Tesla on trial: Autopilot and Elon Musk’s $56 billion pay package under scrutiny in separate cases

As if he doesn’t have enough going on, Elon Musk will find himself in court later this week defending his $56 billion pay package from allegations by Tesla shareholders that it was rigged with easy performance targets.

And that’s not all! On Tuesday in Los Angeles, a Tesla Model S owner is on trial for manslaughter in a case that experts are calling it a first-of-its-kind legal test of the responsibility of a human driver in a car with advanced driver-assist technology like Tesla’s Autopilot.

Taken together, the twin trials represent a critical test for Musk’s multitasking skills. He’ll take the stand in one trial, and while Tesla isn’t facing charges in the manslaughter case, the company’s top deputies are sure to be tracking its developments. Musk’s acquisition of Twitter has already done much to diminish both his wealth and his personal brand. Depending on the outcomes of these cases, the reputation of his primary revenue-generating company — Tesla — could also be eroded.

The $56 billion question

Let’s go over what’s at stake with both these cases, starting with the trial over Musk’s compensation at Tesla.

Musk was able to avoid a trial in Delaware’s Court of Chancery when he finally agreed to acquire Twitter at his original price of $44 billion. But the controversial CEO will still find himself taking the stand in the Wilmington-based court for a different case examining the compensation plan that Tesla’s board of directors created for Musk in 2018.

The plan, which was approved by Tesla shareholders, hinged on the company hitting certain milestones in the next 10 years, including an at-the-time astronomical-seeming market valuation of $650 billion — an amount that was more than 10 times the company’s 2018 value of around $59 billion. Shareholders approved a total of 12 tranches that Musk must surpass before vesting the full amount.

In 2021, Tesla’s valuation briefly hit $1 trillion after Hertz announced it was purchasing 100,000 of the company’s vehicles to bulk up the rental car company’s fleet. And when Tesla reported its first quarter 2022 earnings, the company surpassed benchmarks that triggered the vesting of the ninth through 11th of 12 tranches of options granted to Musk. The CEO is expected to earn the final batch early next year, allowing him to collect an estimated $56 billion, the largest compensation awarded to anyone on Earth from a publicly traded company.

The trial will focus on whether the compensation package requires Musk to work full-time at Tesla. In addition to overseeing Tesla, he is also helping run SpaceX, The Boring Company, and Neuralink. And then, of course, there’s Twitter.

Fun fact: the case will be decided by Chancellor Kathaleen McCormick of Delaware’s Court of Chancery. That’s the same Kathaleen McCormick who oversaw the legal dispute between Twitter and Musk that ended with his purchase of the social media platform last month.

Legal experts told Reuters that corporate boards generally have wide latitude to set executive pay. Tesla’s directors have argued that the compensation package did what it was intended to do — ensure that Musk guided the company through difficult financial waters to achieve a record-setting valuation.

The shareholder who filed the suit alleges that the board lacked independence from Musk when approving the compensation plan. The board included Musk’s brother Kimbal, as well as friends Antonio Gracias and Steve Jurvetson. (Jurvetson and Gracias have since left Tesla’s board.)

Man vs. machine

While Musk takes the stand to testify about his pay, a separate trial focused on Tesla’s driver-assist technology will be taking place in Los Angeles. It is a possible test case for whether the technology has advanced faster than legal standards.

Limo driver Kevin George Aziz Riad, 27, is on trial for manslaughter after running through a red light in his black Tesla Model S, slamming into a Honda Civic and killing two people. The LA County District Attorney does not mention Autopilot in its charges against Riad, but the National Highway Traffic Safety Administration confirmed that the driver-assist feature was active at the time of the incident. The agency plans on publishing its findings from the investigation soon.

Autopilot, which can control steering and braking functions, as well as perform automatic lane changes while on certain highways, has come under increased scrutiny from federal regulators.

Last year, the National Highway Traffic Safety Administration opened an investigation into over a dozen incidents involving Tesla vehicles using Autopilot that have crashed into stationary emergency vehicles. Autopilot has contributed to a number of fatal crashes in the past, and the families of deceased drivers have sued Tesla for wrongful death. And last month, it was reported that the Department of Justice is probing dozens of Tesla Autopilot crashes, some of which were fatal.

Legal experts speculate that prosecutors will have a hard time proving the guilt of the human driver when at least some of the tasks are controlled by Autopilot. Notably, Tesla does not face charges in the case. On its website, Tesla says that its driver-assistance systems ”require active driver supervision and do not make the vehicle autonomous.”

Numerous Tesla drivers have been caught misusing Autopilot, and some have even publicized the results themselves. Drivers have been found sleeping in the passenger seat or backseat of their vehicles while speeding down crowded highways. A Canadian man was charged with reckless driving after being pulled over for sleeping while traveling at speeds of 93mph in a Tesla. A class action lawsuit was filed in San Francisco recently alleging that Tesla’s marketing of Autopilot and its Full Self-Driving feature is deceptive and misleading.

Some safety experts have argued that driver-assist technology like Autopilot encourages drivers to be less attentive. Musk has claimed that Tesla’s Autopilot could save half a million lives if universally deployed. Meanwhile, the US Department of Transportation recently began collecting data about ADAS-related crashes, but it’s too soon to draw many insights.

Riad’s lawyers are likely to point to the Justice Department investigation, as well as the class action lawsuit, as evidence that their client is not solely responsible for the fatal crash. Whatever the outcome, Tesla’s reputation as a hard-charging automaker that’s too comfortable with risk is likely to come under increased scrutiny.

“It should not be assumed that Riad was blindly relying on Autopilot, simply because he was driving a Tesla,” criminal defense attorney Cody Warner, who specializes in autonomous vehicles, wrote in Law360. “But it’s hard to escape the conclusion that Tesla’s recent reputation for moving quickly and breaking things — even at the expense of public safety — has been imputed to Riad.”