Tesla: Shareholder Vote Reduces Key Person Risk

Key Morningstar Metrics for Tesla

• Fair Value Estimate: $200.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Very High

Tesla TSLA reported the results of its annual shareholder meeting on June 13. Shareholders voted with the board recommendations on nearly every proposal, including approving CEO Elon Musk’s 2018 compensation package and reincorporating from Delaware to Texas. We see no reason to change our outlook for the firm after the vote. Accordingly, we maintain our fair value estimate of $200 per share and narrow moat rating.

Tesla shares rallied the day of the vote, as Musk announced on X (formerly Twitter) that his 2018 compensation package would likely pass. We think the market was responding to the reduction of key person risk, since Musk may have potentially reevaluated his role at Tesla if the compensation package did not pass. While we think Musk’s departure would initially cause its stock to fall, we don’t believe Tesla needs him as much as it once did; thanks to its deep management roster, it should continue to meet its strategic priorities. These include rolling out a new more affordable vehicle, developing full self-driving autonomous software, and implementing cost reductions to boost profit margins.

We view Tesla shares as slightly undervalued, trading a little less than 10% below our fair value estimate, but in 3-star territory. We recommend investors wait for a larger margin of safety before considering an entry point. The vote does not necessarily mean Musk’s compensation package, which a Delaware judge invalidated, will be reinstated. However, Tesla may appeal the ruling, and a higher court could consider the 2024 shareholder vote in its decision.