly building himself a glass house, he should probably be more careful when throwing stones. On January 15th, Musk published what may be one of his most bizarre tweets yet where he appears to be blackmailing Tesla's shareholders and board of directors. He said that he's uncomfortable growing Tesla to be a leader in Ai and Robotics without having 25% voting control.

Unless that is the case, he would prefer to build products outside of Tesla. Currently, Musk owns 133% of Tesla. To increase his ownership to 25% he would need an additional 12% Based on the current market cap. This would be worth $83 billion, which would be the largest compensation package received by a CEO ever.

It's hard to view this as anything other than blackmail. Musk specifically says that if he doesn't get this $83 billion, he would prefer to build products outside of Tesla. He's specifically referring to the Xai company he recently founded. Xai is majority owned and controlled by Elon Musk Tesla has no Financial stake in Xai yet.

Musk has already poached high ranking Tesla employees to join Xai. Musk appears to be threatening Tesla shareholders saying that unless he gets his desired pay package, he will sabotage the automaker's AI development. Over the years, Musk has built a tangled web of companies which he controls, including Tesla SpaceX the boring company near link X formerly known as Twitter and now X AI As we will expose in this video, Musk has created a huge number of conflicts of interest which may allow him to extract value and enrich himself at the expense of non-controlling shareholders. To understand what's going on today, we have to go all the way back to 2018.

when Tesla gave Elon Musk What would turn out to be one of the most generous compensation packages in history. Musk would receive no fixed compensation. He would only receive stock options based on the completion of certain Milestones. There were 12 Milestones which included market capitalization and operational requirements.

The market cap requirements range from $100 billion to 650 billion. The Automaker's market cap at the time was about $60 billion. The operational Milestones were for revenue and adjusted Eida. The maximum Revenue tranch was 15 times greater than 2017 levels and the maximum adjusted EA do tranch was 21 time 2017 levels.

However, full vesting only requires 12 of the 16 operational metrics to be met. Assuming all all the Milestones are met, Musk would be awarded with options for 20.3 million shares. These Milestones expire after 10 years. This was worth about $6 billion at the time based on Tesla's share price.

In 2022, Tesla met all 12 of the Milestones With 5 years to spare, due to the meteoric rise of the company's share price, the value of the stock option surged to an eye watering $55 billion, turning Musk into the richest man in the world. There's nothing wrong with a CEO being compensated handsomely for performance during the 5year period from 2018 to 2022, Tesla's revenue and profitability exploded far beyond what almost anyone had imagined was possible. with Musk at the helm, The company generated close to a trillion dollars of wealth for its shareholders. While the Compensation Plan was indeed ambitious, even Tesla's board of directors probably never imagined Tesla's share price would increase so much as to make the package worth 55 billion.

And to be fair, the Compensation Plan was indeed approved by a shareholder vote. Tesla's shareholders decided the potential High Cost of the Compensation Plan was worth worthwhile to motivate Musk to work hard. In 2022, a small Tesla shareholder sued the company, calling the compensation package excessive. During the court proceedings, current and former members of Tesla's board were called to testify.

One of these board members was a man named Antonio Graas, who runs a private Equity Fund called Valor Equity Partners Valor Equity has invested in multiple Musk controlled companies including Tesla SpaceX and Neuralink. He has a close relationship with Musk and has previously vacationed with him. To the Bahamas Graas testified that at the time when the Compensation Plan was decided, Tesla's internal forecast already expected three of the Milestones to be achieved within the next 18 months. These internal forecasts were not disclosed to shareholders when they voted to approve the Compensation Plan.

Thus, it seems like they gave the first three trones to Musk for free. This represented 5.1 million shares, which would have been worth almost $1.5 billion. Tesla Also had to achieve market capitalization requirements. Importantly, the Milestones were based on market cap, not share price.

Tesla Raised billions of dollars over the coming years by issuing new shares. The market cap requirements were not adjusted for dilution. This brings up concerns around conflicts of interest between Tesla's Board of Directors for example, in 2014, Tesla hired Australian businesswoman Robin denome as a non-executive director and in 2018 promoted her to chair of the board. Reportedly, she was handpicked by Musk in her first four years as a Tesla director.

She was paid $17 million, far more than she was paid in her previous job. In fact, all all of Tesla's board members were well paid. In 2017, the year before Musk's massive compensation plan was approved, the company's eight non-employee directors received a total of $13.3 million of compensation or about $1.7 million each. For comparison, the average salary for board members of S&P 500 companies is about $300,000 The high pay of Tesla's directors may have motivated them to keep a good relationship with Musk.

Given Musk's cult-like following among Tesla shareholders, he can mobilize his Fanboys to vote out any board member who steps out of line. Ira Aaron Price A Tesla board member who also chaired the compensation committee explored how the disclosed public value of Musk 2018 Compensation Plan could be limited. Perhaps he knew the excessive compensation could cause a PR backlash and one of the plan to be approved quietly. Perhaps the most outrageous example of the Tesla board's lack of Independence is the fact that Elon Musk's brother Kimble Musk is a member.

Long story short, in 2018, Tesla's very well-paid board which includes Musk family members and Friends gave him a compensation package that ultimately paid out to the tune of $55 billion. But apparently that's not enough if he's going to continue working at Tesla Musk wants even more money. Because the 2018 Compensation Plan is currently being challenged in court, the board has not been able to create a new Compensation Plan. Thus, since 2022, Musk has technically been working as CEO of Tesla for free.

Many Musk Fanboys have been complaining about this saying: without a Compensation Plan Musk will not be incent device to exert effort. In response to this debate, a Twitter user opined that Musk ownership of 411 million Tesla shares valued at almost $100 billion should be enough to motivate him. Musk responded to the Tweet saying he is uncomfortable growing Tesla to be a leader in Ai and Robotics without having 25% voting control. otherwise he would prefer to build products outside of Tesla.

As far as stock ownership itself being enough motivation, Fidelity and others own similar Stakes Why don't they show up for work? Like much of what Musk says, this is factually incorrect. Fidelity does not own a similar stake as him excluding passive index funds Fidelity owns less than 1% of Tesla while Musk owns 133% Other than Musk, the single largest shareholder of Tesla is a Vanguard Group which owns about 7% the vast majority of which is in passive index funds. Furthermore, the ownership percentages of other investors is completely irrelevant. Fidelity is not asking Tesla's board to double its ownership stake.

Musk is is Elon Musk so valuable that Tesla's shareholders should pay him $80 billion for his time. And what happens if Tesla's board doesn't comply with his demand? If he doesn't get the 80 billion he's demanding, he won't necessarily step down as CEO of Tesla he just won't build it into a leader in Ai and Robotics. Instead, he will focus on his new startup, Xai, which is working on an AI powered chatbot called Gro. Xai uses Twitter data to train grock.

A beta version is available to Twitter users who have a Premium Plus subscription which cost $16 per month. It's unclear if X A pays Twitter for access to its users data. It's also unclear how the revenue from Twitter Premium Plus is split between the two companies. Because Musk partially owns and controls both companies, there is a clear conflict of interest.

It's basically the right hand giving money to the left hand. While the relationship between Xai and Twitter is clearly concerning from a corporate governance perspective, what about Tesla should Tesla's shareholders be concerned? Tesla has spent hundreds of millions if not billions of dollars over the years to develop artificial intelligence for their autopilot and full self-driving features. In fact, every year they host an AI day where they showcase their technology. In the past, Musk has claimed that Tesla has the most advanced AI in the world given the poor track record of autopilot.

I am highly skeptical of these claims. Regardless, the idea that Tesla could eventually achieve full autonomy and launch a robo taxi network is a key bull case for Tesla's stock. We know that Musk has poached Tesla employees to work at his other companies. For example, he pulled at least 50 employees to work at Twitter following his takeover.

Could he also poach Tesla's top AI employees to work at Xai? Instead, It appears that this is exactly what he plans to do. He's threatening to sabotage Tesla's AI efforts, which would clearly not be in the best interest of shareholders. In a desperate attempt to hide his greed, Musk has tried to pretend that monetary gain is not his objective. In the past, Musk has hyped up the idea that AI poses an existential risk to humanity.

He has given vague warnings that a sentient AI could create a Terminator like Armageddon After over a decade of development, t still can't make a car that drives itself so I don't think we need to be worried about any Terminator type scenarios anytime soon. Regardless, Musk is trying to play on the dangers of AI to justify his compensation demands. He claims his primary goal is to ensure he has sufficient voting influence. At Tesla if his voting interest is below 25% this will make it too easy for dubious interest to take over the company.

He never explains who these dubious interests are or how they would have the financial means to take over a $700 billion company. Because Musk cares about material gains so little, he would be happy to receive super voting shares with negligible economic interest to achieve his desired 25% But it just so happens that it's impossible for a company to create a dual class voting structure after their IPO, so the only option is to give him $80 billion worth of shares. All right guys, that wraps it up for this video. What do you think about Musk's demand for a 25% stake in Tesla? Is this really to safeguard Tesla's AI technology from dubious interests? Or is it just an oldfashioned case of greed? Let us know in the comments section below: if you've enjoyed this video, make sure to hit the Subscribe button so we can bring you the most interesting stories from the worlds of business economics.

And Technology As always, thank you so much for watching and we'll see you in the next one! Wall Street Millennial Signing out.