Tesla is expected to release
Photograph by Spencer Platt/Getty Images
Only Tesla CEO Elon Musk can make an annual proxy statement exciting. With Tesla ’s 2022 proxy statement possibly arriving as soon as Monday, there will be a couple key things that investors will want to see.
A proxy statement for an annual meeting outlines business that shareholders need to vote on, along with providing details about management compensation. Typically, the proxy statement isn’t as big a deal as earnings release or annual reports.
That isn’t the case for Tesla (ticker: TSLA) shareholders this year, however, thanks to Musk. He’s buying Twitter (TWTR) and using Tesla stock to fund part of the purchase.
Musk sold some stock outright and raised about $8.5 billion in cash. He is also pledging about $63 billion in stock to secure a $12.5 billion loan.
According to Tesla’s 2021 annual report, the 2022 proxy is slated to be “filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2021.”
That puts the filing on or about Monday, May 2. But Tesla (ticker: TSLA) could also delay the statement filing. The company didn’t return a request for comment about its plans.
For investors, Musk’s pledged stock and any details about a possible stock split will be in focus.
Pledged Stock
Pledged stock is one of the two things investors will likely search the document for.
Musk has borrowed cash against his Tesla holdings before. The 2021 proxy statement says Musk has pledged more than 88 million shares as collateral for personal borrowing.
Tesla officers can take loans against their stock as long as they pledge four times the amount of the loan.
Musk’s pledged stock amounts have been in Tesla’s proxies for years. His borrowing was done when Tesla shares were much, much lower, and accounting expert Robert Willen says that means it likely isn’t a true reflection of Musk’s borrowing capacity.
The past borrowing could have even be paid back from the recent stock sales. That would reset his borrowing capacity and the proxy pledge disclosures.
In any case, Tesla investors will want to know what is happening with Musk’s borrowing against his Tesla holdings.
Stock Split
The other thing investors will be looking for is information about another stock split. Tesla said in late March it intended to split its stock, like it did in 2020. But another split requires a shareholder vote to authorize more shares outstanding.
The size of the split, and the date of the annual meeting—when the increased share count can be authorized—should be included in the proxy. Tesla’s 2020 split was five for one.
Some investors like splits, believing they are a bullish sign that indicates management’s confidence in the future. Investors, on the other hand, typically don’t like management stock sales or leverage. Insider sales can be bearish signals about the future, and too much leverage can be an overhang on any stock.
This year’s Tesla proxy should provide some fodder for the bulls and the bears.
Tesla stock closed down 0.8% in Friday trading, which was actually good relative to the market. Some of the the overhang from Musk’s selling abated. The S&P 500 and Dow Jones Industrial Average dropped 3.6% and 2.8%, respectively . The Nasdaq dropped 4.2%.
Write to Al Root at [email protected]
