Why Shares of Tesla Are Sinking Today
Key Points
Tech earnings disappointed last night, while Federal Reserve chair Jerome Powell's comments yesterday cast doubt on a definite rate cut in December.
The California Public Employees’ Retirement System pension fund does not plan to approve Musk's proposed pay package, which could reach $1 trillion in roughly eight years.
Investors have largely viewed Musk as a positive for the stock.
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Shares of electric vehicle maker and robotaxi company Tesla (NASDAQ: TSLA) traded nearly 4% lower as of 12:25 p.m. ET today. Big tech is struggling, and there appears to be more drama brewing over Tesla CEO Elon Musk's massive proposed pay package.
California's pension fund tells Musk no
Big tech sold off today after investors were unimpressed with earnings reports from Meta Platforms and Microsoft, sending other large tech stocks down. Federal Reserve chair Jerome Powell yesterday said publicly that investors shouldn't count on a guaranteed interest rate cut at the Fed's December meeting.
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Image source: Tesla.
But the big news impacting Tesla revolves around the California Public Employees' Retirement System (Calpers) pension fund saying that it will not support a proposed pay package for Musk that could reach $1 trillion over the next 7.5 years if Tesla achieves ambitious financial targets. Calpers owns 5 million shares.
"The CEO pay package proposed by Tesla is larger than pay packages for CEOs in comparable companies by many orders of magnitude. It would also further concentrate power in a single shareholder," a Calpers spokesperson reportedly said in a statement.
Love him or hate him, Musk generates exuberance for Tesla's stock
Tesla's board seemed to indicate that Musk could leave the company or be less devoted if the pay package is not approved. When the Wall Street Journal reported earlier this year that Tesla's board was looking for a new CEO, Tesla's stock also struggled.
This, in my view, shows that investors view Musk as critical for Tesla's future success. The stock now has close to a $1.4 trillion market cap and trades close to 277 times forward earnings, which is a much higher multiple than others in the "Magnificent Seven." I prefer to stay away from stocks trading this richly.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms, Microsoft, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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