Elon Musk has gone where no CEO has gone before, appearing on the campaign trail with Donald Trump, jumping for joy on stage with the presidential candidate, echoing inflammatory political rhetoric on social media, and more. He also handed out $1 million in cash prizes to registered voters every day they campaigned. state.
Given Trump's polarizing persona, you might wonder whether the Tesla CEO's high-profile political partisanship risks turning off some potential car buyers. According to Tesla's lawyers, the answer is not at all.
Tesla makes no mention of President Trump or Musk's political activities in the “Risk Factors” section of its latest 10th quarter filing with the SEC, but this section was included in Tesla's January annual report. It has not been updated since the book was written. A long list of potential risks in the annual report notes that the company relies heavily on Mr. Musk's services (“TechnoKing”) and that his employees are exposed to “any negative publicity associated with our company.” It has been pointed out that there is a possibility that the employee may resign or move to another location due to a variety of factors. ”
But the movement has increased dramatically since July, when Mr. Musk publicly endorsed Mr. Trump and unveiled a super pack, increasing the Tesla techno king's profile by tying his personal brand to MAGA politics. When it comes to high moves, the company clearly doesn't particularly consider business risks.
Some Tesla investors are not so calm. Dozens of shareholders recently asked Tesla to release data on how much Mr. Musk's politics are affecting employment and sales. Some suggested that Musk should cancel his campaign or resign as CEO.
Like many of Mr. Musk's actions, his headlong plunge into politics challenges established norms, including the meticulous wording of his regulatory filings. Corporate leadership and securities experts say political activity typically doesn't show up in Securities and Exchange Commission filings. But there is no example of how Musk, the face and head of a publicly traded company and one of the world's richest people, has shown such deep and committed devotion to one of the world's most controversial politicians. There are almost no
“It's strange at best to single out individual CEOs as a risk factor,” said Hilary Sale, a Georgetown University professor and director of the Cboe American Stock Exchange, Cboe Futures Exchange and Cboe SEF. “If directors feel that way about the CEO, they have a fiduciary responsibility to reconsider the CEO.”
The SEC requires companies to disclose all types of information, and companies are willing to take on additional risks as long as the risks are material, meaning they have the potential to materially change business operations or regulation. You can. Companies often talk candidly about their executives' extracurriculars (see this meta article about Mark Zuckerberg's affinity for extreme sports, or Tesla's own comments about Musk's other business interests). However, there are some issues that do not come up. In 2008, Apple faced questions about whether it was obligated to disclose Steve Jobs' declining health.
The U.S. Supreme Court ruled earlier this year that investors can't sue over SEC filing failures. In theory, the SEC itself could sue, but the agency does not require disclosures about political activity, and doing so would likely be criticized as an affront to free speech. (In Apple's case, it's an invasion of privacy).
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Alan Horwich, a former securities lawyer and professor emeritus at Northwestern University, points out that Musk's political activities are far from secret, so investors aren't completely unaware. The question is whether Tesla knows anything about how Mr. Musk's political sideshow is affecting its stock price, and has failed to disclose it in response to persistent shareholder questions. .
“We know what he's trying to do, but do we know what the risks are if we do this to the company?” Horwich said. His advice to former clients when questions about disclosure arise: If there's an internal debate about whether a risk is material, “why not disclose it?”
At a special forum for Tesla shareholders held by the company ahead of its quarterly results earlier this week, one investor said the board wanted to ensure that Musk's “political involvement does not undermine Tesla's core mission and maintain shareholder value and the brand.” “Have you made any efforts to protect its integrity?” '' According to the company's tally, the post received 533 upvotes from investors who collectively own more than 397,000 Tesla shares.
Tesla did not respond to Fortune's request for comment.
Investors are used to Musk's antics
Adam Wowak, a business professor at the University of Notre Dame, said Musk has a higher stake in the company than most other CEOs of other publicly traded companies, thanks to investors voting for a pay package that gives Musk about 20% control over Tesla. He added that he has the freedom to run the business as he sees fit. . His vote share and deep ties to the brand give him more power over the board than he does, who may have to manage huge political contributions and board member endorsements.
It's not uncommon for Musk to get involved in incidents that could cause problems for CEOs of other public companies, and some might argue that's part of his brand. He famously smoked a joint on Joe Rogan's podcast in 2018. And he has a history of conflict with the government agencies that oversee his various businesses, including space exploration company SpaceX, tunneling company Boring Corp., human implant company Neuralink and AI developers. X.AI to name a few.
When the Federal Aviation Administration went after SpaceX over its rocket launches, Mr. Musk threatened to sue for regulatory overreach. He said Democrats feel Musk's social network X is such a threat that the Harris administration will personally jail and prosecute Musk and “use every means necessary to shut it down.” Ta. He accused the Federal Trade Commission of “weaponizing” government agencies in response to privacy investigations.
The Musk-Trump alliance raises the stakes. Trump's victory could be a boon for Tesla, given that President Trump has talked about appointing Musk as “secretary of cost reduction.”
But no matter which way the election goes, Musk's full-throated support for Trump is far more positive for Tesla than anything facing a CEO who donates to or supports a political candidate or cause. It's clear that it's getting a lot of attention.
“Generally speaking, CEOs tend to be somewhat cautious about getting too involved in politics, because not all shareholders are on board with it,” said Georgetown's Sales professor.
While we won't speculate on whether such strong political ties should be reported to the SEC, we do see reason to believe that “this type of repeated behavior by the CEO of a publicly traded company could pose a significant risk to the company's value.” Yes,” Chris Poliquin said. Professor of Business Administration at UCLA Anderson School of Management.
As investors await Tesla's quarterly results this week, the company's stock has fallen 14% since mid-July, when Mr. Musk endorsed President Trump. In contrast, the S&P 500 rose 3% over the same period.
Tesla continued to see modest 2% auto sales growth, but it beat Wall Street's profit targets thanks to sales of regulatory credits to other automakers and a strong energy business. Musk said his “best guess” is that “automotive growth” will increase by 20% to 30% next year.
Tesla stock is currently up 7% since Musk's endorsement of Trump.
