Tesla's board must establish guidelines for Elon Musk's political activities.

Tesla's board should set clear ground rules for Elon Musk as part of a new incentive package, according to Wedbush Securities analyst Dan Ives. The rules should address Musk's political ambitions and actions to ensure consistency with the company's goals. Ives believes this will help mitigate potential risks to Tesla's business.

Tesla's (NASDAQ: TSLA) board of directors is under scrutiny to establish clear ground rules for CEO Elon Musk, according to Wedbush Securities analyst Dan Ives. Ives suggests that a new incentive-driven pay package for Musk should include ground rules that address his political ambitions and actions, aiming to ensure consistency with the company's goals and mitigate potential risks to its business.

Ives and his team propose that Musk's new pay package should increase his ownership of Tesla up to ~25% voting power. A special board committee would create the strategy and proxy that Tesla shareholders would be able to vote at the next annual meeting. This move would solidify Musk's position as CEO for the coming years, with Ives expecting him to remain in the role until at least 2030. The plan includes laying out the amount of time Musk needs to spend on Tesla operations to fulfill his pay package and establishing a special board oversight committee to determine if Musk violates the pay package.

While the board cannot control Musk's donations, it can have oversight if his political ambitions and endeavors interfere with his role as CEO of Tesla. This oversight is crucial, especially given the significant role Musk plays in the autonomous and robotics future of Tesla, which Ives and his team view as a $1 trillion opportunity alone for the company.

The proposed changes come amidst Tesla's ongoing challenges. The company faces potential billions in lost profit due to the "Big Beautiful Bill," which could eliminate billions of dollars from Tesla’s bottom line each year by dismantling the ZEV credit system. This system, designed to accelerate the adoption of electric vehicles, is a significant revenue stream for Tesla, with the company generating $2.76 billion from selling these credits in 2024.

Despite these challenges, Ives maintains an Outperform rating on Tesla with a price target of $500. He views Tesla and Nvidia as the two best physical AI companies in the world, with Musk playing a major role in their success.

Shares of Tesla rose 0.8% in premarket trading on Tuesday after falling 6.8% on Monday.

References:
[1] https://seekingalpha.com/news/4465811-teslas-board-should-lay-out-ground-rules-for-elon-musk-as-part-of-a-new-incentive-package---wedbush
[2] https://www.notateslaapp.com/news/2885/tesla-to-face-billions-in-lost-profit-as-big-beautiful-bill-kills-ev-credits