Tesla Faces Governance Shakeup Amid Pension Divestment and Settlement Drama

In recent trading, Tesla (TSLA) experienced a minor decline of 0.05% by the end of last week, bringing its one-week loss to 3.83% and a year-to-date drop of 2.25%. The company's current market capitalization stands at $1,267.139 billion.

Europe's largest pension fund, Stichting Pensioenfonds ABP, has sold its entire stake in Tesla, worth €571 million ($585 million), during the third quarter. The decision was partly driven by disagreements over Elon Musk's compensation plan. The pension fund also cited concerns over Tesla's work conditions as a factor in their divestment. The controversy over Musk’s pay package, which despite shareholder support, was recently rejected by a Delaware judge. The stock option package, originally valued at $2.6 billion, had surged to $56 billion by the time of the judge's ruling.

Additionally, Tesla is conducting an over-the-air software update as part of a recall involving 239,382 vehicles due to a potential short circuit in the computer circuit board that could cause rearview camera display failures. The recall covers various models, including Model 3, S, X, and Y, of certain years. As of late December 2024, Tesla had documented numerous warranty claims and field reports related to the issue, though no known accidents or injuries have been directly attributed to it.

On the legal front, Tesla’s core board members, including Robyn Denholm and James Murdoch, have reached a $919 million settlement to resolve an excessive compensation lawsuit. The agreement mandates the directors to return approximately $277 million in cash and $459 million in stock options to Tesla, and forego $184 million in future stock options over three years. This settlement marks one of the most significant in Delaware's Court of Chancery history, highlighting the ongoing scrutiny over Tesla's governance practices.

The settlement introduces several governance changes, such as requiring shareholder approval for director compensation, aiming to enhance transparency and fairness. Legal fees and costs totaling $176 million were also awarded to the attorneys involved in the case. Despite not admitting wrongdoing, this resolution signifies a pivotal moment for Tesla’s leadership as it strives to address governance challenges and uphold shareholder interests.