☀️☕️ Musk Loses $55bn. Still Rich.

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• Musk Loses $55bn. Still Rich.

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Musk Loses $55bn. Still Rich.

A Delaware judge voided Elon Musk's $55 billion Tesla pay package in a suit brought by an individual investor, ruling it was improperly approved by the board of directors🎓 and had short-changed shareholders. This decision caused Tesla shares to drop over 4% in after-market trading on Tuesday, but by the end of Wednesday, the drop from the previous close simply mirrored the day’s fall in the Nasdaq.

The judge decided that Musk had complete control of Tesla's board despite owning only 22% of the company at the time the compensation deal was struck in 2018, and his personality and undisputed role as “Superstar CEO” unduly influenced the approval process. 

Musk has recently demanded (over X) another stock grant to increase his stake to 25% from the current 23%, including his options, in order to keep his new AI projects within Tesla. He will likely appeal, but if the ruling stands, he will lose his options on over 303mn Tesla shares, or almost 10% of the company. So, at a starting point of 13%, the path to a 25% shareholding could potentially be impossible, especially after the DE ruling. And that could mean Elon Musk would pursue his new AI projects and other as yet undisclosed ideas elsewhere. (Would that short-change Tesla shareholders more?)

..... ▷ A deal’s a deal. Tesla's 2018 pay package for Musk to earn stock options worth 10% was struck to retain his attention and focus amid fears he'd focus on SpaceX. 

Tesla’s board of directors🎓 outlined 16 separate financial targets related to profits, revenues and market capitalisation, including hitting $175bn in revenues, $14bn of (adjusted) earnings and $650bn in market value (share price X number of shares in issue.) Hitting 12 of the 16 meant he would be able to vest shares worth more than $50bn, an outlandish figure then and now.

But at the time, at $12bn in sales and $400mn in profits amid multiple production challenges (remember Tesla making cars in a tent in its car park?), hitting anywhere close to that many of the targets seemed highly improbable. 

However, Tesla's output surged, sales went crazy, and market value surged past that of the world’s largest automaker, Toyota, peaking at close to $1.2tn. Though it’s since eased back from its highs, it is still by far the most valuable automaker in the world.

..... ▷ And last year, the Tesla Model Y became the world's top-selling car. Not just for an all-electric car or a hybrid vehicle – with over 1.23mn cars sold in 2023, it topped the yearly global car sales charts. 

According to preliminary data from market research firm JATO Dynamics, Model Y's 2023 sales were up 64% on 2022, putting it comfortably ahead of the Toyota RAV4 (/Wildlander) and Toyota Corolla (/Levin/Lingshang) at 1.07mn and 1.01mn respectively.

(The Toyota Corolla is still the best-selling car model of all time, with over 50mn units sold worldwide since its introduction in 1966, over multiple generations.) 

JATO also notes that Tesla’s aggressive price war, which some thought would jeopardise its pandemic-era second-hand price-rise-driven demand, did indeed help to fuel already high demand. The average retail price of a Tesla Model Y by the end of the year was about 20% lower than the average achieved for the year.

..... ▷ And for those who care about such things, Elon Musk is either the world’s richest person (Bloomberg) or its second, behind LVMH luxury kingpin Bernard Arnault & family (Forbes), but in both cases including the extra 10% in options that were just voided in Delaware. 

Both Bloomberg and Forbes agree that Tesla and SpaceX form the core of Elon Musk's wealth, with combined holdings at around $200 billion. Minor discrepancies exist in valuations and ownership percentages, particularly for SpaceX.

Bloomberg estimates Musk's Tesla holdings at $164 billion, representing around 23% of Tesla's outstanding shares. This includes both his directly owned shares and the options mentioned above. His SpaceX stake is valued at $47 billion, assuming a 44% ownership, with a 15% discount applied to reflect the private company's valuation.

Forbes places the value of Musk's Tesla holdings a bit higher at $174 billion, despite a slightly lower ownership percentage of 22.4%, but estimates his SpaceX ownership at 54%, resulting in a higher valuation of $55 billion.

Some of the other stuff in Musk’s empire:

• The Boring Company - tunnelling technologies for transportation and utilities.

• Neuralink - aiming to develop brain-computer interfaces for medical and other applications (first human trial implant just completed).

• Neuralink Corporation - focusing on Neuralink technologies for broader commercialisation.

• Starlink - the satellite internet constellation project under SpaceX.

• Tesla Energy - a division within Tesla specialising in energy storage and solar panel solutions.

• X (formerly Twitter) - social media platform currently undergoing significant changes, and the reason his shareholding was sold down to 13%.

• xAI - not X, a new artificial intelligence (AI) company announced in 2023

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📊 In the Markets

Stocks plummeted in the afternoon of the final trading day of January following the Federal Reserve's decision to keep interest rates steady, dispelling any lingering hopes for an imminent rate cut. 

But trading had already been weak, with the tech sector and mega-cap stocks suffering the most. All of the Magnificent Seven closed substantially down after Google parent Alphabet's disappointing results, with Alphabet closing 7.5% lower and Microsoft dropping 2.7%. Despite robust cloud revenue growth reported by both, increased costs dampened trader enthusiasm for AI-driven stocks, where sky-high top-line growth expectations (conveniently ignoring the costs involved until today) had fueled the recent series of record highs.

The market continued its downward trend after the Fed's announcement, leading to the S&P 500's largest daily loss since September 21, although major indexes ended the month in the black. 

Investors were less disappointed by the Fed's decision to hold rates steady than the absence of a dovish pivot (though, of course, markets had already interpreted the December meeting as a dovish pivot.) Fed Chair Jerome Powell indicated a rate cut was unlikely in March, emphasising, unsurprisingly, the need for sustained moderation in inflation to the target of 2%.

On Capitol Hill, Meta CEO Mark Zuckerberg on Wednesday stood, turned and apologised to families at the Senate hearing on the impact of social media on children. Senators said the companies had “blood on their hands” and that users “would die waiting” for Big Tech to make changes that could protect children. Yet despite years of public attacks on big social media, zero meaningful legislation has actually been signed into law. The response from Big Tech remained that they had invested billions to strengthen the safety measures on their platforms.

The Stoxx 600 closed slightly higher on Wednesday, reaching a two-year peak, though, oddly, local benchmarks for the UK, Germany and France were down. Denmark’s Novo Nordisk surged by more than 3% due to a huge forecast beat on strong demand for its blockbuster drugs Wegovy for weight loss and Ozempic for diabetes. Fast fashion house H&M tumbled by over 12% after announcing a surprise exit by its CEO and missing operating profit forecasts. UK telecom giant Vodafone fell 2.8% after rejecting a merger proposal from France’s Iliad for their Italian businesses.

Chinese stocks hit a five-year low, with the CSI 300 down 0.91% (sending HK’s HSI even lower) even as Australian stocks reached an all-time high, with the S&P/ASX 200 surging by 1.06% to top its previous record set in August 2021. Japan’s Topix rose by nearly 1% to 2,551.10, but South Korea’s Kospi dipped by 0.07%, driven by Samsung Electronics’ 2.2% drop after a disappointing 34% decline in operating profit and a 73.4% plunge in net profit.

Samsung had a rough year. Its 12-year reign as the world's #1 smartphone maker ended in 2023, with Apple reclaiming the top spot. At the high end, Apple's strategic emphasis on premium iPhones and cultivating brand loyalty continued to be successful, while in the Android space, increasingly competitive Chinese manufacturers offering comparable features (like foldable phones) at lower price points added to Samsung’s challenges from internal missteps, including delayed releases (like foldable phones.) Samsung remains hopeful for a mobile device demand resurgence in 2024, fueled by new AI-powered products. Despite losing share to Apple, Samsung still saw strong demand for high-end smartphones and a spike in tablet sales, mitigating losses incurred by its semiconductor businesses.