Tesla (NASDAQ:TSLA) is undergoing a proxy battle that could decide whether CEO Elon Musk stays onboard. Tesla stock holders have until June 13 to approve a 2018 stock payment now worth anywhere from $47-56 billion. A Delaware Chancery Court rejected the package.
But Tesla believes a second shareholder vote will override the court. That’s because the board also wants shareholders to approve the company’s formal move from Delaware to Texas.
Musk has threatened to leave if he doesn’t get the stock, which would give him a 25% stake in the company.
What happens to your Tesla stock if he leaves?
Tesla Stock Without Musk
Tesla’s first quarter report shows earnings of $1.13 billion, 34 cents per share, on revenue of $21.3 billion. All those figures are lower than a year ago.
During the quarter Tesla made over 433,000 cars, but fewer than 387,000 were delivered. The cars are piling up in parking lots. They’re not getting more valuable there.
Tesla’s four scaled plants in California, Texas, Germany, and China can churn out 2.35 million cars a year, the company says. The battery factory in Nevada delivered 4.1 GWH of power and nonautomotive profit reached $500 million.
This is a very valuable company. But is it worth $571 billion, its market cap on May 28? Would you pay 46 times earnings to own it, or 6 times last year’s $94.7 billion in sales?
Toyota Motor (NYSE:TM) is still selling at a discount to sales, and no other car company is worth even $100 billion.
Then again, without Musk, who would run Tesla? Tom Zhu has been senior vice president, automotive, for a year.
He has been with Tesla since 2014 and set up its huge plant in Shanghai. He was born Xiaotong Zhu in China but holds a degree from Duke and has a New Zealand passport.
Tesla With Musk
With Musk, new investors are buying a market cap of $620 billion once his share package clears. The “hair cut” in the share giveaway amounts to 10% of the common.
Critics insist Tesla shouldn’t be run like “a family company.” But if the pay package is approved that’s what it is.
Assuming he’s paid, of course, Musk promises to deliver full self-driving. Tesla has resumed hiring Autopilot engineers. Musk also promises big advances in AI and robotics if he’s kept.
Those promises should not be scoffed at, as short-seller Jim Chanos is doing.
No less an authority than Nvidia (NASDAQ:NVDA) CEO Jensen Huang believes Tesla is “far ahead” in self-driving. He also agrees with Musk’s decision to rely on video instead of Lidar to train his cars.
Of course, Nvidia has some big orders to defend, and it’s in the company’s self-interest to believe in its big customers.
Beyond claiming Musk’s AI vision is revolutionary, supporters of the stock payout say, “a deal is a deal.” Big investors who were in Tesla when the package was approved say they’re still for it.
The Bottom Line
Despite Musk’s focus on X formerly Twitter, which just raised $6 billion for its own AI efforts, Tesla still has a cachet. The cars are still being bought in liberal enclaves, despite some bad publicity.
Tsu can fix Tesla. But would a Tsu-led company be worth nearly twice Toyota, or six times its other rivals, including BYD (OTCMKTS:BYDYY)? Would Musk really stay, maybe folding X and his other assets into Tesla, if the pay package is approved?
If you buy Tesla today, you’re betting $47-56 billion on Elon Musk, and $570 billion on Tesla’s current business. I wouldn’t do that, but regular readers here know that and that’s not the question.
The question is, will you?
As of this writing, Dana Blankenhorn had a LONG position in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.