Although Tesla ( TSLA ) shareholders voted to restore Elon Musk’s pay package Thursday afternoon, some investors and analysts told Yahoo Finance they remain skeptical.
“This is all a game of chicken and the shareholders turned a blind eye,” said early Tesla investor Ibrahim AlHusseini. “Fear of failure is a great motivator, and Elon used that psychological mechanism to his advantage.”
The venture capitalist said he voted unenthusiastically in favor of the $56 billion package.
“The deal was set in 2018 when the milestones seemed virtually impossible and he met them,” said AlHusseini, who first invested in Tesla in a Series C funding round. “He made a deal, he delivered and this is his reward.”
Tesla shares are down nearly 30% year-to-date and were down roughly 2.5% on Friday. Now that the vote is over, AlHusseini said the stock should remain stable until the next quarterly earnings, where he predicts “the stock will fall due to another loss in shipments and margin.”
Tesla said 77% voted to support Musk’s pay package. Investors holding 1.76 billion shares voted in favor of the deal, while 528.9 million shares voted against it, according to the filing. 20.6 million shares did not vote.
“I just want to start off by saying, damn, I love you guys,” Musk said on stage at the shareholder meeting. The package, made up of options, was originally valued at up to $56 billion, but is now worth about $46 billion due to Tesla’s falling market capitalization.
In January, Delaware Court of Chancery Judge Kathaleen McCormick ruled that the original pay package, which was approved by 73% of shares voted in 2018, was not fairly negotiated.
The vote to restore the package doesn’t necessarily mean Musk will receive the landmark pay. A favorable vote does not resolve the legal challenge and likely will not change the judge’s mind. Legal experts say the final decision will rest with the Delaware Supreme Court and the Court of Chancery.
New York City Comptroller Brad Lander, who was among the shareholders demanding a vote against the package, calls the approval “a mistake.” Lander overseas several pension funds that own about 3.4 million Tesla shares.
“We’ll see how Musk moves forward, whether that leads him to focus on Tesla and develop clear plans for growth,” Lander told Yahoo Finance. “But if there’s another battle, distractions, Twitter fights and more egos – that’s not going to be a good thing.”
Tesla’s largest institutional shareholder, Vanguard, was instrumental in getting the deal approved. Vanguard, which holds a 7% stake in Tesla, initially voted no in 2018, citing size concerns over the company’s performance.
Longtime Tesla investor Ross Gerber has questioned Vanguard’s move. “Index funds are supposed to represent the public and often have corporate governance expectations for companies. It seems a little strange that they voted on the pay package and said it aligns with shareholder incentives – which it does, but at a value of wild,” he told Yahoo Finance.
Gerber, who co-founded investment firm Gerber Kawasaki, voted yes in 2018, but this time he advocated a no. He began investing in Tesla in 2014, and his firm holds 332,000 shares as of March 31.
“The pack is wild and his performance has been terrible for the last three years,” Gerber said. “But I believe in choices, so if that’s what shareholders want, that’s fine.”
Investors also approved a proposal to reincorporate Tesla from Delaware to Texas, which Musk put on hold after a judge struck down his salary settlement.
“That’s part of the distraction problem,” Lander said. “Delaware has a relatively conservative set of laws that are the bedrock of shareholder capitalism. To then pack up your marbles and go to Texas because you’re upset about a judge who said you have to follow the rules, the question is how are you going to reset?”
Lander says he sees a strong foundation for Tesla to build on despite some troubling signs, adding that they have no immediate plans to change their investment strategy.
“Elon deserves a lot of the credit,” Lander said. “Not a $56 billion stake, but a very big chunk.”
Analysts say the shareholders’ decision to restore Musk’s compensation package is a win for investors.
Canaccord Genuity managing director George Gianarikas, who has a Buy rating on the stock, told Yahoo Finance he is “very encouraged” by the vote of confidence in Musk’s leadership.
“Elon Musk is critical to Tesla’s past and future success,” Gianarikas explained.
Gianarikas said Tesla’s prospects for developing full self-driving set the automaker apart from competitors, putting the company in an “incredibly enviable position.”
Wedbush’s Dan Ives, a longtime Tesla bull, described the approval as a “champagne moment” for Musk and shareholders. He said approval of the pay package removes a $20 to $25 overhang on the stock.
“This is just the beginning of the next chapter, as Musk calls it, in Tesla’s growth story. It’s one of the best disruptive names in the world,” Ives said. “It’s one of the best AI games out there.”
Ives, who warns that a no vote could have resulted in Musk’s departure from Tesla, sees Tesla’s valuation surpassing $1 trillion in 2025 as Musk devotes more time and focus to the automaker.
“You’re seeing the old Musk come back now … Tesla needs Musk and Musk needs Tesla,” Ives added.
But Dave Harden, Summit Global’s chief investment officer, cautioned against buying Tesla stock at this time.
“It’s significant dilution for shareholders, and it makes someone want to do things that are risky,” Harden said.
The company hasn’t proven itself in AI and robotics, and its big growth in EVs has already happened, Harden argues.
“I think there’s going to be a lot more chatter and a lot more opportunity to come in when you clearly see that growth is going to happen,” Harden said.
“I would recommend holding Tesla and waiting. If you’re in the stock, I’d probably sell it,” he added.
Yasmin Khorram is a senior reporter at Yahoo Finance. Follow Yasmin on Twitter/X @YasminKhorram and so on LinkedIn. Send important tips to Yasmin: yasmin.khorram@yahooinc.com
Sean Smith is an anchor on Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Advice on deals, mergers, activist situations or anything else? Email seanasmith@yahooinc.com.
Click here for the latest technology news that will affect the stock market.
Read the latest financial and business news from Yahoo Finance