Tesla needs 'to find ways to reward Elon Musk as tech innovator': analysts

Tesla’s board needs to “find ways to reward Elon Musk as a tech innovator,” Jefferies analysts said in a note Thursday.

"The challenge for the Board will be to devise compensation schemes that reward achieving milestones in technology innovation, including separation or spin-off of activities when needed, and ensuring the sustainability of operating performance,” they wrote.

Analysts highlighted the divided focus of Musk, who is involved in multiple ventures, potentially impacting his effectiveness at Tesla (NASDAQ:TSLA). While acknowledging his strengths in driving technological advancements and market dominance, Jefferies pointed out Musk’s tendency to lose interest as businesses become more competitive.

“His reluctance to delegate leadership and responsibilities undermines execution, at least at Tesla,” which continues to face increasing competition across various sectors, including charging infrastructure, stationary storage, humanoid robots, and semi-trucks.

“Unlike Tesla, businesses like SpaceX and Starlink operate in environments where competition is limited for now,” added the analysts.

The analysts also addressed the upcoming June 13 Annual General Meeting (AGM), where a vote on Musk’s past compensation is expected. They believe that denying Musk his past compensation would reflect “misplaced buyer's remorse,” given the significant approval rate of his 2018 compensation package despite existing governance concerns.

The firm also hinted that further litigation could delay settlements and complicate future compensation proposals, adding more uncertainty to Tesla’s governance landscape.

According to Jefferies, it is the responsibility of Tesla's Board to introduce metrics for sustainable performance, which could support the argument for breaking up Tesla into more focused entities.

Moreover, Jefferies noted that Tesla’s edge in vertical integration and innovation is shrinking, with advancements like the 4680 battery and mega-casting appearing less impactful than initially expected.

The firm underlined the importance of Tesla maintaining its competitive edge, especially in markets like China, where local competitors are advancing rapidly.