UPDATE: How TSLA Pumped the Vote

A few weeks ago (below), our voting math showed the difficulty of winning support for the two controversial proposals at the 2024 TSLA AGM: to ratify CEO Elon Musk's 2018 pay plan and to redomicile from Delaware to Texas. We thought it would take an historic effort to solicit the needed retail votes.

TSLA was up to it, actually made it look easier than it probably was. In an historic effort, it indeed solicited an unbelievable number of retail votes. It also won the support of both Vanguard and BlackRock, its two largest institutional investors, even though a substantial share of other institutional investors shifted against at least the pay plan. The unprecedented retail turnout meant it actually didn't need both Vanguard or BlackRock for either proposal, although the vote would have become uncomfortably close without them. Without those two, more institutional investors voted against the pay plan than voted for it.

More shares and votes

TSLA solicited 2.65 billion shares to attend the 2024 AGM, out of 3.19 billion shares outstanding (83% of outstanding shares). At the 2023 AGM, 2.42 billion shares attended (76% of outstanding shares). The 227 million share increase in 2024 undoubtedly came from retail shareholders.

TSLA also persuaded more shareholders to vote. At the 2024 AGM, 2.31 billion shares voted, with 335 million broker non-votes. At the 2023 AGM, 1.89 billion shares voted, with 527 million broker non-votes. Thus, TSLA solicited 419 million more shares to vote in 2024, again basically from retail shareholders.

Institutional investors own 45% of the outstanding shares, or 1.43 billion shares. We assume all of these shares attended and voted at the 2024 AGM. The rest, 1.21 billion shares (2.65 billion - 1.43 billion), belong to retail shareholders. Removing the 335 million broker non-votes and 413 million Musk (Elon and Kimbal) shares, we have 463 million retail shares voting at the 2024 AGM.

Earlier (below) we estimated at the 2023 AGM, 53 million retail shares voted. TSLA solicited almost ten times the number of shares to attend and vote at the 2024 AGM.

More voting math, then

These additional retail shares supported both TSLA proposals overwhelmingly. Good for TSLA, since institutional investors not named Vanguard or BlackRock decreased their support for the exec comp plan.

Let's start with that exec comp plan ratification. TSLA reported 1.35 billion independent shares (not including Elon and Kimbal Musk) voted in favor and and 529 million shares against. So, 72% of the voting shares supported it. Approval required only a majority of independent shares voting.

We assume all of the retail shareholders voted to ratify, or those 463 million shares. Sure, some retail shareholders probably think the billions of dollars in shares going to Elon is too much, and a few stated publicly they would oppose the proposal. Still, most retail shareholders own TSLA because of Elon, and they respond well to his pleas.

This leaves 885 million institutional shares (1.35 billion - 463 million) voting in favor. That's 62% of the 1.43 billion institutional shares that attended and voted. By comparison, we estimate 73% of institutional investors voted in favor of the pay plan in 2018, when TSLA submitted it for the original shareholder vote. At the time TSLA disclosed 73% of all shareholders voted in favor. Things were different in 2018 - TSLA had not become a meme stock, and shareholders voted at a special meeting that TSLA only routinely publicized. It stands to reason that the 73% of all shareholders was essentially 73% of institutional investors. Thus, the pay plan won less institutional support this time, compared to the original vote.

Vanguard (230 million shares) and BlackRock (189 million shares), the two largest institutional investors in TSLA, helped but in the end didn't make the difference. Had one of them opposed ratification, the proposal would have still gained the requisite majority of shares voting. Had both opposed, it would have been close. A switch of their combined 419 million shares would have reduced the 1.35 billion shares in favor to 929 million, and increased the shares opposed from 529 million to 948 million. Sure, 929 million is less than 948 million, but not by very much. We expect TSLA would have found the 20 million or so shares it needed to support ratification.

Among institutional investors, Vanguard and BlackRock dominate in their support. Their 419 million shares represent close to half of the 885 million shares that voted to ratify. Or, 466 million shares not belonging to Vanguard and BlackRock voted to ratify (885 million - 419 million), less than the 529 million shares that votes against, which presumably are almost all institutional investors.

Texas is easier

Retail shareholders and Vanguard and BlackRock also led the success of the proposal to redomicile from Delaware to Texas.

TSLA reported 2.0 billion shares voted in favor of the proposal, and 293 million shares voted against. It needed a majority of shares outstanding, or 1.6 billion shares (half of 3.19 billion shares). The 2.0 billion shares in favor include shares of Elon and Kimbal Musk.

Among institutional investors, 1.12 billion voted for the proposal (2.0 billion - 413 million Musk shares - 463 million retail shares, both of which we assume voted in support), or 78% of the 1.43 billion institutional shares. So, somewhat more institutional investors supported the redomicile proposal than the exec comp proposal.

And, among institutional investors, Vanguard and BlackRock dominated this vote, too. If both opposed the redomicile vote, then the proposal would have only 1.58 billion shares (2.0 billion - 419 million) in favor, just short of the 1.6 billion needed. As with the exec comp proposal, we expect TSLA would have figured out where to find the 20 million or so shares it needed.

Surprisingly, other institutional investors significantly supported the redomicile proposal. Institutions not named Vanguard and BlackRock voted 706 million shares in favor of the proposal (1.12 billion - 419 million), with only 293 million voting against. We expected institutions to care more about the relative shareholder protection environments in Delaware and Texas. Evidently they care more about what Elon thinks of them.

Not over yet

The reincorporation vote concludes that part of the story. TSLA changed its domicile to Texas the next day. Now, shareholders will file lawsuits in Austin instead of Wilmington.

The pay plan vote is more complicated. We've seen many arguments that the vote means Tornetta is moot and Musk can now receive his 303 million shares, or means nothing - Chancellor McCormick will ignore it in finishing her work on the case, and it won't matter to the Delaware Supreme Court in the inevitable appeal. In any event, it will take many more months or even years to sort out.

The vote did make Elon feel great, so maybe he'll spend a little more time at the Gigafactory.

Why TSLA Pumps the Vote

TSLA has taken proxy solicitation to a new level, at least new for a company without a proxy contest or other serious challenge:

• It stood up a voting website for the 2023 AGM with a video of BoD Chair Robyn Denholm pleading for shareholders to attend the AGM
• Elon Musk tweeted several times urging shareholders to vote, including linking to a TSLA "fangirl" with voting advice
• TSLA filed numerous additional proxy solicitation documents
• Denholm started a media tour.

A company does this only when they really, really want and need a lot of shareholders to show up and vote at an AGM. TSLA and Elon Musk really, really want and need shareholders to show up and vote for two items: to ratify the 2018 exec comp plan and to approve moving the TSLA corporate domicile to Texas.

A look at the makeup of the TSLA shareholder base and past votes reveals why Elon, Denholm, and the company need this effort. It will take significant, unprecedented support from retail shareholders for TSLA to win the votes.

Even more interesting, the structure of the two proposals creates an possible dilemma, in which support for one proposal might mean defeat of the other. Finally, we wonder how much this whole thing is worth to Musk - would he spend $130 million himself to prevail?

How the vote works

The two proposals have different voting standards. The 2024 proxy statement indicates the domicile proposal requires approval from a majority of the common shares outstanding. The exec comp ratification proposal requires approval from a majority of the common shares represented at the 2024 AGM.

Also, Elon and Kimbal Musk cannot vote on either proposal. The proxy statement shows they own 413 million common shares. Elon also owns options on another 303 million shares, the very ones that the exec comp ratification proposal seeks to affirm.

Let's do some voting math

As of March 31, TSLA has 3.19 billion common shares outstanding. This should approximate the outstanding shares for the AGM, with a record date of April 15 and an AGM on June 13.

Various sources indicate institutional investors own 45% of the shares (we use Yahoo! Finance), or 1.44 billion shares. Thus, retail investors own a whopping 55%, or 1.75 billion shares. Accounting for the Musk family holdings of 413 million shares (13%), there are 1.34 billion retail shares available to vote.

What Elon needs

For the redomicile proposal, a majority of outstanding shares is 1.60 billion shares (half of 3.19 billion). We guess at most half of institutional investors will support the proposal. It represents a serious hit to their rights, and we expect both ISS and Glass Lewis will oppose it. Half of the institutional holding of 1.44 billion shares translates to 718 million shares. To get the remaining shares, Musk needs affirmative votes of 877 million shares from retail accounts (1.44 billion - 718 million).

For the exec comp proposal, a majority of voting shares depends on how many shareholders and shares actually show up to the 2024 AGM. At the 2023 AGM, 76% of outstanding shares attended (more below). At least that proportion should attend the 2024 AGM, so let's say 2.42 billion shares attend (76% of 3.19 billion). Also, at the 2023 AGM, about 78% of the shares in attendance in fact voted (more below), so 1.90 billion shares cast a vote (78% of 2.42 billion). Musk needs a majority of those 1.90 billion shares, or 948 million. If the same 718 million institutional shares support the exec comp proposal as the redomicile proposal, he'll need affirmative votes from 230 million shares from retail accounts (948 million - 718 million).

What Elon has

We can look at how retail shareholders voted at the 2023 AGM, on May 16, 2023.

In 2023, 2.42 billion shares were present at the AGM, or 76% of the outstanding shares of 3.17 billion shares. Let's assume the same 45% institutional shareholding voted in 2023, or 1.43 billion shares (45% of 2.42 billion). That seems reasonable, as funds mostly need to attend and vote, and that 45% probably didn't change materially in one year.

Thus, 993 million retail shares attended the 2023 AGM (2.42 billion - 1.43 billion). Of those, the Musk family surely voted their 413 million shares, leaving 580 million retail shares not named Musk in attendance (993 million - 413 million).

How many of the 580 million retail shares actually voted, and didn't merely attend the AGM? We see from the 2023 voting results 527 million broker non-votes. Surely almost all of these came from retail accounts, where custodians could vote uninstructed retail shares on non-controversial matters, such as appointing the external auditor. If so, then that means 53 million retail shares actually voted at the 2023 AGM (580 million - 527 million).

We see why TSLA pumps the vote

The 53 million retail shares voting in 2023 becomes critical to understanding what's going on.

We expect most retail shares voted in favor of TSLA in 2023, but not all. At the 2023 AGM, 95% of the shares voted to elect Elon Musk to the BoD, but only 74% voted to elect Denholm. The annual executive say-on-pay vote received 91% support. Of course, these percentages don't distinguish institutional and retail votes. Still, Musk can expect to receive substantial but not complete support from retail shareholders.

Look again at the 877 million retail shares needed to approve the redomicile proposal. It's probably a little more than that in light of the possibility that not every last share will unhesitatingly support Musk. So, that's a kind of lower bound on what he needs.

Well, it's 65% of outstanding shares held by retail accounts as of March 31, a significant goal. It's also about seventeen times the affirmative votes received from retail investors at the 2023 AGM. That seems like a near-impossible vote to achieve.

These aren't long-time, loyal shareholders of a company like GM or PG, ones who always vote at the AGM. Most of TSLA individual investors are younger, relatively recent owners, many of whom don't understand proxies or AGMs. Sure, a huge number of TSLA retail shareholders adore Elon, which is why they own the stock. Translating that adoration into an affirmative vote at an AGM at the magnitude needed takes a heroic effort, and would represent an historic outcome.

We don't envy Innisfree, the proxy solicitor for TSLA. It will earn every cent of their $500,000 base fee, and has a questionable chance to earn all or even part of the $500,000 incentive fee. On the other hand, as much as a million dollars for proxy solicitation for a routine AGM doesn't come every day.

The exec comp proposal seems relatively (relatively!) less of a heavy lift. First, Musk needs only(!) 230 million retail votes in favor, four or so times(!) what retail investors voted in 2023. Second, it seems more likely that institutions will support the exec comp proposal than support the redomicile proposal.

In 2018, 73% of shares voted in favor of the original exec comp proposal, more than the 50% support we assume in our voting math. Perhaps most of those institutions would support it again. The more institutions support the proposal, the less Musk needs to rely on retail shareholders. For example, if 73% of institutions support the exec comp proposal, instead of the 50% we assume above, he will receive 1.05 billion votes in favor of the exec comp proposal (73% of 1.44 billion). This exceeds the 948 million votes needed to ratify the exec comp plan. If he can replicate the 2018 vote outcome, he won't need a single retail vote.

A voting dilemma

Ideally (for Musk), thousands of individual and institutional shareholders representing millions of shares flock to the AGM and overwhelmingly support both proposals. Realistically, the voting math suggests a bit of a dilemma, where a likely outcome for one means failure for the other.

Clearly, the exec comp plan proposal can win approval with votes largely or even only from institutions. Persuade them to attend and vote for the proposal, and don't worry about retail shareholders.

Yet, the domicile proposal needs significant retail votes, as the voting math reveals. Win the hearts and minds of Elon fanboys, and worry only a little about filling in what they need from institutions, who might not like the domicile proposal anyway.

The more TSLA succeeds with institutions, the less likely it is to win the domicile vote. Or, the more retail shareholders attend the AGM, winning a majority of all shareholders attending and thus the exec comp vote becomes incrementally more difficult.

Pay for votes!

We wonder how much this is worth to Musk. Would he personally spend $130 million to win the domicile vote?

Elsewhere we mused about the value of votes. We guess a vote here should cost 5-10 basis points on the TSLA share price. It trades at about $175 per share lately, so a vote might cost $0.10-0.20 per share.

Musk (but not TSLA) could offer shareholders $0.15/share for an affirmative vote. For 877 million shares, he would spend about $130 million. Now, he could personally offer that deal, although TSLA absolutely cannot buy votes in this way. We expect with 877 million retail shares voting in favor of the domicile proposal, the exec comp proposal would also easily win approval.