BREAKINGVIEWS-Tesla shareholders reveal deep abiding faith

Reuters




(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
    By Antony CurrieNEW YORK, June 8 (Reuters Breakingviews) - Tesla's <TSLA.O>
shareholders have revealed their faith is blind. Even after
excluding the 22 percent stake owned by founder and Chief
Executive Elon Musk, a proposal forcing all seven board members
to stand for election every year was rejected at this week's
annual meeting. Authorizing bad corporate governance makes
little sense at a company with such a lofty valuation.
    A total of 38.7 million shares - without Musk's 36 million -
cleaved to the company line by voting down the plan put forward
by the Connecticut Retirement Plans and Trust Fund. That left
just 45 percent of the unaffiliated vote behind it.
    Tesla's argument for the status quo rings hollow. It reckons
directors risk being "distracted by special interests that seek
only short-term returns" if each were to face re-election
annually. But the company is losing money and has no cash to
spare. Absent a highly unlikely sale, there's not much that a
short-term-biased director could do.
    Enough investors were nevertheless persuaded. That's
surprising, especially considering recent history. Last year,
about three-quarters of unaffiliated shareholders supported a
proposal to eliminate the limited supermajority voting rules.
That fell to 42 percent after factoring in Musk's block.
    Yet Tesla's board could use a shakeup. Lead director Antonio
Gracias, Steve Jurvetson and Musk's brother Kimbal all sit on
the board at another Musk company, SpaceX, in which fellow
director and venture capitalist Ira Ehrenpreis has invested.
Gracias was also a director at SolarCity before Tesla bought it
last year and runs a private-equity fund Musk backs, while Brad
Buss spent seven years as SolarCity's finance chief.
    That leaves just one member with no other obvious ties to
the boss. Musk did, at least, say at Tuesday's meeting that he
hopes to add some independent directors soon. Even so,
shareholders are too accepting of Tesla's chummy board.
    Of course, the company's stock also has surged over 60
percent over the past year. At a market value of $60 billion,
it's worth more than both Ford <F.N> and General Motors <GM.N>.
Tesla also now trades at 30 times consensus earnings for 2020,
according to Thomson Reuters data, implying astonishing growth
in vehicle sales at eye-popping margins of at least 30 percent.
The complete confidence of shareholders is as consistent in the
market as it is at the ballot.
    On Twitter https://twitter.com/AntonyMCurrie

    CONTEXT NEWS
    - A majority of Tesla's independent shareholders on June 6
voted against a proposal at the carmaker's annual meeting to
force board directors to stand for election each year, the
company revealed in a regulatory filing on June 8. Tesla
currently allows its seven directors to serve three-year terms.
    - Tesla recommended shareholders vote against the proposal,
put forward by the Connecticut Retirement Plans and Trust Fund,
arguing it allows directors "to maximize the interests of the
Company and our stockholders over the long-term, without being
distracted by special interests that seek only short-term
returns."
    - Holders of 74.7 million shares voted against the proposal,
while 32.7 million voted in favor. After stripping out Musk's
36.1 million shares, 38.5 million independent owners rejected
the amendment.
    - Tesla stock has increased 62 percent over the past 12
months. The company is worth almost $60 billion, 36 percent more
than Ford and 15 percent more than General Motors.
    - For previous columns by the author, Reuters customers can
click on [CURRIE/]
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Tesla shareholder vote against annual reelection of directors
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Tesla proxy statement    http://files.shareholder.com/downloads/ABEA-4CW8X0/4596659454x0xS1193125-17-130746/1318605/filing.pdf
Tesla regulatory filing    http://ir.tesla.com/secfiling.cfm?filingid=1564590-17-12264&CIK=1318605
BREAKINGVIEWS-Tesla demonstrates valuation staying power
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BREAKINGVIEWS-Tesla shareholders drive off into la-la land
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 (Editing by Jeffrey Goldfarb and Kate Duguid)
 (([email protected];)(Reuters Messaging:
[email protected]))

Keywords: TESLA SHAREHOLDERS/BREAKINGVIEWS






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