Investor's Corner
Tesla shareholder’s legal team adjusts demand to $1.44 billion in fees for Musk pay case
The legal team of Tesla shareholder Richard Tornetta, who filed a legal complaint against Elon Musk’s 2018 CEO Performance Award, has adjusted their plaintiff fee request to the Delaware Court. Tornetta’s legal team noted that they could adjust their proposed fee to just $73,948 per hour, which would amount to a cash award of roughly $1.44 billion.
The Tornetta vs. Musk case became a notable issue for the electric vehicle maker back in January when Judge Kathaleen McCormick of the Delaware Court of Chancery rescinded Musk’s 2018 CEO Performance Award. For their work in the case, Tornetta’s legal team argued that they should be granted 29.4 million TSLA shares. Such an amount would be worth over $5 billion, or more than $200,000 per hour.
Tesla has argued against Tornetta’s legal team’s arguments. As noted in a Reuters report, the electric vehicle maker argued that the legal team of the Tesla shareholder — who held nine shares when he filed his complaint against Musk’s 2018 pay package — should be paid just about $13.6 million for their work. Longtime Tesla retail shareholder Amy Steffens has also secured legal counsel to challenge the $200,000 per hour fee request of Tornetta’s attorneys.
In their recent filing, Tornetta’s legal team proposed an alternative way of looking at the fees for their work in the case. While the legal team rejected Tesla’s $13.6 million legal fee argument, and while the attorneys still argued that the court should strongly consider granting them over 29 million TSLA shares as payment, they noted that the Court could go for a cash-based alternative structure instead. Such a system would lower their hourly rate to $73,948, and would result in a payment of around $1.44 billion.
$73,948 per hour is unacceptable and highly inappropriate to request.
The ABA Rules for Professional Conduct, specifically Rule 1.5(a) states: “A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses…”
In short,… https://t.co/kItq68oBAK— Jade (@ImUsuallyRighTT) June 22, 2024
Following are sections of the filing from Tornetta’s lawyers.
“While Plaintiff’s Counsel sincerely believe the award sought is appropriate, earned, and indeed conservative under Delaware law—the Action did, after all, rescind an ‘unfathomable’ $55B compensation package, the largest in history by multiples—Plaintiff’s Counsel acknowledge the requested award, if granted, would be record-setting and the subject of significant commentary. Were the Court concerned by the requested award’s size and desirous of a different approach, there are other alternatives available that address the expressed concerns about “windfalls.”
“Specifically, $35,000/hour cannot be a ‘windfall’ because that hourly rate was awarded by this Court and affirmed by the Supreme Court over a decade ago in Southern Peru. Adjusted to today’s dollars, a $35,000 hourly rate would be over $55,600/hour. It follows, a fortiori, that for a substantial verdict on the order of Southern Peru, an award of at least $55,600/hour is not a ‘windfall.’
“Indeed, even Tesla argues that this Action created compensable value equal to its calculation of the Grant’s $2.3B GDFV. But even using this low-end value estimate, the benefit Plaintiff achieved here was significantly higher than the $1.347B (pre-interest) Southern Peru benefit. Thus, a low-end cash award of roughly $1.0842B could be fashioned based solely on the affirmed, inflation-adjusted Southern Peru numbers.
“But any such award would be unfairly low for two reasons. First, as noted in Plaintiff’s Opening Brief, this Court in Southern Peru—after admonishing plaintiff’s counsel to seek a conservative fee given ‘the reality [that] their own delays affected the remedy awarded’—further reduced that request by one-third as a penalty for counsel taking so long to prosecute the case that rescission was impossible. Second, the ~$51B benefit achieved here is approximately 38x higher than the benefit achieved in Southern Peru.
“Adjusting for the one-third penalty assessed in Southern Peru—which was applied to an already conservative 22.5% request by that plaintiff—brings the inflation-adjusted lodestar to $73,948/hour, which yields a fee of approximately $1.44B. Adjusting further to reflect the much higher result here is a matter of the Court’s discretion Plaintiff’s Counsel would submit that exercising the Court’s discretion to award a cash fee of roughly twice the inflation-adjusted Southern Peru hourly rate after reversing for the discount appropriately reflects the substantially greater benefit achieved here,” Tornetta’s lawyers wrote.
The fling from Tornetta’s lawyers can be viewed below (via Plainsite).
gov.uscourts.delch.2018-0408-KSJM.387.0 by Simon Alvarez on Scribd
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Elon Musk
Tesla locks in Elon Musk’s top problem solver as it enters its most ambitious era
The generous equity award was disclosed by the electric vehicle maker in a recent regulatory filing.
Tesla has granted Senior Vice President of Automotive Tom Zhu more than 520,000 stock options, tying a significant portion of his compensation to the company’s long-term performance.
The generous equity award was disclosed by the electric vehicle maker in a recent regulatory filing.
Tesla secures top talent
According to a Form 4 filing with the U.S. Securities and Exchange Commission, Tom Zhu received 520,021 stock options with an exercise price of $435.80 per share. Since the award will not fully vest until March 5, 2031, Zhu must remain at Tesla for more than five years to realize the award’s full benefit.
Considering that Tesla shares are currently trading at around the $445 to $450 per share level, Zhu will really only see gains in his equity award if Tesla’s stock price sees a notable rise over the years, as noted in a Sina Finance report.
Still, even at today’s prices, Zhu’s stock award is already worth over $230 million. If Tesla reaches the market cap targets set forth in Elon Musk’s 2025 CEO Performance Award, Zhu would become a billionaire from this equity award alone.
Tesla’s problem solver
Zhu joined Tesla in April 2014 and initially led the company’s Supercharger rollout in China. Later that year, he assumed the leadership of Tesla’s China business, where he played a central role in Tesla’s localization efforts, including expanding retail and service networks, and later, overseeing the development of Gigafactory Shanghai.
Zhu’s efforts helped transform China into one of Tesla’s most important markets and production hubs. In 2023, Tesla promoted Zhu to Senior Vice President of Automotive, placing him among the company’s core global executives and expanding his influence beyond China. He has since garnered a reputation as the company’s problem solver, being tapped by Elon Musk to help ramp Giga Texas’s vehicle production.
With this in mind, Tesla’s recent filing seems to suggest that the company is locking in its top talent as it enters its newest, most ambitious era to date. As could be seen in the targets of Elon Musk’s 2025 pay package, Tesla is now aiming to be the world’s largest company by market cap, and it is aiming to achieve production levels that are unheard of. Zhu’s talents would definitely be of use in this stage of the company’s growth.
Tesla analyst Andrew Percoco of Morgan Stanley teased the company’s dominance in its self-driving initiative, stating that its lead over competitors is “not even close.”
Percoco recently overtook coverage of Tesla stock from Adam Jonas, who had covered the company at Morgan Stanley for years. Percoco is handling Tesla now that Jonas is covering embodied AI stocks and no longer automotive.
His first move after grabbing coverage was to adjust the price target from $410 to $425, as well as the rating from ‘Overweight’ to ‘Equal Weight.’
Percoco’s new note regarding Tesla highlights the company’s extensive lead in self-driving and autonomy projects, something that it has plenty of competition in, but has established its prowess over the past few years.
He writes:
“It’s not even close. Tesla continues to lead in autonomous driving, even as Nvidia rolls out new technology aimed at helping other automakers build driverless systems.”
Percoco’s main point regarding Tesla’s advantage is the company’s ability to collect large amounts of training data through its massive fleet, as millions of cars are driving throughout the world and gathering millions of miles of vehicle behavior on the road.
This is the main point that Percoco makes regarding Tesla’s lead in the entire autonomy sector: data is King, and Tesla has the most of it.
One big story that has hit the news over the past week is that of NVIDIA and its own self-driving suite, called Alpamayo. NVIDIA launched this open-source AI program last week, but it differs from Tesla’s in a significant fashion, especially from a hardware perspective, as it plans to use a combination of LiDAR, Radar, and Vision (Cameras) to operate.
Percoco said that NVIDIA’s announcement does not impact Morgan Stanley’s long-term opinions on Tesla and its strength or prowess in self-driving.
NVIDIA CEO Jensen Huang commends Tesla’s Elon Musk for early belief
And, for what it’s worth, NVIDIA CEO Jensen Huang even said some remarkable things about Tesla following the launch of Alpamayo:
“I think the Tesla stack is the most advanced autonomous vehicle stack in the world. I’m fairly certain they were already using end-to-end AI. Whether their AI did reasoning or not is somewhat secondary to that first part.”
Percoco reiterated both the $425 price target and the ‘Equal Weight’ rating on Tesla shares.
Tesla stock (NASDAQ: TSLA) just got a price target boost from its biggest bear, Gordon Johnson of GLJ Research, who raised his expected trading level to one that is 95 percent lower than its current trading level.
Johnson pushed his Tesla price target from $19.05 to $25.28 on Wednesday, while maintaining the ‘Sell’ rating that has been present on the stock for a long time. GLJ has largely been recognized as the biggest skeptic of Elon Musk’s company, being particularly critical of the automotive side of things.
Tesla has routinely been called out by Johnson for negative delivery growth, what he calls “weakening demand,” and price cuts that have occurred in past years, all pointing to them as desperate measures to sell its cars.
Johnson has also said that Tesla is extremely overvalued and is too reliant on regulatory credits for profitability. Other analysts on the bullish side recognize Tesla as a company that is bigger than just its automotive side.
Many believe it is a leader in autonomous driving, like Dan Ives of Wedbush, who believes Tesla will have a widely successful 2026, especially if it can come through on its targets and schedules for Robotaxi and Cybercab.
Justifying the price target this week, Johnson said that the revised valuation is based on “reality rather than narrative.” Tesla has been noted by other analysts and financial experts as a stock that trades on narrative, something Johnson obviously disagrees with.
Dan Nathan, a notorious skeptic of the stock, turned bullish late last year, recognizing the company’s shares trade on “technicals and sentiment.” He said, “From a trading perspective, it looks very interesting.”
Tesla bear turns bullish for two reasons as stock continues boost
Johnson has remained very consistent with this sentiment regarding Tesla and his beliefs regarding its true valuation, and has never shied away from putting his true thoughts out there.
Tesla shares closed at $431.40 today, about 95 percent above where Johnson’s new price target lies.
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