Scottish Mortgage to back Elon Musk’s $56bn pay deal

Baillie Gifford’s flagship Scottish Mortgage Investment Trust, one of Tesla’s longest-standing shareholders, plans to back Elon Musk’s $56bn pay award next month. 

Tesla’s board is trying to win support from investors for the package that is based on a series of stock options Musk was given in 2018, when the company was struggling to produce cars at scale.

Shareholders will vote on the award — the largest in US corporate history — at Tesla’s annual meeting on June 13.

The bulk of Tesla’s investors originally backed the proposals, which set Musk a series of aggressive targets. But in January, a court in Delaware, where Tesla is incorporated, struck down the award, saying that the company’s board had failed to act in shareholders’ interests.

“We agreed the remuneration package with Tesla back in 2018 because it introduced extremely stretching targets that would make a huge amount of money for shareholders if they were reached,” Tom Slater, manager of the £14.1bn trust, told the Financial Times. “Having agreed to that, we believe that it should be paid out.” 

Following the court ruling, Musk pledged to move Tesla’s incorporation from Delaware to Texas. The carmaker’s shareholders will also vote on that resolution.

Scottish Mortgage has yet to decide on whether to back the proposed move to Texas, said Slater, adding that “it’s complicated”.

Tesla is one of Scottish Mortgage’s top-10 holdings. Baillie Gifford first invested in the carmaker in 2013 and the Edinburgh-based private partnership is a top-15 shareholder in the company, across 11 different strategies. Slater noted that portfolio managers owning Tesla in other strategies run by Baillie Gifford may vote differently. 

Scottish Mortgage became an unlikely star of global tech investing a decade ago thanks to its early bets on companies such as Tesla, Facebook and Amazon under its former manager, James Anderson.

However, it has fallen out of favour with investors over the past couple of years as higher interest rates dented appetite for some high-growth companies that Scottish Mortgage made its name backing.

After the Delaware court shot down Musk’s pay award, lawyers for shareholders who had bought the lawsuit against the package are seeking almost $6bn in fees from the legal victory.

Slater hit out at the move. “It’s egregious that the plaintiffs in the case are being awarded $6bn for bringing legal action against the company,” he said.

“As a shareholder I don’t think we should be paying outrageous legal fees, but we should be happy to meet a commitment we signed up for after remarkable corporate performance leading to huge creation of value for shareholders.”

The shareholder vote comes during a bruising period for Tesla as it confronts a slowdown in the electric vehicle market and tough competition from Chinese companies. 

Tesla was having to balance its progress in autonomous driving with the threat of low-cost competition from China, said Slater.

“The latest version of full self-driving showed significant breakthroughs in capabilities,” he added. “This could well be the moment of full self-driving we’ve been waiting for. At the same time, Chinese electric-vehicle makers are making real progress in terms of the cost and quality of the products.”