TESLA Ownership Structure

TESLA Ownership Structure

Tesla, Inc. is an automotive firm that specializes in the manufacture of electric cars. The firm also undertakes solar panel manufacturing after the acquisition of Solar City. Tesla was founded by Martin Eberhard and Marc Tarpenning in 2003 (Tesla, n.d.) and is headquartered in California. Elon Musk and Straubel, who are the current owners, joined the firm later as co-owners.

Tesla Ownership Structure

The chart below indicates that the majority of Tesla stock is owned by Institution holdings (56.7%). These holdings own a significant stake such that they can cause stock price movement in the capital market in case they decide to trade on a large scale.

Figure 1. Nasdaq (n.d.).Tesla Inc Ownership Structure. Retrieved from https://www.nasdaq.com/symbol/tsla/ownership-summary

The chart below indicates Tesla’s ownership structure of the remaining section after holding companies. The largest stakeholder is Baillie Gifford & Co., followed by Capital world investors, the Public Investment Fund comes in third. Investors owning the other stakes are Vanguard Group Inc. and Blackrock Inc. The inside ownership is composed of 23% and is owned by the CEO, Elon Musk, and Straubel. The last five Tesla shareholders are Fidelity Management and Research Company,  SSgA Funds Management Inc., T.Rowe price associates, Goldman Sachs & Co. LLC, and BAMCO Inc. who own 2.5%, 1.64%, 0.96%, 0.96%, and 0.95%, respectively (Nasdaq, n.d.).

Figure 2. Nasdaq (n.d.).Tesla Inc Ownership Structure. Retrieved from https://www.nasdaq.com/symbol/tsla/ownership-summary

Tesla’s Voting Structure

Tesla has implemented a supermajority voting structure that grants the owner exclusive voting rights. Under this structure, if the shareholder needed to successfully vote in a motion, they would require at least two-thirds of the stakeholder votes in the firm. This structure grants Elon Musk voting rights even though he only owns 23% of the stock in the firm (Duguid, 2019). As a result, Musk retains control of the business and makes decisions on how to run it without interference from the shareholders. For instance, Musk decided to acquire Solar City even without having gained the votes of the entire shareholders. This structure appears detrimental to corporate governance. However, Musk argues that it is beneficial to ensure Tesla attains its vision and long-term objectives without interference from shareholders who may seek to exploit short-term opportunities at the expense of the long term.

Tesla Board of Directors

Elon Musk and Jeffrey Straubel are the founders of Tesla. Fifteen directors head the firm: Robyn Denholm is the chairman of the board, as voted in July 2018; Elon Musk, the chief executive officer (CEO); Zachary Kirkhorn, the chief financial officer; Jeffrey Straubel, the chief technology officer; Vaibhav Taneja, the chief accounting officer; Antonio Gracias, the lead independent director; Antonio Gracias, Kimbal Musk, and Linda Rice, the directors, whereas Bradley Buss, Ira Ehrenpreis, Larry Ellison, Stephen Jurvetson, and Kathleen Wilson-Thompson are independent directors at Tesla (Reuters, n.d.). The highest-paid board member is the Chief Financing Officer, whose salary as of December 2017 was $15,498,009.

Tesla’s Issuance of Bonds and Equity

Early this month, Tesla issued a convertible bond valued at $1.35 billion. The reason for the issuance is the underperformance and undervaluation of The company’s stock. Thus, Tesla resorted to seeking bonds as an alternative source of financing. Alongside the convertible bond, Tesla also issued 650 million shares (Orol, 2019). The implication of the high-value bond is the dilution of the company’s stock, which may cause investors to lose their earnings from these shares since the firm may issue part of its stock in settling the debt. Notably, Tesla also issued another high-value bond two years ago. Overall, the firm’s shares are unattractive, given the decline in sales.

References

Duguid, K. (2019). Tesla seen finding ample appetite for its newest convertible bond. Retrieved from Tesla seen finding ample appetite for its newest convertible bond

Nasdaq. (n.d.). Tesla Inc Ownership Structure. Retrieved from https://www.nasdaq.com/symbol/tsla/ownership-summary

Orol, R. (2018). How Elon Musk Controls Tesla With Only a Minority Ownership Stake. Retrieved from https://www.thestreet.com/investing/stocks/how-elon-musk-controls-tesla-with-only-a-minority-stake-14564491

Reuters. (n.d.). Tesla Inc. Retrieved from https://www.reuters.com/finance/stocks/company-officers/TSLA.O

Tesla. (n.d.) About Tesla. Retrieved from https://www.tesla.com/about

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TESLA Ownership Structure

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TESLA

Objective: To assess the company’s corporate governance structure and examine the relationships between different stakeholders in the business (society, bondholders, and financial markets).

Key Steps

TESLA Ownership Structure

1. Examine whether there is a separation between the management of a business and its owners. If so, also assess how much power owners have in monitoring management and influencing decisions.
2. If the firm has borrowed money, either in the form banks or in the form of bonds, evaluate the potentialforconflictsofinterestbetweentheequityinvestorsandlendersandhowitismanaged.
3. If the firm is publicly traded, examine how markets get information about the firm and investor reactions and assessments of the stock.
4. Evaluatethecompany’sstandingasacorporatecitizen,bylookingatitsreputation(good or bad) in society.

Framework for Analysis
1. Corporate governance

• a. Voting structure: If it is a publicly traded firm, look at whether the firm has multiple classes ofsharesandifso,whethertheyhavedifferentvotingrights.Ifthegovernmentisaninvestor, check to see whether it has veto powers (golden shares) over key decisions.
• b. Ownership structure: Start by looking at proportions of the outstanding stock held by institutions, insiders, and individuals. These data are generally available in public sources, in most countries.
• c. Top shareholders: Look at the top ten to twenty holders of the company’s shares. In addition to checking to see how many are institutions, look for the presence of founders and activist investors on the list.(You are trying to see whether these stockholders will be willing to stand and contest management, if they feel that their value is being put at risk.)
• d. CEO and top management: Look at the background of the CEO and examine how he or she got to the position. In particular, check for tenure (how long he or she been CEO), whether the CEO came up through the ranks or from another organization, his/her age, and connections to the ownership of the company. If you can, ask the same questions about the rest of the top management team.
• e. Board of directors: Look at the composition of the board of directors and in particular at connections that the directors may have to the top management and, in particular, to the CEO.Checktoseewhetherthereareexternalassessmentsoftheboard’sindependence and quality and also check news stories to evaluate whether there is evidence that the board is willing to stand up to management. There are services that measure the quality of corporate governance, such as ISSs in the United States.
• f. Compensation structure: Find out how much the CEO/top managers were paid in recent periods and in what form (cash, restricted stock, and options) and how these payments relate to company performance over the same periods (both in terms of accounting profits and stock prices).