Tesla Ownership
Tesla is a company built on the success of its innovative electric vehicles and visionary leadership of founder and Chief Executive Officer Elon Musk. What is of particular fascination to many Tesla watchers is the size of Elon Musk’s ownership stake in the firm. Many are keen to understand and appreciate the degree of influence that Musk has – especially from a financial perspective.
The question of how many shares of Tesla does Elon Musk own has become a topic of intense public interest. Musk has previously expressed his belief that the company is severely undervalued, and his ownership position in the company is a barometer of just how much he believes in Tesla’s transformative potential.
The answer to this question is one of ownership percentages as opposed to actual share count. According to the Tesla filings with the Securities and Exchange Commission (SEC), excerpts of the most recent Tesla 10k (SEC form) outline the ownership of the company:
As of December 31 st, 2019, Elon Musk directly and indirectly beneficially owned approximately 34.8 million shares of common Tesla stock, representing approximately 20.8% of the total outstanding shares. Musk also holds stock options that, if fully exercised, would bring his stake in the company to approximately 22%.
For context, this makes Elon Musk the largest individual shareholder in the company.
To put Musk’s ownership stake in perspective, in comparison to other public companies with two major shareholders, the median “control premium” is 11%. This measures the differential between the ownership stake of the largest shareholder and the second largest, and can indicate how much influence the largest shareholder has over the company’s strategy and operations.
In comparison, Elon Musk’s ownership stake in Tesla is approximately 12% higher than the median control premium, a clear indication of Musk’s control. So what does this mean in terms of the company’s future direction and its ability to compete?
In practical terms, the high control premium effectively serves as insurance against any unwarranted interference by minority shareholders, while also incentivizing the largest shareholder to continue to invest time, energy and funds into the company’s success.
Furthermore, it means that the company has a clear sense of direction, and heightened control over strategic decision making. This should theoretically bode well for the health of the company and its shareholders.
Elon Musk’s Investment in Tesla
Although it is difficult to quantify the actual financial costs to Elon Musk of his investment in Tesla, the amount of stock held by Tesla’s founder and CEO has been steadily increasing in recent years.
Musk’s Tesla stock holdings now make up the bulk of his investments. In fact, the billionaire has so much invested in the electric carmaker, that he holds an estimated $10 billion stake in the company.
Musk’s holdings in Tesla now exceed those of any single investor. Despite being purchased and sometimes sold off as part of more general asset diversification strategies and periodically transferred to trusts and various entities, the majority of the Tesla shares held by Musk still remain in his personal portfolio.
Musk’s decision to invest such large amounts into Tesla demonstrates his continued commitment to the company and its long-term success. The move proves that Elon is prepared to gamble on Tesla, and that he has faith in the firm’s potential to revolutionize the auto industry.
The size of his stake also serves as a motivational tool for Musk, providing him with additional incentive to exceed targets and exceed expectations. With such a sizable part of his wealth tied up in Tesla stock, the success of the auto firm is of paramount importance to Musk.
Musk’s control of the company is further increased by his familial connections to Tesla’s executive leadership. Following the death of his father, Musk’s brother Kimbal Musk took over a role as a board member and shareholder in the company, increasing the family’s presence in Tesla’s upper echelons. Kimbal holds a seat in the company’s board of director’s and is one of the largest individual shareholders in Tesla.
Potential Limitations of Tesla Ownership
Steep concentration of ownership can create the potential for inefficiencies and risk within Tesla, as it currently amasses a disproportionate level of influence within the firm – with Elon Musk’s ownership making up close to 20% of all shares.
The high degree of influence of Musk over the firm has led to risks associated with potential managerial misalignment of interests, where conflicts of interest between the desires of shareholders and the interests of management may arise. In these situations, shareholders may be disadvantaged, as management may be more likely to pursue interests which do not always maximize investor returns.
Additionally, the firm faces the risk of financial distress arising from debt default or bankruptcy. If this were to occur, shareholders may suffer significant losses as securities are re-valued or as a result of claims by creditors. As Elon Musk is by far the largest individual investor in Tesla, the level of financial distress he would experience would be disproportionately high.
The high concentration of ownership of Tesla stock can create the potential for rent extraction, whereby shareholders are able to capture returns from the firm beyond their due returns for having invested capital in the firm. This can be achieved through the extraction of dividends, executive compensation or other operating expenses or schemes. In the case of Tesla this is a particular concern, given the preferential treatment already extended towards Musk and other Tesla executives in terms of share options.
Future of Tesla Ownership
As Tesla’s future prospects remain largely driven by the innovative sense of direction of its CEO, the continuation of its high level of ownership by Musk appears likely. With his sizable stake in the auto firm, he will be looking to maintain his influence over the firm, and drive its direction. However, given the continued interests of its shareholders and the competitive landscape in which Tesla operates, it is likely that Musk’s sway over the firm may be gradually diminished.
The latest innovation in Tesla’s operations will be the move by the company to go public. This move would likely serve to lessen Musk’s stake in the firm, while broadening the investor base and further decentralizing the concentration of ownership. According to the SEC, the possibility of going public is dependent upon a number of factors, including approval from current investors, the maintenance of required financial controls and the satisfaction of securities laws.
The move to public trading would also make Tesla more transparent. Other investors would be able to assess the stock’s true value, and exactly how much influence Musk has on the company and the returns made by its shareholders. In effect, this would reduce the control premium – which currently stands at 12% – and potentially reduce the influence and risk associated with Musk’s ownership.
Assessment of Tesla Ownership
It is difficult to predict precisely the magnitude of Elon Musk’s ownership of Tesla stock in the future. While his stake and influence are likely to diminish slightly over the long term, it is safe to assume that his sizable holdings in Tesla will remain an integral part of the firm’s direction and success. His holdings represent a tremendous source of motivation and commitment, while also providing him with an important level of control.
Ultimately, however, the success of Tesla’s operations will depend on the company’s ability to innovate, meet customer demands and optimize their production. The company faces stiff competition in the auto industry, and their ability to succeed in the years to come may depend heavily on the effectiveness of their corporate strategies, production processes and customer service levels.
However, with clear sense of direction and purpose, entrepreneurial minded founder and CEO and an ever expanding customer base, technically, the future of Tesla is looking increasingly promising.
