Deja vu has struck Elon Musk's pocket once again.
Months after Tesla (TSLA) shareholders overwhelmingly voted to support CEO Elon Musk's pay package — initially agreed to in 2018 — a Delaware judge has again denied his multibillion-dollar payday.
In a 103-page ruling issued late on December 2, Chancellor Kathaleen St. Jude McCormick of the Delaware Court of Chancery doubled down on an earlier ruling in January that called the package excessive.
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In posts on X (formerly known as Twitter), after the decision was made, Musk said, "Shareholders should control company votes, not judges."
In a separate post on the social media platform, Tesla responded to the judge's decision with the following: "The ruling is wrong, and we're going to appeal," noting that the judge had overruled a supermajority of shareholders.
In court filings, Tesla reps said Judge McCormick should recognize the June shareholder vote, in which an overwhelming majority supported Musk's compensation package, which was valued at around $56 billion at the time.
Judge rejects Elon Musks pay package argument
However, in her ruling, McCormick said that Tesla's argument contains "unprecedented theories" that "go against multiple strains of settled law," mentioning four fatal flaws that include “no procedural ground for flipping the outcome of an adverse post-trial decision based on evidence they created after trial.”
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Essentially, the ruling noted that Tesla's board did not follow directions on how to restore the CEO's pay package. They attempted to use the earlier shareholder vote as a workaround for how situations like Tesla's and Musk's are legally handled.
"Were the court to condone the practice of allowing defeated parties to create new facts for the purpose of revising judgments, lawsuits would become interminable," McCormick wrote.
"Indeed, Defendants’ version of 'common law ratification' would allow a party found liable for fiduciary misconduct to deploy stockholder ratification to reverse the effects of a court finding long after that litigation is final," she continued.
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The judge also ordered Tesla to pay the attorneys who brought the case $345 million in cash or Tesla stock. The figure is well short of the $5.6 billion they initially requested; in the filing, McCormick called it a “bold ask” in a case involving excessive compensation despite calling the lawyer's methodology for calculating said figure as "sound."
Analyst weighs in with predictions after pay decision
According to Tesla's June 14 regulatory filing with the Delaware court, the Tesla CEO won the June 2024 shareholder vote, with 72% of shareholders voting in favor of reinstating the pay package.
Using this vote, as well as Judge McCormick's initial voiding of Musk's pay package, Wedbush analyst and noted Tesla bull Dan Ives wrote in a December 3 note that the "Twilight Zone" legal decision and Tesla’s pushback will lead this case to the highest court in the state.
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"We continue to believe Tesla and Musk will fight this tooth and nail all the way to the Supreme Court in Delaware and then potentially to the Federal system as this remains a frustrating headache for Tesla, Musk, and its shareholders," Ives wrote.
Additionally, Ives believes this decision could lead to an exodus of companies from the once business-friendly state, noting that her decision was the "catalyst" in Tesla moving its operating status from Delaware to Texas.
"This case could be the catalyst for more public companies to leave the state of Delaware for their corporation status as the legal precedents set in this Tesla/Musk case are very eye-opening to public Boards around the country and go against shareholders' vote in a dangerous precedent in our view," according to Ives.
"Musk is Tesla, and Tesla is Musk. One way or another the Board is getting Musk his pay package (and another long term one for the next decade) to secure Musk will be CEO of Tesla at least through 2030. The Delaware Court battle has become a soap opera and we expect Tesla will ultimately win this fight at the Supreme Court level given shareholders have approved this pay package twice in an overwhelming matter," he said.
Tesla, Musk have bigger fish to fry
Despite this setback, Ives believes that Musk's current close relationship with President-Elect Trump and his newly appointed role as the co-leader of the newly created Department of Government Efficiency (DOGE) alongside former Republican Presidential nominee Vivek Ramaswamy will help accelerate Tesla toward the company’s future path towards autonomous vehicle technology including future Tesla product like the Robotaxi.
In a note published on November 29, Dan Ives wrote that policy regarding autonomous vehicles like Tesla's robotaxis could be on the table with a future Trump administration, noting that "these key initiatives will now get fast tracked" when he takes his seat at the Oval Office.
"[...]we fully expect under a Trump White House these key initiatives will now get fast tracked as the federal regulatory spiderweb that Musk & Co. have encountered over the past few years around FSD/autonomous clears significantly under a new Trump era," Ives said.
"The $1 trillion of AI valuation will start to get unlocked in the Tesla story and we believe the march to a $1.5 trillion and $2 trillion valuation for TSLA over the next 12 to 18 months has now begun in our view with FSD and autonomous penetration of Tesla's installed base and the launch of Cybercab representing the golden goose."
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