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Speaker 1: Welcome back to Elon Inc. We're in your feed twice

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Speaker 1: this week because we had to do an emergency pod.

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Speaker 1: I'm your host, David Papadopoulos. Last night, Delaware Chancery Court

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Speaker 1: Judge Kathleen McCormick voided Elon's fifty five billion dollar compensation

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Speaker 1: package in a strongly worded decision. The ruling could have

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Speaker 1: enormous ramifications for Musk's entire business empire.

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Speaker 2: Well, Elon Musk is now the richest person on the planet.

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Speaker 1: More than half the satellites in space are owned and

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Speaker 1: controlled by one.

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Speaker 3: Man, starting his own artificial intelligence company. Well, he's a legitimate,

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Speaker 3: super genius, legitimate, he says.

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Speaker 1: He's always voted for Democrats, but this year it will

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Speaker 1: be different.

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Speaker 2: He'll vote Republican.

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Speaker 3: There is a reason the US government is so reliant

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Speaker 3: on him.

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Speaker 2: Elon Musk is a scam artist and he's done nothing.

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Speaker 3: Anything he does, he's fascinating the people.

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Speaker 1: Note we are taping this at eleven am. We're joined

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Speaker 1: by Jeff Feely, a legal reporter here at Bloomberg who

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Speaker 1: covers the Delaware Chancery Court. Hello, Jeff, Morning, Dana Hall,

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Speaker 1: our ace tesla reporter Dana Good morning. He and Max Chafkin,

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Speaker 1: senior reporter at Business Week. Low Max, Hi, David back again,

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Speaker 1: We'll dig into what the ruling said, what it means

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Speaker 1: for Elon and for Tesla, and what Elon might do next. So, Jeff,

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Speaker 1: we will start with you. Elon never loses in court

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Speaker 1: until now. This is a very complicated matter. Briefly, the

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Speaker 1: idiot's version for all of us. Please what happened?

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Speaker 2: Okay, So judge zapped his two eighteen compensation package, which

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Speaker 2: would have been the largest compensation award to a US

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Speaker 2: executive in history. She found that conflicts of interest among

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Speaker 2: the directors and problems with disclosures about the plan required

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Speaker 2: her to sink.

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Speaker 1: It sinc it, So the package is zapped. So, Dana,

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Speaker 1: this is potentially a really big deal for Musk right,

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Speaker 1: both personally, for Tesla and for the broader Musk empire.

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Speaker 4: Oh yeah, for sure. I mean, Jeff and I have

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Speaker 4: joked a lot over the years about how Elon is

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Speaker 4: Teflon Elon, and he always wins in court because he

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Speaker 4: hires the best attorneys, and he's not afraid to litigate,

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Speaker 4: and he will go to the mat on every issue.

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Speaker 4: But this was a huge rebuke. And the whole reason

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Speaker 4: why Elon is the richest person on the planet is

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Speaker 4: because of this twenty eighteen comp package, and now that

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Speaker 4: is basically being tabled. The judge is saying, no, we're

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Speaker 4: not going to allow this, So it's like retroactively, the

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Speaker 4: Tesla board has to come up with a new way

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Speaker 4: to compensate him. And Musk is furious. I don't know

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Speaker 4: if you saw the tweets overnight, but now he's like

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Speaker 4: threatening to move Tesla's incorporation status from Delaware to Texas.

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Speaker 4: You know, he's he's pissed. I mean, this is a

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Speaker 4: huge blow to his personal wealth, and it just kind

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Speaker 4: of shows for you know, plainly for all just how

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Speaker 4: rife all of the corporate governance issues of Tesla are.

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Speaker 1: Huge blow for his personal wealth. Exactly how much would

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Speaker 1: it come down if this ruling is upheld.

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Speaker 4: Well, that's one of the things that we're still trying

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Speaker 4: to figure out, because I don't believe that he exercised

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Speaker 4: all of the options because of the five year rule.

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Speaker 2: But that you never exercised any of them data.

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Speaker 1: Right, But he was as of the end of the day,

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Speaker 1: the business day yesterday, the richest person in the world over.

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Speaker 1: According to the Bloomberg Index, two hundred billion dollars is

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Speaker 1: net value. How much ballpark would that come down by I.

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Speaker 4: Don't think we know, honestly, because the board is going

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Speaker 4: to have to redo it. They're going to basically have

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Speaker 4: to redo this plan. I mean, but it could be

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Speaker 4: billions of dollars.

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Speaker 2: Some of the estimates are as much as fifty billion.

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Speaker 3: You know, huge, not just because us it speaks to

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Speaker 3: a huge amount of money for the world's riches man,

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Speaker 3: but also the way he's run Tesla, because the logic

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Speaker 3: on this in this case was essentially that the board

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Speaker 3: was not independent and that that was not properly disclosed

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Speaker 3: to shareholders.

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Speaker 1: You know.

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Speaker 3: At the same time, Musk is asking for even more money,

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Speaker 3: saying he doesn't feel like he can do his AI

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Speaker 3: and you know, innovations unless he gets an even greater

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Speaker 3: percentage of Tesla. And so I think this throws a

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Speaker 3: lot of uncertainty into not just Tesla, but but, like

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Speaker 3: you said, the whole empire, because you've had this kind

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Speaker 3: of threat bubbling under the surface, like maybe I'll take

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Speaker 3: my you know, maybe I'll do all my brilliant AI stuff,

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Speaker 3: you know, inside of XAI, which oh, by the way,

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Speaker 3: that you know it may or may not be raising

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Speaker 3: additional money. You know, Elon Musk has denied it, others

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Speaker 3: have reported it maybe in process. And I think we

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Speaker 3: need to start looking at the possibility that Elon kind

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Speaker 3: of ups the level of threat. Right he's already threatening

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Speaker 3: to you know, to do AI elsewhere. What if he

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Speaker 3: threatens to walk away entirely? I mean, it would be

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Speaker 3: disastrous for Tesla, at least for Tesla's share price.

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Speaker 1: Well, the share price as of this morning when I

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Speaker 1: last checked it definitely down, not tanking, but down a bit.

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Speaker 1: And it does seem to point to to certainly to

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Speaker 1: some angst among the investor community that that's something like that,

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Speaker 1: you know, could happen. Okay, Dan, So if we continue

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Speaker 1: to go down this hypothetical path of Elon truly carrying

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Speaker 1: out this threat that he's been making that hey, I

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Speaker 1: might just pick up my toys and leave. If you

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Speaker 1: were indeed to pull the trigger on that and do that,

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Speaker 1: what's in it for him?

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Speaker 2: Yeah?

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Speaker 4: I mean that's why I think it's it's still kind

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Speaker 4: of far fetched, because I think he's very frustrated running

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Speaker 4: a publicly traded company. I think he would much rather

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Speaker 4: just run private companies, right.

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Speaker 1: And to be clear that Dana, sorry, he tweeted or

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Speaker 1: xed a fair amount about that overnight. He basically doesn't

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Speaker 1: like being, you know, tied to all these different rules

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Speaker 1: that come with having a company that's publicly traded right.

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Speaker 4: Right, like just having to like disclose earnings and the

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Speaker 4: pressures from you know, ESG and DEI and having everything

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Speaker 4: scrutinized in Delaware. I mean, when you are a publicly

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Speaker 4: traded company, you are open to a lot more scrutiny,

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Speaker 4: and so I think that he just is very frustrated

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Speaker 4: by that. It is hard for me to see him

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Speaker 4: walking completely. I mean, he has poured his heart and

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Speaker 4: soul into this company. It's not the only company that

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Speaker 4: he runs. But you know, he didn't sleep on the

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Speaker 4: factory floor back during the Model three ramp for nothing,

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Speaker 4: and it's been such a part of his personality and

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Speaker 4: it's why he's so famous and he needs that money.

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Speaker 4: I mean, that's the other thing, Like if he was

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Speaker 4: to walk away, I think the valuation of Tessel would

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Speaker 4: collapse because they are so dependent on him. So, you know,

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Speaker 4: does he step back in some way and just become

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Speaker 4: like product design and maybe they actually name a COO.

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Speaker 4: I don't know, but it's like there, it's stuck, like

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Speaker 4: the board has been kind of stuck in this position forever.

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Speaker 4: Like there's key Man risk. The key man has now

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Speaker 4: basically lost in court for the first time that I

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Speaker 4: can think of, and you know what happens next. I

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Speaker 4: think everyone would really love some clarification from the from

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Speaker 4: the board, like and is he going to appeal or not?

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Speaker 4: Like I would assume he's going to appeal, but isn't

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Speaker 4: said for sure?

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Speaker 1: Yeah, I mean it is. It is the key Man

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Speaker 1: risk of all key Man risks of all time, right like,

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Speaker 1: it very much is. And I will actually, you know,

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Speaker 1: thinking a bit more about how how upset he's been

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Speaker 1: of late about you know, the you know all the

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Speaker 1: the onus in Burnen of being of owning a publicly

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Speaker 1: traded company. It is correct me if I'm wrong, Tesla

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Speaker 1: is the loan publicly traded company in his empire, right correct.

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Speaker 4: He oversees six companies in Tesla is the only publicly

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Speaker 4: traded one. And I would note that he started sort

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Speaker 4: of intimating that he wanted a twenty five percent stake

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Speaker 4: in Tesla, you know, over the past couple of weeks,

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Speaker 4: knowing that this decision was pending so and maybe maybe

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Speaker 4: knowing that it didn't seem to be going his way.

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Speaker 4: So I think that the timing of that is very interesting.

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Speaker 1: Let me ask you this, Jeff. Earlier, Dana referred to

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Speaker 1: elanis teff on. Elon said that was the term you

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Speaker 1: guys had for him because he never lost in court.

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Speaker 1: What went wrong this time?

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Speaker 2: Well, it's obviously always tied to the facts in the case.

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Speaker 2: He won a shareholder suit a couple of years ago

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Speaker 2: over the acquisition of Solar City, a renewable power provider,

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Speaker 2: but on completely different facts than they has had nothing

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Speaker 2: to do with the compensation this one. Frankly, guys, Elon

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Speaker 2: Musk has been running in a way that you know,

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Speaker 2: breaks all the norms, and somebody had to pull the reins.

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Speaker 2: And Judge Kathleen McCormick is somebody who believes in pulling

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Speaker 2: the reins. She is somebody who believes the system that

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Speaker 2: we have is you know, pretty good, and people need

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Speaker 2: to play by the rules, and everybody needs to play

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Speaker 2: by the rules, including Elon Musk.

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Speaker 1: Now is her ruling the final final ruling in this matter.

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Speaker 1: Is this an appealable decisions?

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Speaker 2: An appealable decision? But I must tell you if my

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Speaker 2: thirty years here at Bloomberg covering Delaware courts, the chances

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Speaker 2: that the Delaware Supreme Court are going to overturn her

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Speaker 2: in this are slim.

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Speaker 4: I would just like to point out that this is

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Speaker 4: the exact same judge who oversaw Elon's attempt to get

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Speaker 4: out of the Twitter deal when he was buying it, right, Jeff,

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Speaker 4: I mean, this is sort of his second go round

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Speaker 4: with Judge Katie.

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Speaker 2: Let's put a little nuance into that. Judge Katie never

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Speaker 2: had to rule in the Twitter case because Elon waived

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Speaker 2: the white flag, because she started ruling in some of

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Speaker 2: the pre trial hearings against him, and he you know,

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Speaker 2: Elon is not a dumb person.

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Speaker 1: So teflon Elon in court. I guess he meets his

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Speaker 1: match in court when he when he tangles with this judge.

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Speaker 2: Max.

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Speaker 3: You were saying, so I was gonna say, first of all,

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Speaker 3: you got fifty billion here, forty four billion on the

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Speaker 3: forced Twitter ocquisitions starting to really add up, you know,

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Speaker 3: even for somebody as rich as I just wanted to

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Speaker 3: ask Jeff, How is it realistic that he could just

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Speaker 3: move the incorporation of Tesla to a different state. Have

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Speaker 3: any other people done that? Like, what would be involved

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Speaker 3: in that? Do you have any sense?

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Speaker 2: Yeah? The Delaware chance Re Court has been the target

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Speaker 2: of a lot of people's ire over the last you know, decade,

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Speaker 2: and it's almost always people who have lost cases. Right. So,

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Speaker 2: there are other companies that have expressed an interest to

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Speaker 2: follow Elon to Nevada. Trip Advisor owned by Greg Mfay

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Speaker 2: comes to mind. But you know, some trip Advisor shareholders,

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Speaker 2: as soon as they announced they wanted to move to Nevada,

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Speaker 2: filed suit saying, oh, no, you're moving to Nevada so

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Speaker 2: you can take advantage of lacks corporate governance laws, and

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Speaker 2: that's not in our favor.

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Speaker 1: Let me ask you this. This case, this lawsuit was

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Speaker 1: obviously brought by a disgruntled Tesla investor against Musk and

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Speaker 1: the board that assigned him this pay package. You know,

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Speaker 1: the investor just you know, argued that this pay package

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Speaker 1: is ec We were duped when we voted on it.

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Speaker 1: The board wasn't upfront in terms of the nature in

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Speaker 1: which you know, they arrived at this package that is

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Speaker 1: the gripe and the complaint lodged by this one investor.

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Speaker 1: Do we feel like that investor is speaking for the

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Speaker 1: totality of the investor universe. Would they say, oh my god,

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Speaker 1: please yes, pay this man what he wants, give him

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Speaker 1: whatever he wants. Or would they say, no, we backed

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Speaker 1: this investor, this is excessive.

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Speaker 4: When the vote about the compensation went to shareholders, it

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Speaker 4: was overwhelmingly approved by the shareholders. But the lawsuit sort

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Speaker 4: of points out that, like the shareholders were duped into

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Speaker 4: how this whole package came about. But no, I think

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Speaker 4: that retail investors are upset. I mean they want to

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Speaker 4: sue Delaware themselves, like they want Elon to Still they

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Speaker 4: believe that Elon deserves this package, and you know, the

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Speaker 4: retail shareholders I think are very nervous about what happens

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Speaker 4: going forward.

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Speaker 1: Okay, so that's the small like the mom and pop

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Speaker 1: or the Reddit crowd shareholders. And do we have a

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Speaker 1: sense on the larger, more institutional investors. Do we have

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Speaker 1: any sense of what their stances or or hard to know.

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Speaker 4: I'll mean a lot of them voted for this package,

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Speaker 4: so I don't Yeah, I don't know what they're what

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Speaker 4: they're feeling is today. I think a lot of them

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Speaker 4: are still kind of trying to decipher the ruling. But

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Speaker 4: the other point to make is that if all goes

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Speaker 4: accordion to plan and Musk doesn't appeal, then his shares

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Speaker 4: that he was awarded go back to Tesla and everyone

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Speaker 4: and the dilution number comes down. So in theory this

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Speaker 4: is good for shareholders. But the risk obviously is that

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Speaker 4: Elon walks, and that is why everyone is on edge

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Speaker 4: right now.

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Speaker 1: So that appeal, Jeff, that you think is coming from

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Speaker 1: Musk's legal team, as much of a long shot as

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Speaker 1: it may be. Do these appeals tend to come really

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Speaker 1: quickly or is it something that takes time?

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Speaker 2: I mean relatively quickly. We're going to see an appeal

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Speaker 2: within a month.

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Speaker 1: Got it with it within a month. And one thing

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Speaker 1: that struck me as I read your piece overnight was

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Speaker 1: that ruling from the judge Kathleen McCormick. Two hundred pages long.

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Speaker 1: It seems like a lot of pages for a ruling that, hey,

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Speaker 1: in the end, I'm digging you avoiding this pay package.

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Speaker 1: And it also came one year after the legal arguments

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Speaker 1: were finished up. Are these the Norman in such matters.

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Speaker 2: No, it's the first time in thirty years I've seen

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Speaker 2: a decision take this long. She had back surgery last year,

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Speaker 2: so that slowed it down. And then she also got

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Speaker 2: a couple of cases that were fast tracked, so that

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Speaker 2: slowed it down as well. Delaware prides itself on handling

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Speaker 2: cases fast when they need to be handled fast, and

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Speaker 2: there wasn't any need for speed on this.

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Speaker 1: So and she decided Max to write on and I

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Speaker 1: guess she's not that fast a writer. She was knocking

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Speaker 1: out a couple pages a day.

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Speaker 3: There's some spicy lines in there.

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Speaker 2: I also think that she wanted to make it bulletproof, right.

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Speaker 2: I mean, we're talking about the largest corporate pay package

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Speaker 2: in history, and if she's going to shoot it down,

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Speaker 2: she wants to make sure that the reasoning is rock solid,

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Speaker 2: and that takes time. It's not something you can just,

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Speaker 2: you know, regurgitate ten minutes.

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Speaker 4: It's a remarkable opinion. I mean, everyone should read it.

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Speaker 4: It's two hundred pages. There's Shakespeare references. You can command

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Speaker 4: deaf the word Mars, and there's all these lines about Mars.

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Speaker 4: There are like a lot of zingers.

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Speaker 1: I'm not going through two hundred pay you went through

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Speaker 1: two hundred pages overnight. If so, I need the cliff

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Speaker 1: notes from you.

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Speaker 2: I went through two hundred pages in about forty minutes.

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Speaker 1: Wow, that's why you cover the Delaware chance to record

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Speaker 1: for us here at Bloomberg News. That's a skill you

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Speaker 1: develop over thirty years.

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Speaker 4: It starts with a line that's something like, was the

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Speaker 4: richest man in the world overpaid? And then it just

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Speaker 4: gets into it and it goes through the facts of

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Speaker 4: the case, and there's a Shakespeare reference to Henry the Fifth,

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Speaker 4: and then there's a lot of references to Mars and

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Speaker 4: how Musk was very like up front about the fact

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Speaker 4: that he was using his wealth in Tesla to kind

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Speaker 4: of fund the Mars mission. And then it just gets

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Speaker 4: into how cozy he is with all of the board directors.

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Speaker 4: I'm no like legal scholar, but it is like a

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Speaker 4: real Zinger and it, you know, I mean, I think

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Speaker 4: that's what the legal aces are sort of pouring over today.

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Speaker 4: I mean, there are just a lot of really great

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Speaker 4: lines in the opinion. The other thing that I think

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Speaker 4: is remarkable is that Tesla's board so far has said nothing,

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Speaker 4: I mean nothing from no comment from the board and

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Speaker 4: believe me. I'm like texting the share and trying to

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Speaker 4: get them to say something. There's been radio silence from

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Speaker 4: this board.

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Speaker 1: And presumably, even though the board is not communicating publicly,

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Speaker 1: one can only imagine that behind the scenes, they are

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Speaker 1: frantically trying to figure out what the hell to do here,

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Speaker 1: and presumably are in contact with mister Musky.

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Speaker 4: And remember that Elon is on the board. I mean

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Speaker 4: there's an eight member board. Elon is on the board,

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Speaker 4: so is his brother. It's very much his board.

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Speaker 1: Yeah, I mean, this is one of the things I believe.

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Speaker 1: The judge argued that essentially Elon is the board. I believe.

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Speaker 1: Correct me if I'm wrong here. At one point, you know,

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Speaker 1: he said during the trial, well, I was essentially negotiating

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Speaker 1: against myself.

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Speaker 4: Said he said that in his Yeah, that's.

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Speaker 1: Probably not a great look in trying to argue that

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Speaker 1: the pay package was properly negotiated.

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Speaker 4: So as we've you know, the whole premise of this

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Speaker 4: show is that it's Elon in right, and Tesla is

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Speaker 4: the crown jewel of the empire, because that is the

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Speaker 4: publicly traded company that has the biggest market valuation, and

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Speaker 4: Musk's steak in Tesla and this compackage are the key

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Speaker 4: to his wealth which he is using to fund his

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Speaker 4: Mars mission. And if that is all now thrown out,

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Speaker 4: it just really brings in all kinds of questions like

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Speaker 4: does must just get so pissed off that he leaves?

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Speaker 4: Like does he take his toys and go home and

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Speaker 4: say screwt find another CEO? I'm out?

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Speaker 1: Like, yeah, I'm super intrigued by that, right, Like, because

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Speaker 1: he has, as you guys are saying, even before this

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Speaker 1: came up, he was already that was his public posture.

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Speaker 1: Obviously some of that was saber rattling. I want more control,

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Speaker 1: I want more money. But you know, here is a

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Speaker 1: guy who does have a history of at some point

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Speaker 1: saying exactly to hell with it.

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Speaker 3: Well not just that, but a guy who is given

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Speaker 3: to these kind of grand gestures and also you know

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Speaker 3: who behaves in an emotional way. I mean, you know,

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Speaker 3: with Twitter, right kind of felt like he fired off

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Speaker 3: kind of an ill considered tweet and then just dug

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Speaker 3: himself into it. And you could imagine a situation where

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Speaker 3: something kind of similar happens. You know. The other thing

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Speaker 3: is we we talk about this all the time. On

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Speaker 3: this podcast. Elon Musk is very rich. He is not

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Speaker 3: cash rich, right, and his ability to be liquid largely

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Speaker 3: stems from being able to sell Tesla shares and so

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Speaker 3: you know.

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Speaker 1: Or or max use them as collateral.

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Speaker 3: Right, yeah, so yes, and so so like reducing his

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Speaker 3: reducing the number of shares he owns, right, is going

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Speaker 3: to have knock on effects for all of these other

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Speaker 3: companies that depend on Elon Musk's largest either directly, either

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Speaker 3: in the sense that he's financing them or the fact

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Speaker 3: that Elon Musk is standing there behind them is allowing

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Speaker 3: them to go and raise money from other investors. And again,

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Speaker 3: I just think like Tesla is already under such pressure

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Speaker 3: right now. We talked yesterday about the two waves of

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Speaker 3: growth and how.

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Speaker 1: His stock is down more than twenty percent of the year.

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Speaker 3: Yeah, now Elon Musk is under pressure, and it just

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Speaker 3: feels like wow, like things are really uneasy in this

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Speaker 3: empire right now. And then and meanwhile, you know, of

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Speaker 3: course it's continued, you know, kind of right wing signaling.

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Speaker 3: When he wasn't you know, belly aching about Delaware, he

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Speaker 3: was you know, these crazy increasingly frantic tweets about black

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Speaker 3: crime and immigration and you know, just just like really

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Speaker 3: really hard right stuff bordering on kind of white nationalism,

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Speaker 3: and so all of that together it just feels like

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Speaker 3: quite a.

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Speaker 1: Stew All right, let's leave it there. Thanks for listening

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Speaker 1: to Elon Inc. And thanks to our panel Jeff, Dana

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Speaker 1: and Max. This episode was produced by Stacy Wong, Cale

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Speaker 1: Brooks and Carmen Rodriguez. Naomi Shaven and Rayhan Harmanci are

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Speaker 1: our senior editors. The idea for this very show also

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Speaker 1: came from Rayhan Blake Maple's Handles Engineering, and we get

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Speaker 1: special editing assistance from Jeff Grocott. Our supervising producer is

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Speaker 1: Magnus Henrickson Huge thanks to Angel Rasio and Joel Weber.

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Speaker 1: The elon Ink theme is written and performed by Taka

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Speaker 1: Yasuzawa and Alex Sugiyia. Sage Bauman is the head of

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Speaker 1: Bloomberg Podcast and our executive producer. I am David Papadopolis.

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Speaker 1: If you have a minute, rate and review our show,

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Speaker 1: it'll help other listeners find us. See you next week.