Speaker 1: Bloomberg Audio Studios, podcasts, radio news Caroline.
Speaker 2: Tesla's board has made an unprecedented proposal for a compensation
Speaker 2: package for its CEO, Elon Musk. The total ward value
Speaker 2: could be up to one trillion dollars, but it is
Speaker 2: set against mandatory targets that have a high bar. Both
Speaker 2: operational and financial investors' shareholders are going to vote on
Speaker 2: that package in November, but many of those shareholders still
Speaker 2: have questions. To answer the questions, the chair of Tesla's board,
Speaker 2: Robin Denholm, is with us. Thank you, Robin for your time.
Speaker 2: This proposed package was about Tesla's long term goals as
Speaker 2: much as it was about retaining Elon Musk. But why
Speaker 2: is it so crucial to the board's mind that it
Speaker 2: is Elon Musk that is able to get Tesla to
Speaker 2: this future?
Speaker 3: Well, thank you, Ed. I think it is a pivotal
Speaker 3: time at Tesla and also in the world in AI
Speaker 3: and autonomous and the application of AI is its transformative technologies,
Speaker 3: and we believe it. Tesla in big ambitious goals, and
Speaker 3: so Elon put out the master plan for on the
Speaker 3: first of September, very auspicious day. I think in terms
Speaker 3: of putting out the vision for the company for the
Speaker 3: next decade or more, and AI and autonomous is at
Speaker 3: the front and center of that, both in the vehicles
Speaker 3: but also in our Optimus lineup and what we're doing
Speaker 3: from a robotics perspective as well. And so having the
Speaker 3: boards of responsibilities to look at who the CEO is
Speaker 3: for the next period of time, and we believe that
Speaker 3: Elon is the right CEO for Tesla over this transformative
Speaker 3: period of time. And our view is he's a generational leader.
Speaker 3: Aren't any other people out there like Elon who can
Speaker 3: actually lead the company over this next decade or so,
Speaker 3: And so once you decide who the leader should be,
Speaker 3: you need to put in place a compensation package to
Speaker 3: incent and motivate him to actually deliver against the ambitions.
Speaker 2: The motivational piece is interesting in the course of the
Speaker 2: proxy as you read it and negotiation plays out, doesn't
Speaker 2: it seven or eight months, but that there were sticking
Speaker 2: points on both sides. What were they.
Speaker 3: Well, obviously in any discussion around the future of the company,
Speaker 3: but also the future of an individual in terms of
Speaker 3: what motivates them is very important to understand that. And
Speaker 3: from a board perspective, from a special Committee perspective, as
Speaker 3: we've outlined in the proxy, we had a very fullsome process.
Speaker 3: We had more than ten meetings with Elon in terms
Speaker 3: of understanding what were his motivations, what does he want
Speaker 3: to do over this period of time. And having worked
Speaker 3: with him now I've been on the board for eleven
Speaker 3: years and Kathleen Wilson Thompson, now other amazing Special Committee member,
Speaker 3: has also been working with him for the past six
Speaker 3: or seven years as well, And so from our perspective
Speaker 3: seeing him in the boardroom, but also understanding what motivates him,
Speaker 3: it's things that other people can't do. It's what the
Speaker 3: company could do that no other company could do. So
Speaker 3: those types of things are what are in this plan.
Speaker 3: And so, as you said in the outset, it is
Speaker 3: a zero compensation package unless he delivers against pretty ambitious
Speaker 3: goals for the company.
Speaker 1: Ambitious goals that include twenty million vehicles, that include ten
Speaker 1: million FSD that think about a million robots and robotaxes.
Speaker 1: Robin tell us, from your experience with the twenty eighteen
Speaker 1: pay package are in the investi base really wants to
Speaker 1: understand how structurally this is different.
Speaker 3: Yeah, So for us, the framework of the twenty eighteen
Speaker 3: plan worked very very effectively, and so this package, this
Speaker 3: framework that we've put in place for the twenty twenty
Speaker 3: five proposed compensation package, has twelve tranches, twelve market cap goals,
Speaker 3: where the top goal is eight and a half trillion
Speaker 3: dollars and we're just over a trillion dollars today. The
Speaker 3: first milestone on the market cap side is a two
Speaker 3: trillion dollars, so we've got almost double the size of
Speaker 3: the company before any of the market cap goals are
Speaker 3: actually achieved. And then it increases by half a trillion
Speaker 3: up into the last two tranches, where there's a trillion
Speaker 3: dollar jump each time. And then on the operational side,
Speaker 3: to your point, Caroline, they're very ambitious. We're just over
Speaker 3: eight million cars that have been produced and delivered at Tesla.
Speaker 3: The milestone on the vehicle side is twenty million vehicles,
Speaker 3: ten million FSC paid subscription areas. So to me, these
Speaker 3: are ambitious goals, and not to mention what we're what
Speaker 3: we've proposed in terms of the goals around our robotics areas,
Speaker 3: our optimists and bots a million of those and robotaxis
Speaker 3: and so to me, it really brings the master plan
Speaker 3: for to life within this compensation package. Because they're the
Speaker 3: goals that Elon has, it's the goals that the company
Speaker 3: has as well.
Speaker 1: Some had worried that Elon's goals had turned more towards politics,
Speaker 1: and you draw him back from that within the proxy,
Speaker 1: and he's agreed to wind down his political activity. How
Speaker 1: do you define political activity.
Speaker 3: Robin, I think you know, from my perspective, this is
Speaker 3: a package that really motivates Elon. So having him front
Speaker 3: and center at the company and delivering against really ambitious goals,
Speaker 3: to me, is great for him. It's great for the company.
Speaker 3: It's also great for shareholders, and as we've outlined, the
Speaker 3: shareholders in this proposal actually win very extensively with that
Speaker 3: market cap at eight and a half trillion dollars in
Speaker 3: order to achieve this compensation package. To me, that actually
Speaker 3: is one of the things that all shareholders will benefit by.
Speaker 3: And so from a politics perspective, obviously we're in a democracy,
Speaker 3: so everybody gets to voice their points of view. I
Speaker 3: think Elon having served as a special government employee, he
Speaker 3: obviously completed that activity and he is back and front
Speaker 3: and center at the company these days.
Speaker 2: But did those reassurances go as far as to Elon
Speaker 2: Musk agreeing not to specifically participate in any one political
Speaker 2: party another government role extend to whether or not he
Speaker 2: makes donations in a political cycle.
Speaker 3: Yeah, I mean what he does from a personal perspective,
Speaker 3: in terms of his political motivations, etc. Is up to him.
Speaker 3: I mean, clearly from our perspective as a board, we're
Speaker 3: measuring him on results and measuring him on what he
Speaker 3: does as a CEO of Tesla and our viewers. He's
Speaker 3: delivered big time in the past, and you know, we
Speaker 3: look forward to him doing that in the next era.
Speaker 2: Robin, you've just been unequivocal about the future of the
Speaker 2: company and the inclusion of those operational milestones on Optimus
Speaker 2: and Robotaxi. But when the proxy hit many many shareholders
Speaker 2: went straight to the bullet point on the twenty million
Speaker 2: vehicle deliveries. How much was that informed by the board
Speaker 2: wanting Elon Musk to focus on the bread and butter
Speaker 2: business in the near time. But also did you have
Speaker 2: some data that sales specific were being impacted by Musk's
Speaker 2: political activity.
Speaker 3: Yeah, I would say that vehicles are our mainstay of
Speaker 3: our business today, so is the energy business. A lot
Speaker 3: of people forget about this brilliant business that we have
Speaker 3: on the sustainable energy side, and so from our perspective,
Speaker 3: from a board perspective, they are the revenue drivers of
Speaker 3: the company in the near term. But obviously in the
Speaker 3: plan you can see that there are other areas of
Speaker 3: revenue activity and profitability and growth for the company in
Speaker 3: what we're doing with AI as it relates to optimists,
Speaker 3: but also FSD and beyond. And you know, we've put
Speaker 3: pretty ambitious goals out there in terms of the EBITTER
Speaker 3: and so I think, yeah, the profit in terms of
Speaker 3: having four operational goals around product, but also four pretty
Speaker 3: extensive six actually pretty extensive goals around the profitability of
Speaker 3: the company as well. And you can't do that without
Speaker 3: selling fabulous products that customers want.
Speaker 1: Fabulous products that people have to want to buy, and
Speaker 1: sometimes because of the brand of the person who built them.
Speaker 1: I just ask a little bit again, did you think
Speaker 1: sales were hit by his political activity?
Speaker 3: So my view is over the long term, people buy
Speaker 3: things that they really love, and Tesla vehicles things that
Speaker 3: people really love. You know, it doesn't matter who you are.
Speaker 3: The minute you get into a death Tesla and you
Speaker 3: drive that car, you know what that experience is like.
Speaker 3: And so from our perspective, focusing on products that customers love,
Speaker 3: that our consumers are both in the vehicle space and
Speaker 3: in the energy space, really do enjoy using and appreciate
Speaker 3: in terms of not only the technology aspects, but also
Speaker 3: how the vehicle responds, the user interface, those types of things.
Speaker 3: So again, we're a products company. We love building things
Speaker 3: that people love.
Speaker 1: And we can see the future products just behind your
Speaker 1: shoulder as well. With Optimists and Robin. What's been so
Speaker 1: interesting is the push from Elon's side in the ten
Speaker 1: times you met him and the negotiations and indeed on
Speaker 1: X's platform to have more voting control and have more
Speaker 1: ownership of shares. Can you tell us a little bit
Speaker 1: about how you weigh that as a board and as
Speaker 1: the chair.
Speaker 3: Well, clearly Elon's been very public in terms of the
Speaker 3: things that he motivates him and what actually he wants
Speaker 3: over this next period of time. So as a special
Speaker 3: committee as a board, that's actually easy to work with
Speaker 3: because when you're designing a compensation package, you're looking for
Speaker 3: the things that will motivate an individual to do thing
Speaker 3: above and beyond the mainstay, and so clearly voting rights
Speaker 3: important to Elon, particularly in this era as we're developing
Speaker 3: products around artificial intelligence, autonomous those types of things where
Speaker 3: we could use products for good as opposed to any
Speaker 3: nefarious activity with the products, and so he's been very
Speaker 3: clear on that, and so for us as a special committee,
Speaker 3: taking that information and then working through what were the
Speaker 3: right goals in order for him to earn those voting
Speaker 3: rights is really important. And again I'll say again that
Speaker 3: it's a zero plan if he doesn't achieve the goals,
Speaker 3: So each charch is worth a one percent in terms
Speaker 3: of voting rights. They kick in when he actually hits
Speaker 3: the goals, both an operational goal as well as a
Speaker 3: market cap goal, and then the economic benefits are delayed
Speaker 3: beyond that period of time, which is a difference in
Speaker 3: the plan that we structured in twenty eighteen. So bifurcating
Speaker 3: the voting rights versus the economic benefit actually has a
Speaker 3: huge retentive effect, and so from our perspective, that's one
Speaker 3: of the key levers that we used in the plan.
Speaker 2: You're joining us on Bloomberg television and radio around the world.
Speaker 2: This is Bloomberg Tech Live at Tesla in Palo Alto,
Speaker 2: where we're speaking with the chair of Tesla's board, Robin Denholm,
Speaker 2: about the proposed compensation package for Elon Musk that investors
Speaker 2: will vote on in November. In the proxy, again, it's
Speaker 2: very clear if one is to go and read it
Speaker 2: that Elon Musk essentially said to the special Committee that
Speaker 2: my priority is the voting power. But you know, if
Speaker 2: my motivations aren't met, I am interested to go and
Speaker 2: pursue other interests. What was the kind of absolute for
Speaker 2: the board on your side? You know, I'm trying to
Speaker 2: understand both Caroline's question on you know, I think Musk
Speaker 2: wants the voting power so that he can focus on
Speaker 2: this AI future. But in return to hand over that
Speaker 2: voting power, what is it, Robin, that you wanted to ensure?
Speaker 3: Yeah? I think you know, as I said before, Alan's
Speaker 3: a unique individual. He can apply his time, effort and
Speaker 3: energy into different endeavors. He has different endeavors out there.
Speaker 3: Of what the board sought to do through this plan
Speaker 3: is to actually have him focus, you know, an outsized
Speaker 3: proportion of his time, effort and energy on Tesla, because
Speaker 3: when he does that, shareholders win.
Speaker 2: Might I just add that what's kind of missing from
Speaker 2: the proxy. It's not codified. But you are calm, sanguine,
Speaker 2: comfortable with him also being the CEO at another company,
Speaker 2: private company, or having another leadership position across multiple companies.
Speaker 2: That's okay, Yes, it is okay.
Speaker 3: It is how he's delivered in the past. And you know,
Speaker 3: from our perspective, actually having his creative energies in various
Speaker 3: endeavors that are outside of Tesla actually helps Tesla. Yes,
Speaker 3: And now that sounds perverse and people don't really understand that,
Speaker 3: but having worked with him now for eleven years, it
Speaker 3: actually benefits Tesla with him doing things that are not
Speaker 3: in the mission of Tesla outside of Tesla, both from
Speaker 3: a resource perspective but also from a motivation perspective. And
Speaker 3: so I think to really understand that point is to
Speaker 3: understand Elon and how he actually works. And so that's
Speaker 3: what the board sought to do through this plan Succession.
Speaker 2: The latter tronches directly relate to Elon Musk's participation in
Speaker 2: succession planning and the successful implementation of that succession planning.
Speaker 2: You started this conversation by saying, there isn't any like
Speaker 2: Elon Musk given that this is a decade long plan,
Speaker 2: So maybe succession after a decade is more timely than
Speaker 2: do you have confidence as aboard there are leaders already
Speaker 2: within Tesla that could potentially step up when he's gone,
Speaker 2: or are you already starting to speak with Elon Musk
Speaker 2: about external candidates, those that are nearest to him, you know,
Speaker 2: in that level of extraordinary ability that you see in him.
Speaker 3: Yeah. So clearly, succession planning is a very important responsibility
Speaker 3: for the board and we take that responsibility very seriously.
Speaker 3: I meet with investors all the time, and I will
Speaker 3: say it's probably my number one question that I get
Speaker 3: in terms of consistency of feedback from investors around succession planning.
Speaker 3: And so from our perspective, we obviously have a plan
Speaker 3: if something untoward to it to happen in the near term,
Speaker 3: but we also want to have and do have a
Speaker 3: longer term succession plan. Now, this plan, this compensation plan,
Speaker 3: is a ten year plan. Elon will be sixty four
Speaker 3: or close to sixty five by the time this plan completes.
Speaker 3: At some point he will want to ease back. Maybe
Speaker 3: he doesn't believe that today, but at some point he
Speaker 3: may want to do that. And so we want to
Speaker 3: make sure that we have the right leaders in place
Speaker 3: to do an orderly transition at some point in the future.
Speaker 3: And so making that part of this plan was a
Speaker 3: very deliberate activity, and obviously he was part of that
Speaker 3: discussion as well, and he is part of the discussion
Speaker 3: on an ongoing basis that the board has around succession planning,
Speaker 3: the talent that we have. We have extraordinary talent inside
Speaker 3: of Tesla, across many facets of the company, and so
Speaker 3: making sure that we're continuing to develop those leaders but
Speaker 3: also bringing in talent. And you know that's the other part.
Speaker 3: It's in the report as well, and that Elon is
Speaker 3: a talent magnet, particularly on the engineering side, that we
Speaker 3: have extraordinary depth in the AI space, in the engineering space,
Speaker 3: in the manufacturing space, and largely because he works with
Speaker 3: them day in and day out. And so that's one
Speaker 3: of the unique aspects to this and also one of
Speaker 3: the unique aspects to the plan is to make sure
Speaker 3: that we have that visible succession plan as we near
Speaker 3: the end of this decade long compensation packet.
Speaker 1: Robin, what you just said was really interesting, the fact
Speaker 1: that there is a plan in place if something untoward
Speaker 1: would happen. Can you spell out what that would look
Speaker 1: like in the here and now?
Speaker 3: No, I won't go into details here, but from my perspective,
Speaker 3: it is a responsibility the board takes very seriously. And
Speaker 3: you know Elon has participated in that. We have leaders
Speaker 3: in geographies that run large portions of the organization. We
Speaker 3: have a really extensive executive team, and as I said before,
Speaker 3: Elon works very closely. He's a hands on leader both
Speaker 3: in the engineerings places, but also across the board from
Speaker 3: an operational perspective as well.
Speaker 1: And I realized that was a sensitive question to ask,
Speaker 1: and forgive me, I will ask another sensitive one because
Speaker 1: it is a time of sensitivity. We've just had the
Speaker 1: death of Charlie Kirk. We've had Musk himself on his
Speaker 1: own platform X raising questions well about his own security
Speaker 1: and the fact that he has focused on it. I
Speaker 1: know it's something that you are focused on. What is
Speaker 1: the view, baores view on terms of upping his own
Speaker 1: security right now?
Speaker 3: Yeah, so very tragic circumstances this week. I think there
Speaker 3: isn't anybody in a boardroom that isn't touched by what's
Speaker 3: happened with Charlie Kirk, and also you know, there have
Speaker 3: been other incidents you know, in the executive world over
Speaker 3: the last twelve months that I think every board stops
Speaker 3: and thinks about security of their CEOs but also their
Speaker 3: executive team. And it's no different at Tesla. We have
Speaker 3: been focused as a board on inland security for many
Speaker 3: years now. He's been very public and very much out there,
Speaker 3: and so it is something that we takes it very seriously.
Speaker 3: He takes it very seriously as well, and so so
Speaker 3: again from a board perspective, it is something that we've
Speaker 3: discussed at.
Speaker 2: Length, Robin. There are a number of other proposals in
Speaker 2: the proxy. One is a shareholder initiated proposal for Tesla
Speaker 2: to invest in Extai. It is non binding. The board
Speaker 2: doesn't take a position, but how does the board think
Speaker 2: about it. For example, if investors would say no, we
Speaker 2: don't want Tesla to make that investment, with the board
Speaker 2: still look to pursue it independently.
Speaker 3: So clearly there are sixteen proposals overall in the proxy.
Speaker 3: I know we've spent quite a bit of time on
Speaker 3: one important one on compensation, but the Xai proposal is
Speaker 3: a shareholder proposal that has been put into the board.
Speaker 3: We value our shareholders input and the reason why we
Speaker 3: have not put a recommendation is we want to hear
Speaker 3: from shareholders in terms of what their views are as
Speaker 3: to whether or not we should make an investment in XAI. Well,
Speaker 3: one thing I will say at the outset is there's
Speaker 3: a lot of misunderstanding of AI in the marketplace. It
Speaker 3: is not one thing, okay, it is a range of technologies.
Speaker 3: What Tesla is doing today with AI is quite different
Speaker 3: to what XAI does. XAI is working on fundamental areas
Speaker 3: in AI, but it's also working on large language large
Speaker 3: language models. That's not what Tesla's doing. As you can
Speaker 3: and see behind me. With Optimists, we're taking real world
Speaker 3: application of AI and putting it into physical products to
Speaker 3: actually empower those products to do things. So with Optimists,
Speaker 3: it's very visual. You can see what he does in
Speaker 3: terms of visualizing things and then actually doing things. And
Speaker 3: the same with the vehicle. So what we're doing with
Speaker 3: AI within FSD is actually taking that visual data and
Speaker 3: using that to drive the car. And so that's quite
Speaker 3: different to what an XAI does.
Speaker 2: Robin a very quick question, and then we will end
Speaker 2: on the final proposal for the compensation package. This week,
Speaker 2: Bloomberg reported an investigation about some fatal incidents where passengers
Speaker 2: or those inside the vehicle had difficulty using the manual release. Now,
Speaker 2: as you know, I drive a test a vehicle, You
Speaker 2: drive a test a vehicle. All I want to ask
Speaker 2: is the board aware of that reporting and will it
Speaker 2: raise that issue with Elon And is Tesla looking at
Speaker 2: the design of the door manual override.
Speaker 3: So I can tell you that the board takes very
Speaker 3: seriously any safety related reporting or any incidence of any
Speaker 3: type globally in terms of what we look at. But
Speaker 3: in the Tesla there is a manual override already, and
Speaker 3: in fact it's been reported on that you can actually
Speaker 3: manually open the door if there is a power event
Speaker 3: or anything like that. So safety is our number one
Speaker 3: factor in terms of what we're doing.
Speaker 2: And Tesla ranks very highly on safety, very highly.
Speaker 3: It's also why we're pursuing FSD because you know, just
Speaker 3: in North America there are fifty thousand deaths on the road.
Speaker 3: That's fifty thousand too many, and so and we know
Speaker 3: with the data that we have for FSD that it's
Speaker 3: actually safer than a human drive because of those fifty
Speaker 3: ninety four percent of human error. So if you can
Speaker 3: eliminate five percent of that, that's a lot of deaths
Speaker 3: that you can avoid. And so again, safety is one
Speaker 3: of our key priorities in any aspect of the business.
Speaker 2: Let's end on this unprecedented proposal, and I'm going to
Speaker 2: ask you this, what would happen if to Tesla if
Speaker 2: Elon Musk left tomorrow, you know, in order to try
Speaker 2: and help shareholders understand the board's motive here in keeping him.
Speaker 2: But there was one specific question from our audience which
Speaker 2: I really appreciated. Why does Elon need to be CEO?
Speaker 2: Could he not take on a more technical role?
Speaker 3: Well, that is contemplated in the package. Just like in
Speaker 3: the twenty eighteen package. We want his service at the company.
Speaker 3: He can be the CEO, but he can also be
Speaker 3: in another role, whether it's Chief product officer or that
Speaker 3: type of thing. We've contemplated that before. But to me,
Speaker 3: I think the really key thing is that shareholders get
Speaker 3: to vote on the future of the company, not just
Speaker 3: on a compensation package. The compensation package is the instantiation
Speaker 3: of the goals and ambition, the super ambitious goals that
Speaker 3: we have as a company, and so I think with
Speaker 3: this proposal, it's really up to shareholders what the future
Speaker 3: of Tesla looks like.
Speaker 2: Robin Denholm, chair of Tesla's board. There is a key
Speaker 2: shareholder vote in November on what is We've said it
Speaker 2: an unprecedented proposal on a compensation package for elam Musk,
Speaker 2: set against very high bar deliverables. But what a conversation
Speaker 2: Caroline to inform the understanding of some of those deliverables.