Musk's incentives aligned with shareholder interests: Analyst

As Tesla (TSLA) shareholders vote on CEO Elon Musk's compensation package, CFRA research analyst Garrett Nelson joins Morning Brief to lay out his bull case on the EV company.

"You look back at his 2018 compensation plan, it was entirely incentive-based. There was no salary, and he's really delivered for shareholders over the last 5 to 6 years. And so I think that's why you've seen, just this week, a number of very large investors come out in favor of this because Elon's incentives are really aligned with the interests of shareholders," Nelson states. He notes that retail investors are overwhelmingly in support of Musk, leaving him needing a fraction of support from institutional investors which Nelson says, "it appears that he has gotten."

Nelson reiterated his Buy rating on Tesla and moved its price target to $230 from $200, explaining, "I think the past five or six years have been about volume growth, and the next five or six years are really going to be more about AI and Elon delivering on this promise of fully autonomous driving. In our view, Tesla is leading the autonomous driving race and is going to get there first in terms of fully autonomous driving."

Follow along with Yahoo Finance's coverage of Musk's pay package saga:

Musk pay package: What's incentivizing shareholder votes
Elon Musk's $46B Tesla pay package: Explained
Poll: Should Tesla shareholders once again bless CEO Elon Musk's pay package proposal?
Musk's Tesla pay package is 'excessive' and should be voted down, shareholder advocate says
Most CEOs are defeating attempts to vote down their pay. Can Tesla's Elon Musk do the same?

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Melanie Riehl

Video transcript

As we're waiting for that final result this afternoon from the Tesla shareholder vote.

Our next guest is feeling bullish ahead of the final vote, raising his price target from $200 to $230 and reiterating his by rating Garrett Nelson CFR, a research analyst joins us now to discuss.

All right, Garrett, take us into your thesis here.

I mean, we've seen the shares drop precipitously here since the original pay package was voided.

So what makes this that much different now that we have this potential shareholder vote and do the fundamentals for the company change?

Sure.

Thanks for having me.

Well, this really would remove a major uh overhang on the stock that's been lingering for for weeks and months now.

Um ever since the Delaware court ruling came out.

So, um in our view, it's not surprising that the shares are currently trading about 7% higher uh in the pre market.

Um You know, in a worst case scenario, it, you know, it if uh if this was not approved, if his uh 2018 compensation plan was not reapproved by shareholders, um You know, given the the diversity of his business interests, especially at this point now that he owns X um and is re-involved with A I with the Xa I again, uh we could, could have seen a scenario where he could potentially have walked away from the company.

So, um so investors are really sending a message that they want the company to stay the course, would, would he really have walked away from the company?

We, we think it's a possibility when you consider that he uh you know, the six businesses that he's involved with.

Um you know, not, not all at once, but perhaps over time uh selling his remaining shares and, and, and moving on.

Um but you know, when you look back at his 2018 compensation plan, it was entirely incentive based.

Um there was no salary um and he's really delivered for shareholders over the last 5 to 6 years.

And so I think that's why you've seen uh just this week, a number of very large investors um come out in favor of, of this because Elon's incentives are really aligned with the interests of shareholders.

And in fact, he has delivered on those very lofty thresholds from the compensation plan.

And so, um you know, I think what you're seeing is the overwhelming support of retail investors for this.

And really, he just needed a fraction of support from institutional investors, which it appears that he has, he has gotten garret, there has been no concerns out there from shareholders really over the last several months, last couple of years.

Just about these distractions that we have heard when it comes to Musk, when it comes to his other business interests, are any of those concerns warranted?

Do you think o of course, uh, you know, you consider someone who owns a half dozen very large businesses, um, such as Elon.

But, you know, in our view, if anyone is capable of, of that juggling act, it's him and he's shown that over time, um You look at the total returns uh since the uh compensation plan was approved, the stock is up more than 1000%.

And so, uh I think there's a recognition appreciation especially on behalf of retail investors that he has helped deliver uh for them.

And so now it's time for them to uh deliver for him in that, in that compensation plan that was agreed upon uh six years ago.

Ok. And so as we're looking at all of the different undulations for Tesla share price and the activity, I mean, this environment that Tesla is in is far different than years past and in the returns that investor shareholders have seen before, especially with the demand generation cycle that all of the automakers are trying to navigate through right now.

So what does this next leg for growth potentially if Elon Musk sticks around if the shareholder vote goes his way, what does that look like?

Sure, I think the past five or six years have been about volume growth.

Um And the next five or six years are really going to be more about A I and uh on delivering on this promise of fully autonomous driving.

In our view, Tesla is leading the autonomous driving race and, and is going to get there first in terms of fully autonomous driving.

And so, you know, given the heavy investments that they're making in uh in A I um and you know, we, we think that, you know, that's gonna really show up, you know, with every subsequent update of their autopilot software, full self driving.

Um you see material improvement in the quality of, of the uh of, of what it's able to do.

And so we think that's really gonna set the stage for the next 5 to 6 years.

It's been more about delivering on that and then actually bringing a robo taxi to market g real quick while we have you, there are headlines crossing this morning just regarding the pricing of model threes in Europe.

And this of course, being brought up on the heels of the expected tariffs that are going to be implemented on cars that are manufactured and produced in China and then brought to the EU what do you think that's ultimately going to do for demand?

And and how big of a headwind do you potentially see this being here for Tesla, at least for its sales in Europe?

Yeah.

I mean, certainly a headwind.

The good thing about Tesla is they're very much western market based.

Um, of course, they have the plant in Shanghai but, you know, the bulk of their sales are in North America and, and in Europe.

And so, um, you know, they're in a different uh uh position than they were a few years ago and that they, they now have a factory uh there in Europe so they can mitigate the, the impact of those tariffs with their, their factory uh in, in, in Berlin.

So, um so I think a they're in a better position to navigate those tariffs than they were previously.

All right, Gerret Nelson.

Always great to talk to you Cfras research analyst.

Thanks so much for hopping on with us this morning.

Thank you.