Musk demands larger stake in Tesla as price for AI work

Elon Musk, Tesla’s chief executive, surprised investors by demanding that the company’s board give him shares worth more than $80 billion if he wants him to continue developing products based on artificial intelligence.

In the latest demonstration of his disdain for conventional ways of communicating with investors, Musk said Monday night on X, the social media site he owns, that he needed to own 25 percent of Tesla to avoid acquisitions and have sufficient control of the company. as he develops robots and other artificial intelligence technologies.

If his demands are not met, Musk said, he would look for unspecified companies outside of Tesla. In addition to electric cars, Tesla has been developing a humanoid robot called Optimus and uses artificial intelligence to develop autonomous driving technology, a cornerstone of the company’s strategy. Those businesses belong to Tesla and Musk couldn’t just keep them.

The company’s stock valuation of nearly $700 billion (more than double that of Toyota Motor, the world’s largest automaker by annual auto sales) is based in part on investors’ belief that the company will lead to the rest of the industry in developing cars that can drive from one place to another without human intervention. Investors are also betting that advanced automation will allow Tesla to build cars much more efficiently and profitably than its rivals.

Musk owns 13 percent of Tesla after selling a substantial portion of his stake to finance his $44 billion acquisition of Twitter, which he renamed X. The social media site has struggled under his leadership and his value has plummeted. An additional 12 percent of Tesla would be worth $83 billion at the current share price, effectively recouping Musk’s investment in Twitter (which he has said he regrets) and then some.

“I feel uncomfortable making Tesla a leader in AI and robotics without having ~25% voting control,” Musk wrote on X. “Enough to be influential, but not so much that they can’t unseat me.”

He continued: “Unless that’s the case, I would prefer to build products outside of Tesla.” But he also said the board would not take any action until a Delaware judge ruled on a lawsuit filed by a Tesla shareholder challenging an earlier compensation plan that was instrumental in making Musk the world’s richest person.

Musk testified in the Delaware case in late 2022. Gregory Varallo, who represents shareholders in the lawsuit, said he did not know when he would rule. No documents have been filed in the case since July.

Tesla did not respond to a request for comment.

Musk’s lawsuit underscored the extent to which Tesla, which sold 1.8 million vehicles last year, is subject to his impulses.

“You’re never really sure what you’re going to read from Elon Musk when you get back to the office after a three-day weekend,” said Ben Rose, president of Battle Road Research, which advises institutional investors. Rose called Musk’s lawsuit “curious and ill-timed,” considering Tesla faces increasing competition and difficult economic conditions.

Tesla’s success under Musk has forced traditional automakers to begin offering electric vehicles, which are essential to reducing greenhouse gas emissions from transportation. But Musk’s behavior and statements have weighed on the stock price and gotten him into trouble with regulators.

Tesla shares fell when Musk sold part of his stake to buy Twitter. The stock also suffered after Musk said in 2018 that he had the money to take Tesla private and delist it from the stock market. Musk was unable to execute the plan. The privatization declaration led to a lawsuit by the Securities and Exchange Commission, in which Tesla settled for $40 million and agreed that lawyers would examine what Musk said on Twitter. It was unclear whether Musk’s statement Monday night had been approved by lawyers.

It would be difficult for Tesla’s board, which has been criticized for not doing enough to rein in Musk, to grant his wish immediately or unconditionally. The company would have to issue new shares, Battle Research’s Rose said. That would dilute the value of existing shares without raising additional capital for Tesla and could lead to shareholder lawsuits.

But Rose added that the board could assign Musk stock options that he would receive only if he achieves certain milestones in five years or more. That would be similar to a compensation package Musk received in 2018 that was contingent on Tesla reaching stock market valuations considered at the time unrealistically ambitious. Musk became the richest man in the world by defying expectations and achieving goals.

The company’s shares have fallen about 11 percent so far this year, but are up about 70 percent in the past 12 months.

Musk did not specify what products he might develop outside the company. He already started a separate artificial intelligence business called X.AI, which last year launched the Grok chatbot to select users, although he also highlighted the dangers of the technology in public comments.

Tesla’s main use of artificial intelligence has been in its Autopilot and Full Self Driving systems, which help drivers by taking on certain tasks in certain driving situations. Musk has said several times over the years that the company was close to perfecting technology that would allow a car to drive completely itself. But self-driving technology has taken longer to perfect than Musk’s predictions, and many experts believe it is still years away.

The automaker has also been working on a robot it calls Optimus. The device can fold a shirt, according to a video posted on X by Tesla on Monday, but it hasn’t become a major source of revenue.

At X, some of Musk’s fans applauded his demand for a 25 percent stake, saying he earned the money. But others said it was their fault that his stake in the company had fallen. “They didn’t force you to sell your shares,” one user wrote, adding, “why should the board do anything to rectify this for you?”

A stake of less than 15 percent of the company, Musk said, “makes an acquisition by dubious interests too easy.”