Elon Musk's $1T pay package is 'most absurd pay package in the history of business' investor says

Key Concepts

• Tesla EV Business Growth: Concerns about reaching peak sales potential and potential decline.
• Affordable Models: Skepticism regarding the strategy of reducing features to lower prices.
• Full Self-Driving (FSD): Doubts about the viability of vision-only systems and comparison to Waymo.
• Elon Musk's Pay Package: Opposition to the $1 trillion compensation plan due to its absurdity, arbitrary vesting, and potential illegality.
• Shareholder Governance: Criticism of Tesla's board and decision-making processes.

Tesla EV Business Growth Outlook

Ross Gerber, CEO of Gerber Kawasaki Wealth and Investment Management, expresses a pessimistic outlook for Tesla's core Electric Vehicle (EV) business. He believes that the current sales figures, around 1.9 million units annually, represent the peak potential for Tesla's EV sales. This is significantly lower than the original plan of producing over 10 million vehicles per year. Gerber estimates that next year's sales could be closer to 1.6 million units, a figure not reflected in analyst projections which often assume incremental growth regardless of business realities. He questions the source of future growth for the EV segment.

Strategy for Affordable Models

Gerber is critical of Tesla's approach to creating more affordable models. He argues that removing significant components from a vehicle and selling it at a lower price does not make it more affordable; instead, it diminishes the product's value and makes it "worse at a cheaper price." He views this as a "strategy of weakness," indicating an inability to convince consumers to buy the product, especially given Tesla's lack of advertising and the controversial public image of its CEO.

Full Self-Driving (FSD) Viability

A major concern for Gerber is the future of Tesla's Full Self-Driving (FSD) technology. He remains convinced that Tesla will not achieve functional FSD by the end of the year or anytime soon, primarily because they are relying on "vision only systems" which he deems unsafe. He contrasts this with Waymo, which he states is proving the safety and effectiveness of its autonomous driving technology daily. Gerber shares his personal experience with FSD in his own Tesla, describing it as an "experiment in disappointment" where he must constantly disengage the system and pay full attention for even short drives. He highlights the frustration of seeing Waymo vehicles navigate autonomously and safely, while his own expensive FSD investment has not delivered on its promises over the past five years. He believes Tesla needs to acknowledge the limitations of its current approach.

Elon Musk's $1 Trillion Pay Package Vote

Gerber plans to vote "no" on Elon Musk's $1 trillion pay package, which is up for a shareholder vote in November. He generally votes against most CEO pay packages, believing CEOs are overpaid. However, he describes Musk's package as "the most absurd pay package that has ever been created in the history of business," citing its arbitrary and broad vesting schedules. He also questions its legality, suggesting that the lack of genuine negotiation, similar to the reason it was ruled illegal by Delaware previously, will lead to further lawsuits. Gerber is concerned about the risk associated with Musk's stated desire to build a "robot army" and the implications for shareholder governance.

Risk of Musk Leaving Tesla

When questioned about the risk of Musk leaving if he doesn't receive the pay package, Gerber dismisses it as an "empty threat." He argues that Musk's influence and wealth are intrinsically tied to Tesla's success, and any departure would lead to a significant stock price decline, impacting Musk the most. He believes there is no one on Tesla's board willing to challenge Musk, as they are friends, relatives, or overpaid individuals who simply agree with him. Gerber views this as a failure of shareholder governance, calling it "the worst example of shareholder governance in business history." He acknowledges that investors are "on this bus whether you like it or not" and that this is a reason he has significantly reduced his stock holdings.

Conclusion

Ross Gerber's analysis of Tesla presents a critical view of its current trajectory. He foresees a plateau and potential decline in EV sales, questions the effectiveness of strategies to lower vehicle prices, and expresses deep skepticism about the realization of Full Self-Driving technology. Furthermore, he strongly opposes Elon Musk's massive pay package, citing concerns about its fairness, legality, and the broader implications for corporate governance at Tesla. His perspective highlights a significant disconnect between Tesla's stated ambitions and its current operational realities, leading him to reduce his investment in the company.