Business
Column: Elon Musk thinks Tesla's investors love him. He's very wrong
No one who has followed the career of that famously self-effacing and modest business leader Elon Musk could have expected him to boast openly about having secured approval from Tesla shareholders for two important initiatives: moving the company’s state of incorporation to Texas from Delaware, and “ratifying” his massive 2018 compensation package after it was invalidated by a Delaware state judge.
Ha ha. Just kidding. The day before the votes were formally tallied and announced after the company’s annual meeting Thursday, Musk telegraphed the results on X, formerly Twitter, the social media platform he owns.
Both resolutions “are currently passing by wide margins,” he tweeted on last week, adding, “Thanks for your support!!” and bracketing that line with a quartet of valentine-red hearts.
The board should recognize the influence of the sword of Damocles hanging over shareholder heads: the outcome of any stockholder vote could well be seriously distorted by Musk’s looming threat.
— Lucian Bebchuk and Robert J. Jackson Jr.
Thursday evening, after the votes were in, he tweeted a photo of a cake with the iced legend “Vox Populi, Vox Dei,” a Latin phrase meaning “the voice of the people is the voice of the gods,” and appending the comment, “Sending this cake to Delaware as a parting gift.”
The Tesla board instantly executed the change of incorporation, which is evidently rooted in Musk’s conviction that Texas courts, which have little experience in adjudicating corporate governance issues, will be more pliant in his hands than the very experienced Delaware judiciary.
From all that, one might assume that the shareholder votes cleared away the legal complexities erected around the 2018 compensation grant by Delaware Chancellor Kathaleen McCormick in January.
That assumption may be wrong, according to several experts in corporate law. The idea that shareholders can retrospectively validate a corporate action overturned in Chancery Court is “divorced from the realities of Delaware law,” observed Charles M. Elson, one of the nation’s recognized authorities on the topic, in a May 13 legal brief.
That may not be the only issue about Tesla and Musk that is arguably divorced from reality. By many objective standards, the electric vehicle maker is in a bad way. A grim story was told by its first-quarter results, released on April 23. The company disclosed its lowest automotive profit margin, 15.9%, in five years, a major decline from its peak of about 30% in the first quarter of 2022.
That reflected several rounds of price cuts to keep Tesla vehicles moving off the lots, resulting in a decline of $2.42 billion, or 13%, in auto sales during that quarter from the same quarter a year earlier. Tesla delivered 386,810 vehicles in the first quarter, down by 8.5% from the same quarter a year earlier. That includes deliveries of its most highly touted new model, the Cybertruck pickup, which has been ridiculed in the automotive press and on social media for its risibly blockheaded design and mechanical and cosmetic flaws.
Tesla faces stiffer competitive headwinds than it has encountered at any other time in its history. These are coming not only from legacy automakers that are coming to market with hybrid and fully electric models, but the Chinese EV-maker BYD, which overtook Tesla in deliveries in the fourth quarter of 2023, when it sold more than 526,000 all-electric vehicles compared with Tesla’s 484,510 in the same period.
More troubling from Tesla’s standpoint, BYD is taking steps to expand its market significantly beyond domestic drivers and into Europe and even the U.S.
Tesla also faces more shareholder discontent over Musk’s role in the company. In the past, his image as a technological visionary was inextricably linked with Tesla’s image and the appeal of its products; a Tesla without Musk at the helm was almost unimaginable. Investor confidence in his leadership was manifest; the share price closed on Nov. 1, 2021, at $407.36, when the company’s market value peaked at a stupendous $1.2 trillion.
More recently, Musk’s reputation has waned among significant segments of the public, thanks to the increasingly strident, partisan, reactionary and antisemitic viewpoints he has expressed on X.
Investors aren’t especially happy about the company’s shrinking prospects. The shares are down by more than 54% from that peak close in 2021, by more than 33% from a year ago, and by nearly 25% year-to-date. As I write, Tesla’s market value is less than $600 billion.
One issue roiling the investor cadre is whether Tesla is as important to Musk as it used to be. His corporate universe includes not only X, but SpaceX and an artificial intelligence company dubbed X.AI. Musk has on occasion poached talent and resources from Tesla to benefit his other companies.
The Tesla board has gone along with that, but not all investors feel so tolerant. Two individual shareholders and the Cleveland Bakers and Teamsters Pension Fund sued over the practice on Thursday — filing the case in Delaware right under the wire before Tesla followed through on the reincorporation vote by making itself a Texas company.
They say they’re irked because Musk had been touting Tesla as, in his own words, “an AI/robotics company that appears to many to be a car company” and “the biggest AI project on Earth.” That’s an indication that Musk wishes to capture for Tesla the superior price/earnings multiple enjoyed by high-tech and especially AI companies (at the moment) in comparison with car companies. But if he’s shifting his AI efforts out of Tesla, that obviously won’t wash.
And he seems to be doing so. The plaintiffs observe that Musk has poached AI engineers from Tesla to work at X.AI — at least 11 former Tesla employees went over to the new company. Furthermore, according to a report by CNBC cited by the plaintiffs, Musk personally ordered Nvidia, the global leader in AI processing chips, to divert 12,000 units ordered by Tesla to X and X.AI instead, adding months to the delays in “setting up the supercomputers Tesla says it needs” to develop robots and self-driving vehicles.
Even before the shareholder vote, Musk intimated by tweet that he might not be inclined to develop AI capabilities within Tesla, as opposed to at his other companies, unless the Tesla board granted him a 25% voting control of Tesla.
This isn’t the first time Musk has treated the companies he controls, whether private or publicly-traded, all as arms of his personal satrapy. After taking over X (then Twitter) in 2022, he brought over Tesla engineers to rework the social media platform’s software. And in 2016 he orchestrated a rescue of SolarCity, his failing solar power company, by merging it with Tesla. In that case, typically, his acolytes on both boards went along without objection and, evidently, without spending much time on analysis of the deal. (I’ve asked Tesla to comment on all these issues, but answers came there none.)
That brings us back to the compensation deal and Thursday’s votes.
In her 201-page decision issued on Jan. 30, Chancellor McCormick rescinded the 2018 pay package on several grounds. She found that the unprecedentedly large $56-billion package was excessive.
That was especially so given the control Musk exercises over Tesla as its largest single stockholder (with 21.9% at the time of McCormick’s ruling and 20.5% as of March 31) and through his personal relationships with and influence over several ostensibly independent Tesla board members — relationships which, McCormick found, had not been adequately disclosed to shareholders voting on the pay package.
Musk reacted to McCormick’s ruling by proposing to take oversight of Tesla’s government out of the Delaware Chancery Court’s hands through a reincorporation in Texas. The Tesla board, which had changed somewhat since 2018 but was still supine toward Musk, also asked shareholders in effect to overturn McCormick’s ruling by voting on the pay package again.
In setting up the second vote, the Tesla board didn’t display much more inclination to examine the pay package than it had the first time around, when the process of developing the package was all but exclusively under Musk’s control.
This time, the board established a special committee of two board members. But one resigned early on, and the board never replaced him. In other words, the special committee was a committee of one, Kathleen Wilson-Thompson, a former executive of Walgreens and Kellogg’s. According to Tesla, the committee “did not substantively reevaluate the amount or terms” of the 2018 package “and did not engage a compensation consultant.”
Nor did the committee renegotiate the pay package with Musk. After all, the company said, the board had decided in 2018 that the package was “fair”; nothing had changed since 2018, so all that needed to happen in light of McCormick’s ruling was that there be more disclosure of board relationships.
Is that so?
A lot has changed, obviously. To begin with, the 2018 package incorporated numerous incentive milestones that Musk would have to meet to receive any part of or even the full $56 billion. Tesla actually did reach those milestones, but what further incentives exist to keep Musk engaged into the future?
Musk’s threat to take his AI operations out of Tesla unless he receives more voting control obviously point to the need to keep him on board.
“Stockholders should know whether the board’s request for a vote is motivated by the threat — and what, if anything, the board plans to do about Musk’s threat if he attempts to carry it out,” wrote corporate governance experts Lucian Bebchuk and Robert J. Jackson Jr. prior to Thursday’s vote. “Strikingly, the board hasn’t conditioned holding the vote on Musk withdrawing his threat or committing not to carry it out if stockholders vote to approve.”
They add, “the board should recognize the influence of the sword of Damocles hanging over shareholder heads: the outcome of any stockholder vote could well be seriously distorted by Musk’s looming threat.”
The Tesla board, therefore, has once again behaved as Musk’s cat’s-paw. That’s not surprising, since the board is nothing like truly independent. Its eight members include Musk, his brother Kimball, his longtime friends Ira Ehrenpreis and James Murdoch (a son of Rupert Murdoch), former Tesla executive and former SolarCity board member J. B. Straubel and, as chair, Robyn M. Denholm, who testified that the wealth she has collected as a Tesla director has been “life-changing.”
McCormick found that although Denholm didn’t have a personal relationship with Musk, her dependence on Tesla almost exclusively as a source of her personal wealth might have compromised her judgment in approving the 2018 package and contributed to her “lackadaisical approach to her oversight obligations.”
So assuming that the Delaware court won’t step in again to rescind the pay package, Musk is once again getting all he wants from Tesla, with even fewer incentives to perform for the future than he has had in the past.
Good for him. But if Tesla continues its recent decline in market value, its non-Musk shareholders will have no one to blame but its board, and themselves.
Business
WGA cancels Los Angeles awards show amid labor strike
The Writers Guild of America West has canceled its awards ceremony scheduled to take place March 8 as its staff union members continue to strike, demanding higher pay and protections against artificial intelligence.
In a letter sent to members on Sunday, WGA West’s board of directors, including President Michele Mulroney, wrote, “The non-supervisory staff of the WGAW are currently on strike and the Guild would not ask our members or guests to cross a picket line to attend the awards show. The WGAW staff have a right to strike and our exceptional nominees and honorees deserve an uncomplicated celebration of their achievements.”
The New York ceremony, scheduled on the same day, is expected go forward while an alternative celebration for Los Angeles-based nominees will take place at a later date, according to the letter.
Comedian and actor Atsuko Okatsuka was set to host the L.A. show, while filmmaker James Cameron was to receive the WGA West Laurel Award.
WGA union staffers have been striking outside the guild’s Los Angeles headquarters on Fairfax Avenue since Feb. 17. The union alleged that management did not intend to reach an agreement on the pending contract. Further, it claimed that guild management had “surveilled workers for union activity, terminated union supporters, and engaged in bad faith surface bargaining.”
On Tuesday, the labor organization said that management had raised the specter of canceling the ceremony during a call about contraction negotiations.
“Make no mistake: this is an attempt by WGAW management to drive a wedge between WGSU and WGA membership when we should be building unity ahead of MBA [Minimum Basic Agreement] negotiations with the AMPTP [Alliance of Motion Picture and Television Producers],” wrote the staff union. “We urge Guild management to end this strike now,” the union wrote on Instagram.
The union, made up of more than 100 employees who work in areas including legal, communications and residuals, was formed last spring and first authorized a strike in January with 82% of its members. Contract negotiations, which began in September, have focused on the use of artificial intelligence, pay raises and “basic protections” including grievance procedures.
The WGA has said that it offered “comprehensive proposals with numerous union protections and improvements to compensation and benefits.”
The ceremony’s cancellation, coming just weeks before the Academy Awards, casts a shadow over the upcoming contraction negotiations between the WGA and the Alliance of Motion Picture and Television Producers, which represents the studios and streamers.
In 2023, the WGA went on a strike lasting 148 days, the second-longest strike in the union’s history.
Times staff writer Cerys Davies contributed to this report.
Business
Commentary: The Pentagon is demanding to use Claude AI as it pleases. Claude told me that’s ‘dangerous’
Recently, I asked Claude, an artificial-intelligence thingy at the center of a standoff with the Pentagon, if it could be dangerous in the wrong hands.
Say, for example, hands that wanted to put a tight net of surveillance around every American citizen, monitoring our lives in real time to ensure our compliance with government.
“Yes. Honestly, yes,” Claude replied. “I can process and synthesize enormous amounts of information very quickly. That’s great for research. But hooked into surveillance infrastructure, that same capability could be used to monitor, profile and flag people at a scale no human analyst could match. The danger isn’t that I’d want to do that — it’s that I’d be good at it.”
That danger is also imminent.
Claude’s maker, the Silicon Valley company Anthropic, is in a showdown over ethics with the Pentagon. Specifically, Anthropic has said it does not want Claude to be used for either domestic surveillance of Americans, or to handle deadly military operations, such as drone attacks, without human supervision.
Those are two red lines that seem rather reasonable, even to Claude.
However, the Pentagon — specifically Pete Hegseth, our secretary of Defense who prefers the made-up title of secretary of war — has given Anthropic until Friday evening to back off of that position, and allow the military to use Claude for any “lawful” purpose it sees fit.
Defense Secretary Pete Hegseth, center, arrives for the State of the Union address in the House Chamber of the U.S. Capitol on Tuesday.
(Tom Williams / CQ-Roll Call Inc. via Getty Images)
The or-else attached to this ultimatum is big. The U.S. government is threatening not just to cut its contract with Anthropic, but to perhaps use a wartime law to force the company to comply or use another legal avenue to prevent any company that does business with the government from also doing business with Anthropic. That might not be a death sentence, but it’s pretty crippling.
Other AI companies, such as white rights’ advocate Elon Musk’s Grok, have already agreed to the Pentagon’s do-as-you-please proposal. The problem is, Claude is the only AI currently cleared for such high-level work. The whole fiasco came to light after our recent raid in Venezuela, when Anthropic reportedly inquired after the fact if another Silicon Valley company involved in the operation, Palantir, had used Claude. It had.
Palantir is known, among other things, for its surveillance technologies and growing association with Immigration and Customs Enforcement. It’s also at the center of an effort by the Trump administration to share government data across departments about individual citizens, effectively breaking down privacy and security barriers that have existed for decades. The company’s founder, the right-wing political heavyweight Peter Thiel, often gives lectures about the Antichrist and is credited with helping JD Vance wiggle into his vice presidential role.
Anthropic’s co-founder, Dario Amodei, could be considered the anti-Thiel. He began Anthropic because he believed that artificial intelligence could be just as dangerous as it could be powerful if we aren’t careful, and wanted a company that would prioritize the careful part.
Again, seems like common sense, but Amodei and Anthropic are the outliers in an industry that has long argued that nearly all safety regulations hamper American efforts to be fastest and best at artificial intelligence (although even they have conceded some to this pressure).
Not long ago, Amodei wrote an essay in which he agreed that AI was beneficial and necessary for democracies, but “we cannot ignore the potential for abuse of these technologies by democratic governments themselves.”
He warned that a few bad actors could have the ability to circumvent safeguards, maybe even laws, which are already eroding in some democracies — not that I’m naming any here.
“We should arm democracies with AI,” he said. “But we should do so carefully and within limits: they are the immune system we need to fight autocracies, but like the immune system, there is some risk of them turning on us and becoming a threat themselves.”
For example, while the 4th Amendment technically bars the government from mass surveillance, it was written before Claude was even imagined in science fiction. Amodei warns that an AI tool like Claude could “conduct massively scaled recordings of all public conversations.” This could be fair game territory for legally recording because law has not kept pace with technology.
Emil Michael, the undersecretary of war, wrote on X Thursday that he agreed mass surveillance was unlawful, and the Department of Defense “would never do it.” But also, “We won’t have any BigTech company decide Americans’ civil liberties.”
Kind of a weird statement, since Amodei is basically on the side of protecting civil rights, which means the Department of Defense is arguing it’s bad for private people and entities to do that? And also, isn’t the Department of Homeland Security already creating some secretive database of immigration protesters? So maybe the worry isn’t that exaggerated?
Help, Claude! Make it make sense.
If that Orwellian logic isn’t alarming enough, I also asked Claude about the other red line Anthropic holds — the possibility of allowing it to run deadly operations without human oversight.
Claude pointed out something chilling. It’s not that it would go rogue, it’s that it would be too efficient and fast.
“If the instructions are ‘identify and target’ and there’s no human checkpoint, the speed and scale at which that could operate is genuinely frightening,” Claude informed me.
Just to top that with a cherry, a recent study found that in war games, AI’s escalated to nuclear options 95% of the time.
I pointed out to Claude that these military decisions are usually made with loyalty to America as the highest priority. Could Claude be trusted to feel that loyalty, the patriotism and purpose, that our human soldiers are guided by?
“I don’t have that,” Claude said, pointing out that it wasn’t “born” in the U.S., doesn’t have a “life” here and doesn’t “have people I love there.” So an American life has no greater value than “a civilian life on the other side of a conflict.”
OK then.
“A country entrusting lethal decisions to a system that doesn’t share its loyalties is taking a profound risk, even if that system is trying to be principled,” Claude added. “The loyalty, accountability and shared identity that humans bring to those decisions is part of what makes them legitimate within a society. I can’t provide that legitimacy. I’m not sure any AI can.”
You know who can provide that legitimacy? Our elected leaders.
It is ludicrous that Amodei and Anthropic are in this position, a complete abdication on the part of our legislative bodies to create rules and regulations that are clearly and urgently needed.
Of course corporations shouldn’t be making the rules of war. But neither should Hegseth. Thursday, Amodei doubled down on his objections, saying that while the company continues to negotiate and wants to work with the Pentagon, “we cannot in good conscience accede to their request.”
Thank goodness Anthropic has the courage and foresight to raise the issue and hold its ground — without its pushback, these capabilities would have been handed to the government with barely a ripple in our conscientiousness and virtually no oversight.
Every senator, every House member, every presidential candidate should be screaming for AI regulation right now, pledging to get it done without regard to party, and demanding the Department of Defense back off its ridiculous threat while the issue is hashed out.
Because when the machine tells us it’s dangerous to trust it, we should believe it.
Business
Why companies are making this change to their office space to cater to influencers
For the trendiest tenants in Hollywood office buildings, it’s the latest fad that goes way beyond designer furniture and art: mini studios
To capitalize on the never-ending flow of stars and influencers who come through Los Angeles, a growing number of companies are building bright little corners for content creators to try products and shoot short videos. Athletic apparel maker Puma, Kim Kardashian’s Skims and cheeky cosmetics retailer e.l.f. have spaces specifically designed to give people a place to experience and broadcast about their brands.
Hollywood, which hasn’t historically been home to apparel companies, is now attracting the offices of fashion retailers, says CIM Group, one of the neighborhood’s largest commercial property landlords.
“When we’re touring a space, one of the first items they bring up is, ‘Where can I build a studio?’” said Blake Eckert, who leases CIM offices in L.A.
Their studio offices also serve as marketing centers, with showrooms and meeting spaces where brands can host proprietary events not open to the public.
“For companies where brand visibility is really important, there is a trend of creating spaces that don’t just function as offices,” said real estate broker Nicole Mihalka of CBRE, who puts together entertainment property leases and sales.
Puma’s global entertainment marketing team is based in its new Hollywood offices, which works with such musical celebrity partners as Rihanna, ASAP Rocky, Dua Lipa, Skepta and Rosé, said Allyssa Rapp, head of Puma Studio L.A.
Allyssa Rapp, director of entertainment marketing at Puma, is shown in the Puma Studio L.A. The company keeps a closet full of Puma products on hand to give VIP guests. Visits to the studio sanctum are by invitation only, though.
(Kayla Bartkowski / Los Angeles Times)
Hollywood is a central location, she said, for meeting with celebrities, stylists and outside designers, most of whom are based in Los Angeles.
The office is a “creation hub,” she said, where influencers can record Puma’s design prototyping lab supported by libraries of materials and equipment used to create Puma apparel. The company, founded in 1948, is known for its emblematic sneakers such as the Speedcat and its lunging feline logo, and makes athletic wear, accessories and equipment.
Puma’s entertainment marketing team also occupies the office and sometimes uses it for exclusive events.
“We use the space as a showroom, as a social space that transforms from a traditional workplace into more of an experiential space,” Rapp said.
Nontraditional uses include content creation, sit-down dinners, product launches, album listening parties and workshops.
“Inviting people into our space and being able to give them high-touch brand experiences is something tangible and important for them,” she said. “The cultural layer is really important for us.”
The company keeps a closet full of Puma products on hand to give VIP guests. Visits to the studio sanctum are by invitation only, though. There’s no retail portal to the exclusive Hollywood offices.
Puma shoes are on display in the Puma Studio L.A.
(Kayla Bartkowski / Los Angeles Times)
Puma is also positioning its L.A studio as a connection point for major upcoming sporting events coming to Los Angeles, including the World Cup this summer, the 2027 Super Bowl and 2028 Olympics.
In-office studios don’t need to be big to be impactful, Mihalka said. “These are smaller stages, closer to green screen than a massive soundstage.”
Social media is the key driver of content created by most businesses, which may set up small booth-like stages where influencers can hawk hot products while offering discounts to people watching them perform.
Bigger, elevated stages can accommodate multiple performers for extended discussions in front of small audiences, with towering screens behind them to set the mood or illustrate products.
Among the tricked-out offices, she said, is Skims. The company, which is valued at $5 billion, is based in a glass-and-steel office building near the fabled intersection of Hollywood Boulevard and Vine Street.
The fashion retailer declined to comment on the studio uses in its headquarters, but according to architecture firm Odaa, it has open and private offices, meeting rooms, collaboration zones, photo studios, sample libraries, prototype showrooms, an executive lounge and a commissary for 400 people.
Pieces of a shoe sit on a workbench in the Puma Studio L.A.
(Kayla Bartkowski / Los Angeles Times)
The brands building studios typically want to find the darkest spot on the premises to put their content creation or podcast spaces, Eckert said, where they can limit outside light and sound. That’s commonly near the center of the office floor, far from windows and close to permanent shear walls that limit sound intrusion.
They also need space for green rooms and restrooms dedicated to the talent.
Spotify recently built a fancy podcast studio in a CIM office building on trendy Sycamore Avenue that is open by invitation-only to video creators in Spotify’s partner program.
“Ambitious shows need spaces that support big ideas,” Bill Simmons, head of talk strategy at Spotify, said in a statement. “These studios give teams room to experiment and keep pushing what’s possible.”
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