Yesterday’s Delaware court ruling could cost Elon Musk more than just $55 billion. The scathing, 200-page decision—by the same judge who presided over a case that led to Musk paying $44 billion for Twitter—called out the billionaire CEO for failing to disclose his sway over supposedly independent board members. She went on to characterize the pay package as unfair to shareholders and voided it.
To analyze what this means for Tesla and Musk’s other companies, Elon, Inc. called together long-time Tesla reporter Dana Hull, Businessweek's Max Chafkin, and legal reporter Jef Feeley, who has covered Delaware’s Chancery Court for three decades, for an emergency podcast.
Welcome back to Elon Inc. We're in your feed twice this week because we had to do an emergency pod. I'm your host, David Papadopoulos. Last night, Delaware Chancery Court Judge Kathleen McCormick voided Elon's fifty five billion dollar compensation package in a strongly worded decision. The ruling could have enormous ramifications for Musk's entire business empire.
Well, Elon Musk is now the richest person on the planet.
More than half the satellites in space are owned and controlled by one.
Man, starting his own artificial intelligence company. Well, he's a legitimate, super genius, legitimate, he says.
He's always voted for Democrats, but this year it will be different.
He'll vote Republican.
There is a reason the US government is so reliant on him.
Elon Musk is a scam artist and he's done nothing.
Anything he does, he's fascinating the people.
Note we are taping this at eleven am. We're joined by Jeff Feely, a legal reporter here at Bloomberg who covers the Delaware Chancery Court. Hello, Jeff, Morning, Dana Hall, our ace tesla reporter Dana Good morning. He and Max Chafkin, senior reporter at Business Week. Low Max, Hi, David back again, We'll dig into what the ruling said, what it means for Elon and for Tesla, and what Elon might do next. So, Jeff, we will start with you. Elon never loses in court until now. This is a very complicated matter. Briefly, the idiot's version for all of us. Please what happened?
Okay, So judge zapped his two eighteen compensation package, which would have been the largest compensation award to a US executive in history. She found that conflicts of interest among the directors and problems with disclosures about the plan required her to sink.
It sinc it, So the package is zapped. So, Dana, this is potentially a really big deal for Musk right, both personally, for Tesla and for the broader Musk empire.
Oh yeah, for sure. I mean, Jeff and I have joked a lot over the years about how Elon is Teflon Elon, and he always wins in court because he hires the best attorneys, and he's not afraid to litigate, and he will go to the mat on every issue. But this was a huge rebuke. And the whole reason why Elon is the richest person on the planet is because of this twenty eighteen comp package, and now that is basically being tabled. The judge is saying, no, we're not going to allow this, So it's like retroactively, the Tesla board has to come up with a new way to compensate him. And Musk is furious. I don't know if you saw the tweets overnight, but now he's like threatening to move Tesla's incorporation status from Delaware to Texas. You know, he's he's pissed. I mean, this is a huge blow to his personal wealth, and it just kind of shows for you know, plainly for all just how rife all of the corporate governance issues of Tesla are.
Huge blow for his personal wealth. Exactly how much would it come down if this ruling is upheld.
Well, that's one of the things that we're still trying to figure out, because I don't believe that he exercised all of the options because of the five year rule.
But that you never exercised any of them data.
Right, But he was as of the end of the day, the business day yesterday, the richest person in the world over. According to the Bloomberg Index, two hundred billion dollars is net value. How much ballpark would that come down by I.
Don't think we know, honestly, because the board is going to have to redo it. They're going to basically have to redo this plan. I mean, but it could be billions of dollars.
Some of the estimates are as much as fifty billion.
You know, huge, not just because us it speaks to a huge amount of money for the world's riches man, but also the way he's run Tesla, because the logic on this in this case was essentially that the board was not independent and that that was not properly disclosed to shareholders.
You know.
At the same time, Musk is asking for even more money, saying he doesn't feel like he can do his AI and you know, innovations unless he gets an even greater percentage of Tesla. And so I think this throws a lot of uncertainty into not just Tesla, but but, like you said, the whole empire, because you've had this kind of threat bubbling under the surface, like maybe I'll take my you know, maybe I'll do all my brilliant AI stuff, you know, inside of XAI, which oh, by the way, that you know it may or may not be raising additional money. You know, Elon Musk has denied it, others have reported it maybe in process. And I think we need to start looking at the possibility that Elon kind of ups the level of threat. Right he's already threatening to you know, to do AI elsewhere. What if he threatens to walk away entirely? I mean, it would be disastrous for Tesla, at least for Tesla's share price.
Well, the share price as of this morning when I last checked it definitely down, not tanking, but down a bit. And it does seem to point to to certainly to some angst among the investor community that that's something like that, you know, could happen. Okay, Dan, So if we continue to go down this hypothetical path of Elon truly carrying out this threat that he's been making that hey, I might just pick up my toys and leave. If you were indeed to pull the trigger on that and do that, what's in it for him?
Yeah?
I mean that's why I think it's it's still kind of far fetched, because I think he's very frustrated running a publicly traded company. I think he would much rather just run private companies, right.
And to be clear that Dana, sorry, he tweeted or xed a fair amount about that overnight. He basically doesn't like being, you know, tied to all these different rules that come with having a company that's publicly traded right.
Right, like just having to like disclose earnings and the pressures from you know, ESG and DEI and having everything scrutinized in Delaware. I mean, when you are a publicly traded company, you are open to a lot more scrutiny, and so I think that he just is very frustrated by that. It is hard for me to see him walking completely. I mean, he has poured his heart and soul into this company. It's not the only company that he runs. But you know, he didn't sleep on the factory floor back during the Model three ramp for nothing, and it's been such a part of his personality and it's why he's so famous and he needs that money. I mean, that's the other thing, Like if he was to walk away, I think the valuation of Tessel would collapse because they are so dependent on him. So, you know, does he step back in some way and just become like product design and maybe they actually name a COO. I don't know, but it's like there, it's stuck, like the board has been kind of stuck in this position forever. Like there's key Man risk. The key man has now basically lost in court for the first time that I can think of, and you know what happens next. I think everyone would really love some clarification from the from the board, like and is he going to appeal or not? Like I would assume he's going to appeal, but isn't said for sure?
Yeah, I mean it is. It is the key Man risk of all key Man risks of all time, right like, it very much is. And I will actually, you know, thinking a bit more about how how upset he's been of late about you know, the you know all the the onus in Burnen of being of owning a publicly traded company. It is correct me if I'm wrong, Tesla is the loan publicly traded company in his empire, right correct.
He oversees six companies in Tesla is the only publicly traded one. And I would note that he started sort of intimating that he wanted a twenty five percent stake in Tesla, you know, over the past couple of weeks, knowing that this decision was pending so and maybe maybe knowing that it didn't seem to be going his way. So I think that the timing of that is very interesting.
Let me ask you this, Jeff. Earlier, Dana referred to elanis teff on. Elon said that was the term you guys had for him because he never lost in court. What went wrong this time?
Well, it's obviously always tied to the facts in the case. He won a shareholder suit a couple of years ago over the acquisition of Solar City, a renewable power provider, but on completely different facts than they has had nothing to do with the compensation this one. Frankly, guys, Elon Musk has been running in a way that you know, breaks all the norms, and somebody had to pull the reins. And Judge Kathleen McCormick is somebody who believes in pulling the reins. She is somebody who believes the system that we have is you know, pretty good, and people need to play by the rules, and everybody needs to play by the rules, including Elon Musk.
Now is her ruling the final final ruling in this matter. Is this an appealable decisions?
An appealable decision? But I must tell you if my thirty years here at Bloomberg covering Delaware courts, the chances that the Delaware Supreme Court are going to overturn her in this are slim.
I would just like to point out that this is the exact same judge who oversaw Elon's attempt to get out of the Twitter deal when he was buying it, right, Jeff, I mean, this is sort of his second go round with Judge Katie.
Let's put a little nuance into that. Judge Katie never had to rule in the Twitter case because Elon waived the white flag, because she started ruling in some of the pre trial hearings against him, and he you know, Elon is not a dumb person.
So teflon Elon in court. I guess he meets his match in court when he when he tangles with this judge.
Max.
You were saying, so I was gonna say, first of all, you got fifty billion here, forty four billion on the forced Twitter ocquisitions starting to really add up, you know, even for somebody as rich as I just wanted to ask Jeff, How is it realistic that he could just move the incorporation of Tesla to a different state. Have any other people done that? Like, what would be involved in that? Do you have any sense?
Yeah? The Delaware chance Re Court has been the target of a lot of people's ire over the last you know, decade, and it's almost always people who have lost cases. Right. So, there are other companies that have expressed an interest to follow Elon to Nevada. Trip Advisor owned by Greg Mfay comes to mind. But you know, some trip Advisor shareholders, as soon as they announced they wanted to move to Nevada, filed suit saying, oh, no, you're moving to Nevada so you can take advantage of lacks corporate governance laws, and that's not in our favor.
Let me ask you this. This case, this lawsuit was obviously brought by a disgruntled Tesla investor against Musk and the board that assigned him this pay package. You know, the investor just you know, argued that this pay package is ec We were duped when we voted on it. The board wasn't upfront in terms of the nature in which you know, they arrived at this package that is the gripe and the complaint lodged by this one investor. Do we feel like that investor is speaking for the totality of the investor universe. Would they say, oh my god, please yes, pay this man what he wants, give him whatever he wants. Or would they say, no, we backed this investor, this is excessive.
When the vote about the compensation went to shareholders, it was overwhelmingly approved by the shareholders. But the lawsuit sort of points out that, like the shareholders were duped into how this whole package came about. But no, I think that retail investors are upset. I mean they want to sue Delaware themselves, like they want Elon to Still they believe that Elon deserves this package, and you know, the retail shareholders I think are very nervous about what happens going forward.
Okay, so that's the small like the mom and pop or the Reddit crowd shareholders. And do we have a sense on the larger, more institutional investors. Do we have any sense of what their stances or or hard to know.
I'll mean a lot of them voted for this package, so I don't Yeah, I don't know what they're what they're feeling is today. I think a lot of them are still kind of trying to decipher the ruling. But the other point to make is that if all goes accordion to plan and Musk doesn't appeal, then his shares that he was awarded go back to Tesla and everyone and the dilution number comes down. So in theory this is good for shareholders. But the risk obviously is that Elon walks, and that is why everyone is on edge right now.
So that appeal, Jeff, that you think is coming from Musk's legal team, as much of a long shot as it may be. Do these appeals tend to come really quickly or is it something that takes time?
I mean relatively quickly. We're going to see an appeal within a month.
Got it with it within a month. And one thing that struck me as I read your piece overnight was that ruling from the judge Kathleen McCormick. Two hundred pages long. It seems like a lot of pages for a ruling that, hey, in the end, I'm digging you avoiding this pay package. And it also came one year after the legal arguments were finished up. Are these the Norman in such matters.
No, it's the first time in thirty years I've seen a decision take this long. She had back surgery last year, so that slowed it down. And then she also got a couple of cases that were fast tracked, so that slowed it down as well. Delaware prides itself on handling cases fast when they need to be handled fast, and there wasn't any need for speed on this.
So and she decided Max to write on and I guess she's not that fast a writer. She was knocking out a couple pages a day.
There's some spicy lines in there.
I also think that she wanted to make it bulletproof, right. I mean, we're talking about the largest corporate pay package in history, and if she's going to shoot it down, she wants to make sure that the reasoning is rock solid, and that takes time. It's not something you can just, you know, regurgitate ten minutes.
It's a remarkable opinion. I mean, everyone should read it. It's two hundred pages. There's Shakespeare references. You can command deaf the word Mars, and there's all these lines about Mars. There are like a lot of zingers.
I'm not going through two hundred pay you went through two hundred pages overnight. If so, I need the cliff notes from you.
I went through two hundred pages in about forty minutes.
Wow, that's why you cover the Delaware chance to record for us here at Bloomberg News. That's a skill you develop over thirty years.
It starts with a line that's something like, was the richest man in the world overpaid? And then it just gets into it and it goes through the facts of the case, and there's a Shakespeare reference to Henry the Fifth, and then there's a lot of references to Mars and how Musk was very like up front about the fact that he was using his wealth in Tesla to kind of fund the Mars mission. And then it just gets into how cozy he is with all of the board directors. I'm no like legal scholar, but it is like a real Zinger and it, you know, I mean, I think that's what the legal aces are sort of pouring over today. I mean, there are just a lot of really great lines in the opinion. The other thing that I think is remarkable is that Tesla's board so far has said nothing, I mean nothing from no comment from the board and believe me. I'm like texting the share and trying to get them to say something. There's been radio silence from this board.
And presumably, even though the board is not communicating publicly, one can only imagine that behind the scenes, they are frantically trying to figure out what the hell to do here, and presumably are in contact with mister Musky.
And remember that Elon is on the board. I mean there's an eight member board. Elon is on the board, so is his brother. It's very much his board.
Yeah, I mean, this is one of the things I believe. The judge argued that essentially Elon is the board. I believe. Correct me if I'm wrong here. At one point, you know, he said during the trial, well, I was essentially negotiating against myself.
Said he said that in his Yeah, that's.
Probably not a great look in trying to argue that the pay package was properly negotiated.
So as we've you know, the whole premise of this show is that it's Elon in right, and Tesla is the crown jewel of the empire, because that is the publicly traded company that has the biggest market valuation, and Musk's steak in Tesla and this compackage are the key to his wealth which he is using to fund his Mars mission. And if that is all now thrown out, it just really brings in all kinds of questions like does must just get so pissed off that he leaves? Like does he take his toys and go home and say screwt find another CEO? I'm out?
Like, yeah, I'm super intrigued by that, right, Like, because he has, as you guys are saying, even before this came up, he was already that was his public posture. Obviously some of that was saber rattling. I want more control, I want more money. But you know, here is a guy who does have a history of at some point saying exactly to hell with it.
Well not just that, but a guy who is given to these kind of grand gestures and also you know who behaves in an emotional way. I mean, you know, with Twitter, right kind of felt like he fired off kind of an ill considered tweet and then just dug himself into it. And you could imagine a situation where something kind of similar happens. You know. The other thing is we we talk about this all the time. On this podcast. Elon Musk is very rich. He is not cash rich, right, and his ability to be liquid largely stems from being able to sell Tesla shares and so you know.
Or or max use them as collateral.
Right, yeah, so yes, and so so like reducing his reducing the number of shares he owns, right, is going to have knock on effects for all of these other companies that depend on Elon Musk's largest either directly, either in the sense that he's financing them or the fact that Elon Musk is standing there behind them is allowing them to go and raise money from other investors. And again, I just think like Tesla is already under such pressure right now. We talked yesterday about the two waves of growth and how.
His stock is down more than twenty percent of the year.
Yeah, now Elon Musk is under pressure, and it just feels like wow, like things are really uneasy in this empire right now. And then and meanwhile, you know, of course it's continued, you know, kind of right wing signaling. When he wasn't you know, belly aching about Delaware, he was you know, these crazy increasingly frantic tweets about black crime and immigration and you know, just just like really really hard right stuff bordering on kind of white nationalism, and so all of that together it just feels like quite a.
Stew All right, let's leave it there. Thanks for listening to Elon Inc. And thanks to our panel Jeff, Dana and Max. This episode was produced by Stacy Wong, Cale Brooks and Carmen Rodriguez. Naomi Shaven and Rayhan Harmanci are our senior editors. The idea for this very show also came from Rayhan Blake Maple's Handles Engineering, and we get special editing assistance from Jeff Grocott. Our supervising producer is Magnus Henrickson Huge thanks to Angel Rasio and Joel Weber. The elon Ink theme is written and performed by Taka Yasuzawa and Alex Sugiyia. Sage Bauman is the head of Bloomberg Podcast and our executive producer. I am David Papadopolis. If you have a minute, rate and review our show, it'll help other listeners find us. See you next week.