Tesla’s stock (TSLA) faced a sharp decline on Tuesday afternoon following a significant legal setback for CEO Elon Musk. A Delaware court once again struck down Musk’s controversial $56 billion pay package, rejecting his appeal to revise a previous ruling. The decision marks the second time the Delaware Court of Chancery has ruled against the performance-based pay package, which had been the subject of a lengthy legal battle.
In January, the court ruled that the package, primarily in the form of stock options, was excessive and lacked sufficient shareholder approval. The lawsuit, initially filed by a Tesla investor and a heavy metal drummer, argued that the deal misled shareholders into approving terms that were overly favorable to Musk, without clear justification for such a lucrative compensation plan. The case, which has drawn significant attention, questioned whether Tesla’s leadership was properly managing the interests of shareholders.
On Monday, Musk’s legal team sought to revise the original ruling, but the Delaware court denied the motion, reaffirming its stance. This decision sent shockwaves through Tesla’s stock, contributing to a significant dip in its share price. Tesla investors, already grappling with concerns over Musk’s other ventures and his reduced stake in the company, reacted negatively to the ongoing legal drama surrounding the CEO’s compensation.
Earlier this year, Musk had made a public statement on X (formerly Twitter) that if he didn’t secure 25% voting control of the company, he would prefer to focus on building products outside of Tesla. Musk, who once held a 22% stake in the electric vehicle maker, has seen that percentage drop to 13% after selling shares to fund his $44 billion acquisition of Twitter in 2022, which he later rebranded as X.
Despite Musk’s declining stake in the company, Tesla’s board has continued to back his performance-based compensation, arguing that the package is essential to retain his focus and ensure he remains committed to Tesla’s long-term success. When Tesla shareholders approved the deal for a second time in 2024, Tesla chair Robyn Denholm emphasized that the compensation plan was necessary “to retain Elon’s attention and motivate him to continue to devote his time, energy, and ambition to Tesla.”
The latest court ruling, however, has sparked renewed uncertainty about Tesla’s leadership structure and its future direction. As Musk’s attention remains divided between Tesla, Twitter (X), and other ventures like SpaceX, questions persist about whether the electric vehicle maker can continue to thrive under his leadership. Investors are clearly uneasy about the potential impact of the legal challenges and Musk’s shifting priorities, as reflected in the drop in Tesla’s stock price.
