Tesla Stock Plunges 3.92% Amid Shareholder Lawsuit Changes

On May 19, 2025, Tesla's stock experienced a 3.92% drop in pre-market trading, reflecting investor concerns and market dynamics.

Tesla recently amended its corporate charter to significantly raise the threshold for shareholders to sue the management, requiring at least 3% of the company's shares, approximately $340 billion. This move effectively excludes retail investors from legal actions, sparking debates about the imbalance of power between shareholders and management. The change was prompted by a 2024 lawsuit where a shareholder with just 9 shares successfully challenged CEO Elon Musk's $560 billion compensation package, leading to a court ruling that invalidated the package due to lack of transparency and Musk's undue influence.

In response to the court decision, Tesla relocated its headquarters from Delaware to Texas, a state that allows companies to set higher thresholds for shareholder lawsuits. The new rules make it nearly impossible for individual investors to challenge management decisions, as they would need to hold 3% of the company's shares. Despite the court's ruling, Tesla's board is pushing forward with a new compensation plan for Musk, potentially reissuing past unpaid compensation and redesigning incentive terms. The original 2018 plan, which tied Musk's compensation to achieving multiple performance targets, is now valued at over $1 trillion due to Tesla's market value surge.

Tesla's first-quarter 2025 performance showed a 13% year-over-year decline in global sales and a 70% drop in profits, raising concerns about the company's focus and market position amidst intense competition and waning demand. While supporters argue that the higher lawsuit threshold can reduce frivolous litigation and allow management to focus on long-term strategy, critics warn that it weakens shareholder oversight and could lead to management misconduct. The legal battle is far from over, with Tesla appealing the court's decision and the potential for years of litigation ahead. This situation highlights the broader issue of corporate governance and the balance of power between shareholders and management in the U.S. market.