Investors might assume that
CEO Elon Musk would be on his best behavior ahead of a vote potentially re-awarding him with some 300 million stock options currently worth roughly $50 billion.
That doesn’t seem to be in Musk’s nature. Instead of focusing, or appearing to focus, solely on Tesla, he is charging ahead with new non-Tesla ventures and even “borrowing” some Tesla equipment to spur them along. Musk’s recent actions show why Tesla investors love and fear their iconoclast leader.
On Tuesday, Musk confirmed that his new artificial intelligence company xAI was using
chips sourced from Tesla. “Tesla had no place to send the Nvidia chips to turn them on, so they would have just sat in a warehouse,” wrote Musk in a post on X.
A CEO of a publicly traded company taking equipment from one of his firms to another is odd, but that isn’t what’s important about the situation. Tesla’s opportunity in artificial intelligence is what matters far more to investors.
Tesla didn’t respond to a request for comment about Musk’s recent actions.
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Musk refers to Tesla as an AI and robotics company. Tesla is working on a humanoid labor-saving robot, while Musk also thinks of Tesla cars as robots on wheels. Tesla cars and humanoid robots are trained using AI computing, helping them learn more quickly to do tasks like driving cars.
“I mean, if somebody doesn’t believe Tesla’s going to solve [autonomous driving], I think they should not be an investor in the company,” Musk said on Tesla’s first-quarter earnings conference call in April.
The idea that Tesla needs to create self-driving cars is now the accepted wisdom on Wall Street. Morgan Stanley analyst Adam Jonas values Tesla’s self-driving businesses at roughly $160 a share, while he thinks the car operation is worth just less than $70 a share.
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Tesla, of course, is working on autonomy, even without those Nvidia chips. It is hosting a robotaxi event on Aug. 8 to showcase the progress it has made. Still, Musk’s recent actions call into question how much of the benefit from AI will go to Tesla and how much will flow to other Musk-related entities.
The idea that Tesla could be a buyer of AI services from others isn’t far-fetched. Musk recently said he wanted 25% voting control in Tesla to keep his AI projects inside the company.
Musk holds about 13% of Tesla stock. He also has, or had, options amounting to another 7%. Those were part of his 2018 compensation package, which was voided by a Delaware judge in January. Tesla shareholders are voting on whether to reinstate the award on June 13.
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A vote of “yes” wouldn’t get Musk to 25%, but it would be a vote of confidence from Tesla shareholders in their CEO.
The issue of voting control and Tesla AI might already be settled in Musk’s mind. He’s already founded xAI, raised billions, and had Tesla send Nvidia chips to his new start-up. XAI appears to be becoming Musk’s main AI investment vehicle.
If that’s the case, Tesla shareholders might have to cut the potential value of AI-related businesses, such as self-driving cars, in their valuation models for the company.
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BofA Securities analyst John Murphy explains it this way. If Tesla buys AI solutions from a third party, such as xAI, the EV maker would get some benefit from offering AI technology, such as growth in autonomous- driving subscriptions and new robotaxi networks. Tesla just wouldn’t get as much economic benefit as it would if the technology was developed in-house.
Murphy rates Tesla shares Buy and has a target of $220 for the price. Wedbush analyst Dan Ives rates Tesla shares Buy and has a $275 price target.
“There is a lot of complexity with Tesla autonomous vision and at the end of the day the chips were ready before Tesla was and Musk needed to pivot,” he said. “Musk and Tesla need to balance this situation with xAI as the perception from the Street and investors is tricky.”
Tricky feels like an understatement. Whatever the reality is in Musk’s mind, his AI activities could make it harder for Tesla shareholders to vote yes to award their CEO some $50 billion while he is running several other companies, including a hot new AI venture that isn’t part of Tesla.
Tesla stock was up 0.6% in early trading Wednesday at $175.84, while futures on the
and
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rose 0.2% and 0.5%, respectively.
Coming into Wednesday trading, Tesla shares were down about 30% year to date. They have settled between their 50- and 100-day moving averages since the company reported better-than-feared first-quarter earnings in late April. Just before the earnings, Tesla stock hit an intraday 52-week low of $138.80 on April 22 and was down more than 40% so far this year at that point.
Write to Al Root at allen.root@dowjones.com
