Big investors weigh response to Musk social media controversies

Key Points

• Tesla's stock rose more than 17% in November, outperforming peers in the Consumer Discretionary Select Sector SPDR Fund.
• Institutional investors, including the New York City retirement fund, are critical of Musk's recent controversial statements. 
• Wedbush analyst Dan Ives notes frustration among Tesla investors but anticipates no leadership changes.

Shares of Tesla Inc. NASDAQ: TSLA are having a banner month, advancing more than 17% so far in November. Nonetheless, shares are still underperforming some other automotive stocks, including Stellantis N.V. NYSE: STLA and BYD Co. Ltd. OTCMKTS: BYDDF.

However, Tesla stock has been outperforming other consumer discretionary stocks tracked by the Consumer Discretionary Select Sector SPDR Fund NYSEARCA: XLY.

The stock has been on a roll despite some investors becoming concerned by controversial tweets from Tesla CEO Elon Musk. Controversy is nothing new for Musk, who has come under fire in the past for posts on his social media site X (formerly Twitter). 

Several companies, including Apple Inc. NASDAQ: AAPL, Walt Disney Co. NYSE: DIS, and International Business Machines NYSE: IBM have pulled their ads from privately held X in response to antisemitic posts by Musk.

Could Musk's controversies harm Tesla's brand?

But now, some Tesla shareholders say Musk's statements could hurt the car's brand.

For example, Kristin Hull, founder and CEO of Nia Impact Capital, said in a media interview with Time that she was "appalled" by Musk's statements. 

Nia focuses on companies that follow environmental, social and governance (ESG) guidelines. The investment company also says its holdings must "meet our high-impact, solutions-focused social and environmental standards."

According to Time, Nia owned a little over $280,000 of Tesla shares as of mid-2023. Hull has been an activist investor, pressuring the company on various fronts and presenting shareholder resolutions. 

Board has options for taking action

In her communications with Time, Hull said responses to Musk's offensive speech might include board censure, demotion from his position as CEO, suspension or even removal.

Of course, for any of that to happen, the Tesla board would have to take action, or activist investors would have to pressure the board. Another complication would be Musk's significant stake in the company. 

Removing a CEO like Musk with a significant stake in the company is challenging, as his ownership grants them influence, making board decisions sensitive. Shareholder support and legal complexities generally complicate attempts to oust such CEOs, affecting corporate governance dynamics.

According to CBS MoneyWatch, Wedbush analyst Dan Ives said Tesla investors are "frustrated and dismayed" by Musk's latest controversies. 

"It was a dark day for Musk and Tesla with this X post heard around the world," Ives emailed CBS. "[L]ongtime shareholders are asking what is next? We see no changes to Musk's leadership, but this is a black eye that will not be forgotten by many."

Unhappy New Yorkers

A prominent investor unhappy with Tesla is the New York City retirement system, which has about $946 million in Tesla shares as of September 30.

New York comptroller Brad Lander, who oversees the city employee retirement funds, sent a letter to the Tesla board. "As CEO, Mr. Musk is the face of Tesla, and his behavior here, for better or worse, directly reflects on the Company," Lander wrote.

He addressed board chair Robyn Denholm directly, saying, "As Chair of the Board, you have a responsibility to all shareholders to hold Mr. Musk accountable for actions when they harm the Company and contravene the Company's Code of Business Ethics."

If the board takes no action, Lander wrote, it would send a message to Tesla employees "that the behavior of the company's CEO is unassailable, the Company's Code of Business Ethics is toothless, and employees are free to take any action or utter any words, no matter how hateful or harmful."

Is a selloff in the cards?

Would institutional investors actually begin selling off shares if the board takes no action against Musk?

A look at the Tesla chart clearly shows the recent uptrend. Tesla stock is up 8.74% on a rolling one-month basis. 

Not only are big investors apparently unperturbed by Musk's latest controversy, but also by a decline in operating income, according to the company's latest earnings report. As Tesla slashes prices to spur buying volume, margins have been shrinking.  

MarketBeat's Tesla analyst forecasts show a price target of $233.87, a slight downside from its November 24 closing price of $235.45.