Elon Musk building AI outside of Tesla 'would clearly be a big negative': Analyst

'That's not how corporate governance works,' hedge fund activist Dan Loeb quipped in response to Musk's ask for more shares.

In this article:

Tesla (TSLA) CEO Elon Musk warned Monday that he will need to secure greater control of Tesla if the company's wide-reaching AI ambitions are going to be met.

"I am uncomfortable growing Tesla to be a leader in AI & robotics without having ~25% voting control. Enough to be influential, but not so much that I can’t be overturned," Musk said from his X account on Monday night. "Unless that is the case, I would prefer to build products outside of Tesla."

Musk went on to say that large asset custodians such as Fidelity and BlackRock own stakes in Tesla similar to his and asked: "Why don’t they show up for work?"

Musk's odd comparison aside, Tesla does have ambitious AI goals, with the company using its Dojo supercomputer to train the AI model that powers its Full Self Driving (FSD) software, among other initiatives.

Wall Street analysts have argued Tesla's AI and supercomputer products could be a success similar to Amazon’s AWS cloud services, which could be a huge non-automotive revenue generator for Tesla.

Elon Musk arrives for the 2022 Met Gala at the Metropolitan Museum of Art on May 2, 2022, in New York. - The Gala raises money for the Metropolitan Museum of Art's Costume Institute. The Gala's 2022 theme is
Elon Musk arrives for the 2022 Met Gala at the Metropolitan Museum of Art on May 2, 2022, in New York.(ANGELA WEISS/AFP via Getty Images) (ANGELA WEISS via Getty Images)

Musk used to have a much larger stake in Tesla but he sold a large quantity of Tesla stock to fund his widely criticized purchase of Twitter — now X — in 2022, diluting his Tesla stake to 13% from around 22%. Wall Street initially reacted negatively to Musk's tweet with the stock down over 2% in early trading on Tuesday; near 10:15 a.m. ET, however, shares had reversed and were up more than 1%.

Tesla stock has lost nearly $100 billion in market cap since the start of this year, and Musk’s foray into basically asking for more shares in new compensation, or changing direction on AI, is giving investors pause.

"It's no secret and a key to our bullish thesis that all AI initiatives be kept within Tesla from Dojo to Optimus to FSD to various robotaxi and other robotic developments," Wedbush analyst Dan Ives wrote in a note to investors.

"The Street views Tesla correctly (in our view) as a disruptive tech leader, and if Musk ultimately went down the path to create his own company (separate from Tesla) for his next generation AI projects this would clearly be a big negative for the Tesla story."

Ives wrote that a new compensation package for Musk has likely been held up while ongoing litigation over Musk’s prior compensation works its way through the courts. Shareholder plaintiffs argued Musk’s prior pay package was excessive and a waste of corporate resources.

The other big issue stemming from Musk's ask for more shares is the negative outward appearance and perception of a CEO demanding more control of a company (and essentially more compensation) when he should have the best interests of shareholders in mind.

The Tesla board has also been criticized in the past for being too lenient with Musk and for being filled with Musk supporters, including his brother Kimbal Musk and others who jointly invest in Musk’s other ventures like SpaceX.

Musk argued he would be fine with a dual-class voting structure if it meant gaining more control, as opposed to more compensation, but he admits that changing the structure of Tesla's stock classes is not possible given Delaware corporate law, which governs Tesla.

Other prominent Wall Street voices were more blunt, arguing Musk was out of his element.

"That's not how corporate governance works," Third Point founder and activist hedge fund manager Dan Loeb fired back in response to Musk on X.

Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.

Click here for the latest stock market news and in-depth analysis, including events that move stocks

Read the latest financial and business news from Yahoo Finance

Advertisement