Whatever Elon wants, Tesla gets

I generally find Elon Musk useful, in that he makes it clear which things in America are actually hard boundaries (contract law, maybe copyright law) and which are merely conventions (most everything else). You can take ketamine, smoke weed, ask your subordinates to have your babies, and run your companies like your own personal fiefdom; if you are wealthy and powerful enough, no one can stop you. 

Musk is entwined with his companies in a particularly unusual way. In the case of Tesla, he is probably responsible for its survival in a dicey period following the 2008 financial crisis. His involvement and fame have allowed Tesla to save significant money on advertising. For this service, Tesla shareholders voted him a massive pay package in 2018 — which was struck down by a judge in the state of Delaware, where Tesla is incorporated, because shareholders were not adequately informed that many of Tesla’s theoretically independent directors weren’t that independent at all.

Perhaps I should say: where Tesla was incorporated. Because in the shareholder vote that reapproved the pay package, Tesla’s relocation to Texas won. Just like Elon Musk wanted.

I doubt I am the only person that watches Musk closely; certainly there are those who have viewed him as a top signal for trading. His job cuts at Twitter were used as an excuse for other job cuts elsewhere, for instance. (Musk is, in his way, Silicon Valley’s Tiberius, ruling from afar and consumed with paranoia; who might be his Sejanus I’ll leave to the reader.)

His weird and at times scandalous behavior has largely been allowed because investing in Musk has been so lucrative for so many people over the last 20-odd years. Though Musk’s adventures in social media ownership have somewhat threatened this reputation — at least for those left holding Twitter’s debt — he nonetheless managed to raise $6 billion for xAI, his somewhat aimless AI company that may or may not rely on (and compete with) Tesla itself.

Musk’s celebrity was built, first, in Hollywood — as the model for Robert Downey Jr.’s portrayal of Marvel superhero Iron Man. But he then cultivated a following on Twitter and at in-person events for the faithful, making himself extraordinarily available to his fans in a way most CEOs, even celebrity CEOs, are not. As time has gone on, he has become more demanding of the high priests of his fandom — threatening to cut them off for linking to reporting he doesn’t like, for instance.

It’s clear that Musk modeled himself on Steve Jobs, who was also controlling, temperamental, and publicity-obsessed. But Musk’s refinements to the model led to a kind of power that even Jobs didn’t have at Apple: an empire of companies, the biggest pay package of all time, and political influence. The fandom aspect here is what makes this all work — the shareholder vote in Musk’s favor was swung by retail shareholders, who overwhelmingly approved his pay package.

Sure, some of these people are true believers — we heard from many of them at the shareholder meeting, thanking Musk for his contributions to society. But I don’t think every single Tesla holder is a purist. This is the stock market; plenty of people just want to make money.

Retail investing has been on the rise since the original internet bubble in the 1990s. Following the events of 2008, many people were convinced that Wall Street was nothing more than a casino, that stock prices (and company valuations) were mostly manipulated, and that there was no other way besides gambling on stock to become wealthy enough to retire. This kind of financial nihilism resulted in meme stock trading, which Musk himself has dabbled in.

Tesla is less a meme stock than, say, GameStop or AMC but it has some similarities: Musk can move the price through posting to the company formerly known as Twitter, for instance. A lot of Tesla’s premium over other carmakers has to do with its story: the energy company of the future, not just a carmaker. That story is intimately tied to Musk; while I can imagine another CEO giving Tesla their undivided attention, someone who can serve as the excellent operator of a car company likely won’t have the same “energy of the future” story attached. And stocks, being about the future, are about stories. Musk leaving could nuke Tesla’s premium.

I have heard people say that they thought voting for Musk’s pay and relocation meant shareholders were voting against their own interests. Well, maybe. But let’s say you’ve been paying attention to the last several years’ worth of corporate governance: your WeWorks, your SEC battles with Musk, Uber’s board’s blind eye to Travis Kalanick’s reckless leadership, Boeing in general, (This is to say nothing of the phenomenon of founder control.) You might come away with the impression that corporate governance exists in name only.

A cynic might conclude there is no reason to remove Musk, or even object to his wildest behavior, as long as he continues making money for shareholders. Even maintaining the Musk story premium might be reason enough. If Musk is upset, he might not make money for shareholders anymore — and, indeed, may compete with Tesla using his new company, xAI. Lawsuits take a long time to work their way through the court system, and have uncertain outcomes; in the meantime, Tesla can be badly hurt by Musk’s petulance. The shareholder vote makes sense if you believe corporate governance isn’t real and everything is possible.