How Tesla Pumped the Vote

Tesla confronted an enormous challenge in winning support for the two controversial proposals at the 2024 Tesla annual meeting: to ratify CEO Elon Musk’s 2018 pay plan and to redomicile from Delaware to Texas. We thought it would take an historic effort to solicit the needed shareholder votes.

Tesla was up to it, actually made it look easier than it probably was. It indeed solicited an unbelievable number of retail votes. It also won the support of both Vanguard and BlackRock, its two largest institutional investors, even though a substantial share of other institutional investors shifted against at least the pay plan. The unprecedented retail turnout meant it actually didn’t need Vanguard or BlackRock for either proposal, although the vote would have become uncomfortably close without them. Without those two, more institutional investors voted against the pay plan than voted for it.

Tesla took proxy solicitation to a new level, at least new for a company without a proxy contest or other serious challenge:

  • It stood up a voting websitefor the 2023 annual meeting with a video of BoD Chair Robyn Denholm pleading for shareholders to attend the annual meeting
  • Elon Musk tweeted numerous times urging shareholders to vote, including linking to a Tesla “fangirl” with voting advice
  • Tesla filed numerous additional proxy solicitation documents
  • Tesla raffled a Gigafactory tour to fifteen voting shareholders
  • Denholm embarked on a media tour.

A company does this only when they really, really want and need a lot of shareholders to show up and vote at the annual meeting. Tesla and Musk really, really wanted and needed shareholders to show up and vote.

A look at the makeup of the Tesla shareholder base and past votes reveals why Elon, Denholm, and the company needed this effort. It took significant, unprecedented support from retail shareholders for Tesla to win the votes.

How the Vote Works

The two proposals have different voting standards. The 2024 proxy statement indicates the domicile proposal requires approval from a majority of the common shares outstanding. The exec comp ratification proposal requires approval from a majority of the common shares attending the 2024 annual meeting.

Also, Elon and Kimbal Musk cannot vote on the exec comp proposal. The proxy statement shows they own 413 million common shares. Elon also owns options on another 303 million shares, the very ones that the exec comp ratification proposal seeks to affirm.

Some Voting Math

As of March 31, Tesla has 3.19 billion common shares outstanding. This should approximate the outstanding shares for the annual meeting, with a record date of April 15 and an annual meeting on June 13.

Various sources indicate institutional investors own 45% of the shares, or 1.44 billion shares. Thus, retail investors own a whopping 55%, or 1.75 billion shares. Accounting for the Musk family holdings of 413 million shares (13%), there are 1.34 billion retail shares available to vote.

What Elon Needed

For the redomicile proposal, a majority of outstanding shares is 1.60 billion shares (half of 3.19 billion). We thought at most half of institutional investors will support the proposal. It represents a serious threat to their rights, and we expected both ISS and Glass Lewis to oppose it. Half of the institutional holding of 1.44 billion shares translates to 718 million shares. Of course Musk would vote his 413 million shares in favor. To get the remaining shares, Musk needed affirmative votes of 464 million shares from retail accounts (1.44 billion – 718 million – 413 million).

For the exec comp proposal, a majority of voting shares depends on how many shareholders and shares actually show up to the annual meeting. At the 2023 annual meeting, 76% of outstanding shares attended (more below). We’d expect at least that proportion to attend the 2024 annual meeting, so let’s say 2.42 billion shares would attend (76% of 3.19 billion). Also, at the 2023 annual meeting, about 78% of the shares in attendance in fact voted (more below), so 1.90 billion shares cast a vote (78% of 2.42 billion). Musk needs a majority of those 1.90 billion shares, or 948 million. If the same 718 million institutional shares support the exec comp proposal as the redomicile proposal, he’ll need affirmative votes from 230 million shares from retail accounts (948 million – 718 million).

What Elon Had

We can look at how retail shareholders voted at the 2023 annual meeting, on May 16, 2023.

In 2023, 2.42 billion shares were present at the annual meeting, or 76% of the 3.17 billion outstanding shares. Let’s assume the same 45% institutional shareholding voted in 2023, or 1.43 billion shares (45% of 3.17 billion). That seems reasonable, as funds mostly need to attend and vote, and that 45% probably didn’t change materially in one year.

Thus, 993 million retail shares attended the 2023 annual meeting (2.42 billion – 1.43 billion). Of those, the Musk family surely voted their 413 million shares, leaving 580 million retail shares not named Musk in attendance (993 million – 413 million).

How many of the 580 million retail shares actually voted, and didn’t merely attend the annual meeting? We see 527 million broker non-votes at the 2023 annual meeting. Surely almost all of these came from retail accounts, where custodians could vote uninstructed retail shares on non-controversial matters, such as appointing the external auditor. If so, then that means 53 million retail shares actually voted at the 2023 annual meeting (580 million – 527 million).

We See Why Tesla Pumped the Vote

The 53 million retail shares voting in 2023 becomes critical to understanding what’s going on.

We expect most retail shares voted in favor of Tesla in 2023, but not all. At the 2023 annual meeting, 95% of the shares voted to elect Elon Musk to the BoD, but only 74% voted to elect Denholm. The annual executive say-on-pay vote received 91% support. Of course, these percentages don’t distinguish institutional and retail votes. Still, Musk could expect to receive substantial but not complete support from retail shareholders.

Look again at the 464 million retail shares needed to approve the redomicile proposal. It’s probably a little more than that in light of the possibility that not every last share will unhesitatingly support Musk. So, that’s a kind of lower bound on what he needs.

Well, that’s 35% of the 1.34 billion outstanding shares held by retail accounts as of March 31, a significant goal. It’s also about nine times the 53 million affirmative votes received from retail investors at the 2023 annual meeting. That seems like a near-impossible vote to achieve.

Look, these aren’t long-time, loyal shareholders of a company like GM or PG, ones who always vote at the annual meeting. Most Tesla retail investors are younger, relatively recent owners, many of whom don’t understand proxies or annual meetings. Sure, a huge number of Tesla retail shareholders adore Elon, which is why they own the stock. Translating that adoration into an affirmative vote at an annual meeting at the magnitude needed takes a heroic effort and would represent an historic outcome.

The exec comp proposal seemed relatively (relatively!) less of a heavy lift. First, Musk needed only(!) 230 million retail votes in favor, four or so times(!) what retail investors voted in 2023. Second, it seemed more likely that institutions would support the exec comp proposal than support the redomicile proposal.

In 2018, 73% of all shares voted in favor of the original exec comp proposal, more than the 50% support we assume here. It stands to reason most of those institutions would support it again. The more institutions support the proposal, the less Musk needs to rely on retail shareholders. For example, if 73% of institutions support the exec comp proposal, instead of the 50% we assume above, then he would receive 1.05 billion votes in favor of the exec comp proposal (73% of 1.44 billion). This exceeds the 948 million votes needed to ratify the exec comp plan. If he could replicate the 2018 vote outcome, he wouldn’t need a single retail vote.

Tesla Found More Shares and Votes

At the 2024 annual meeting on June 13, Tesla solicited 2.65 billion shares to attend, out of 3.19 billion shares outstanding (83% of outstanding shares). Recall at the 2023 annual meeting, 2.42 billion shares attended (76% of outstanding shares). The 227 million share increase in 2024 undoubtedly came from retail shareholders.

Tesla also persuaded more shareholders to vote. At the 2024 annual meeting, 2.31 billion shares voted, with 335 million broker non-votes. At the 2023 annual meeting, 1.89 billion shares voted, with 527 million broker non-votes. Thus, Tesla solicited 419 million more shares to vote in 2024, again basically from retail shareholders.

Institutional investors own 45% of the outstanding shares, or 1.43 billion shares. We assume all of these shares attended and voted at the 2024 annual meeting. The rest, 1.21 billion shares (2.65 billion – 1.43 billion), belong to retail shareholders. Removing the 335 million broker non-votes and 413 million Musk (Elon and Kimbal) shares, we have 463 million retail shares voting at the 2024 annual meeting.

Above we estimate 53 million retail shares voted at the 2023 annual meeting. Tesla solicited almost 10 times the number of shares to attend and vote at the 2024 annual meeting.

Some More Voting Math

These additional retail shares supported both Tesla proposals overwhelmingly. Good for Tesla, since institutional investors not named Vanguard or BlackRock decreased their support for the exec comp plan.

Let’s start with that exec comp plan ratification. Tesla reported 1.35 billion independent shares (not including Elon and Kimbal Musk) voted in favor and and 529 million shares against. So, 72% of the voting shares supported it. Approval required only a majority of independent shares voting.

We assume all of the retail shareholders voted to ratify, or those 463 million shares. Sure, some retail shareholders probably think the billions of dollars in shares going to Elon is too much, and a few stated publicly they would oppose the proposal. Still, most retail shareholders own Tesla because of Elon, and they respond well to his pleas.

This leaves 885 million institutional shares (1.35 billion – 463 million) voting in favor. That’s 62% of the 1.43 billion institutional shares that attended and voted. By comparison, we estimate 73% of institutional investors voted in favor of the pay plan in 2018, when Tesla submitted it for the original shareholder vote. At the time Tesla disclosed 73% of all shareholders voted in favor. Things were different in 2018 – Tesla had not become a meme stock, and shareholders voted at a special meeting that Tesla only routinely publicized. It stands to reason that the 73% of all shareholders was essentially 73% of institutional investors. Thus, the pay plan won less institutional support this time, compared to the original vote.

Vanguard (230 million shares) and BlackRock (189 million shares), the two largest institutional investors in Tesla, helped but in the end didn’t make the difference. Had one of them opposed ratification, the proposal would have still gained the requisite majority of shares voting. Had both opposed, it would have been close. A switch of their combined 419 million shares would have reduced the 1.35 billion shares in favor to 929 million, and increased the shares opposed from 529 million to 948 million. Sure, 929 million is less than 948 million, but not by very much. We expect Tesla would have found the 20 million or so shares it needed to support ratification.

Among institutional investors, Vanguard and BlackRock dominate in their support. Their 419 million shares represent close to half of the 885 million shares that voted to ratify. Or, 466 million shares not belonging to Vanguard and BlackRock voted to ratify (885 million – 419 million), less than the 529 million shares that votes against, which presumably are almost all institutional investors.

Texas Is Easier

Retail shareholders and Vanguard and BlackRock also led the success of the proposal to redomicile from Delaware to Texas.

Tesla reported 2.0 billion shares voted in favor of the proposal, and 293 million shares voted against. It needed a majority of shares outstanding, or 1.6 billion shares (half of 3.19 billion shares). The 2.0 billion shares in favor include shares of Elon and Kimbal Musk.

Among institutional investors, 1.12 billion voted for the proposal (2.0 billion – 413 million Musk shares – 463 million retail shares, both of which we assume voted in support), or 78% of the 1.43 billion institutional shares. So, somewhat more institutional investors supported the redomicile proposal than the exec comp proposal.

And, among institutional investors, Vanguard and BlackRock dominated this vote, too. If both opposed the redomicile vote, then the proposal would have only 1.58 billion shares (2.0 billion – 419 million) in favor, just short of the 1.6 billion needed. As with the exec comp proposal, we expect Tesla would have figured out where to find the 20 million or so shares it needed.

Surprisingly, other institutional investors significantly supported the redomicile proposal. Institutions not named Vanguard and BlackRock voted 706 million shares in favor of the proposal (1.12 billion – 419 million), with only 293 million voting against. We expected institutions to care more about the relative shareholder protection environments in Delaware and Texas. Evidently they care more about what Elon thinks of them.

Not Over Yet

The reincorporation vote concludes that part of the story. Tesla changed its domicile to Texas the next day. Now, shareholders will file lawsuits in Austin instead of Wilmington.

The pay plan vote is more complicated. We’ve seen many arguments that the vote means Tornetta is moot and Musk can now receive his 303 million shares, or means nothing – Chancellor McCormick will ignore it in finishing her work on the case, and it won’t matter to the Delaware Supreme Court in the inevitable appeal. In any event, it will take many more months or even years to sort out.

The vote did make Elon feel great, so maybe he’ll spend a little more time at the Gigafactory.

This post comes to us from Michael R. Levin, founder and editor of The Activist Investor.

1 Comment

  1. Jason Allen

    How can a judge declare there’s a class but only one investor with 9 shares out of several billion can belong to the ‘class’?
    That seems so sketchy and seems like it was done with a goal in mind.
    And what about all the self-congratulatory praise McCormick used in a legal judgement that was nothing but political grandstanding?
    That also seems so sketchy that no respectable judge would behave that way. And she’s been decried for it by other more long serving chancellors.
    Tesla investors are more knowledgeable and in tune to what is happening at the company than any other retail shareholders are for any other stock.
    We know exactly how close each board member is to Elon. We can’t get enough detailed info on every aspect of it.
    And are any of the people who write here actual owners of TSLA shares? Because it’s funny hearing people tell me what I should do for my own benefit.
    I’m up millions. I believed in the mission and the people trying to accomplish it.
    But law professors must know business like Tesla’s better than people who devote hours a day to learn as much about Tesla’s efforts and Elon’s other interests so we can always be as informed as possible.
    It wouldn’t take more than a day of research to have learned this btw.
    I’m a liberal Uber-progressive but I must use the worn out phrase of academics in “their Ivory Tower”.
    I don’t want to seem mean but this site has been offensive to TSLA shareholders so a bit of saltiness is to be expected.
    Anyway , can anyone answer the big question of how can there ever be a class of one when millions upon millions may want to join but are prevented?!
    How is that not the most deplorable ruining of the entire idea of “a class” by definition.
    And the politics that woman put in her diatribe/decision… again I’m a total Dem who has/will never vote GOP. What’s with the hate and the personal attacks and aggrandizements?
    None of you (non-shareholders) have any right to say you are better shareholders than we are.

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