Elon Musk's Fiery Response to Delaware Court Ruling: Tesla's Future and Musk's Influence Hang in the Balance

Musk $55.8 billion compensation package rescinded

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In the wake of the Delaware Chancery Court's landmark decision to rescind his $55.8 billion compensation package, Elon Musk did not hold back on expressing his views. Taking to X, Musk's posts resonated with a blend of frustration, defiance, and contemplation of Tesla's future.

This is insulting to shareholders

— Elon Musk (@elonmusk) January 31, 2024

Musk called the decision "insulting to shareholders." Furthermore, Musk's suggestion to avoid incorporation in Delaware and his query about relocating Tesla's incorporation to Texas echo his discontent and hint at a potential strategic shift.

Unfathomable Compensation and Controlled Mindset

The 201 page Delaware Court's decision, as articulated by Judge Kathaleen St. J. McCormick, delved deep into the complexities of Musk's compensation package and the process behind its approval. The judge described the package as an "unfathomable sum," highlighting its sheer magnitude and deviation from standard executive compensation practices.

Central to the court's ruling was the notion that Musk exerted undue influence over Tesla's board of directors. The court found that Musk's control over the board and his relationships with its members significantly compromised their ability to act independently. According to the ruling, this control resulted in a compensation negotiation process that lacked objectivity and transparency.

In her ruling, McCormick noted, "Musk had extensive ties with the persons tasked with negotiating on Tesla’s behalf." She pointed out the conflicts inherent in this arrangement, emphasizing the need for a more rigorous standard in such situations. "The process leading to the approval of Musk’s compensation plan was deeply flawed," she wrote, highlighting the controlled mindset of the board and its failure to recognize the conflict of interest.

Shareholder Disenfranchisement and Material Omissions

Another critical aspect of the court's decision was the inadequate information provided to shareholders during the vote on Musk's compensation. The ruling emphasized the omission of material information about potential conflicts of interest and the overall negotiation process, which were crucial for shareholders to make an informed decision.

"The record establishes that the Proxy failed to disclose the Compensation Committee members’ potential conflicts and omitted material information concerning the process," the court observed. This lack of transparency was seen as a significant factor in the decision to overturn the package, indicating that Tesla shareholders were not equipped with all the necessary information to make an informed choice.

Musk's compensation was initially perceived as a step toward a "good future for humanity," including ambitions like colonizing Mars, but the judgment stated, “Some might question whether colonizing Mars is the logical next step. But, in all events, that “get” had no relation to Tesla’s goals with the compensation plan.” The court's analysis highlighted that the package's extraordinary size was disconnected from the automaker's objectives.

Stepping back to 2017

The court's narrative begins with Musk's own words, extracted from a 2017 email, where he expressed confidence that Tesla shareholders would be "super happy" with the compensation plan. Musk believed that the package would be perceived positively, projecting an "ultra-bullish view of the future" and symbolizing his commitment to ensuring a "good future for humanity." This ambition, while laudable, was disconnected from the immediate operational goals of Tesla, according to the court.

Emails from Musk during the compensation discussions in 2017 reveal his desire for a significant increase in Tesla ownership upon reaching a $550 billion valuation. He suggested a structure that would effectively boost his ownership stake, considering future dilutions, to around 25% over a decade, underscoring his long-term vision for Tesla. It also underscores the lack of a succession plan that exists to this day.

Testimonies from key Tesla figures like Ira Ehrenpreis and Antonio Gracias provided insight into the compensation committee's approach. They emphasized a subjective sense of fairness and collaboration with Musk, rather than objective market data or arm's length negotiations. This approach was echoed by Todd Maron, Tesla's general counsel, who described the process as cooperative and collaborative, lacking a recognized conflict of interest.

Musk's Recent Compensation Discussion

Two weeks before the court's decision, Musk discussed on X his engagement with Tesla and future compensation plans. An X user expressed concerns about Musk's apparent lack of a new incentive plan since completing his 2018 compensation milestones. In response, Musk's four-word reply, "That would be nice," hinted at his openness to discussing future compensation aligned with his contributions and ambitions in AI, automation, and space exploration.

Musk later elaborated on his desire for approximately 25% voting control within Tesla, which he believes is substantial yet not overwhelming. This statement came amidst Musk's concerns over his influence in the company, especially in growing Tesla as a leader in AI and robotics. On the same day as the ruling Musk posted an update on Tesla’s robot.

Going for a walk with Optimus pic.twitter.com/6mLJCUp30F

— Elon Musk (@elonmusk) January 31, 2024

Musk & Tesla's Future and Potential Move to Texas

Musk's suggestion of moving Tesla's incorporation to Texas, where its physical headquarters are located, has stirred discussions about the company's future corporate structure. Relating to Texas, known for its business-friendly environment, could be a strategic response to the legal and corporate challenges Tesla faces in Delaware.

Should Tesla change its state of incorporation to Texas, home of its physical headquarters?

— Elon Musk (@elonmusk) January 31, 2024

This potential move raises questions about the implications for Tesla's governance, legal framework, and operational strategy. A shift to Texas could signal a new chapter for Tesla as it navigates through the fallout of the court's decision and reevaluates its position in the corporate landscape.

Despite focusing on voting control and compensation, Musk's vision for Tesla extends beyond financial incentives. He is keen on advancing significant developments in AI and robotics, aiming to position Tesla at the forefront of technological innovation. This aligns with his broader goals of advancing human progress through technology.

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Tesla LFP Batteries Can Now Be Warmed up While Supercharging Using Innovative Feature

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Tesla’s been on a roll with Supercharger improvements lately, from the 325kW charging update for the Cybertruck, to 500kW with V4 Superchargers coming next year. While those improvements have been limited to the Cybertruck, Tesla didn’t put all their focus on their new flagship vehicle, but looked at their more affordable vehicles as well.

LFP Battery Heating

Tesla’s Superchargers can now heat LFP Batteries - those that are in the Model 3 and Model Y Rear Wheel Drive variants. This applies to Long Range and Standard Range models, which saw a limited run. This is another update included as part of the 2024 Tesla Holiday Update - which really arrived with a lot of unannounced new features and capabilities.

The change is pretty interesting - Superchargers of the V3 and V4 variety can now pre-heat batteries for Model 3 and Model Y vehicles equipped with LFP battery packs. That means those vehicles are able to get back on the road faster when it's extremely cold. Of course, Tesla still advises you to precondition before you arrive, saving drivers time and money.

Max de Zegher, Tesla’s Director of Charging, also commented on the new feature. Essentially, Tesla is inducing an AC (alternating) ripple current through the battery to warm it up. Keep in mind that Superchargers are DC charging. That means it is possible to get a cold-soaked LFP vehicle on the road 4x faster than before, assuming that it didn’t precondition at all and that it is in the worst-case scenario (below 0ºF).

In essence, Tesla is using some engineering magic to turn the circuits inside the LFP battery into an electric heater - and powering that heater through the Supercharger. An AC ripple current is a small oscillation in the DC charging current that generates heat through electrical resistance, warming up the battery. Those ripples are a byproduct of converting AC to DC and back - so Tesla is using the onboard charger to induce those ripples to warm up the battery. Definitely an innovative technique that’s really only possible with the versatility of the NACS connector.

We’re hoping Tesla can implement this across their full lineup of vehicles, but we’ll have to wait and see how it is trialed across LFP vehicles first and if it is even possible on vehicles with 2170 or 4680 battery packs.

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Tesla Included FSD V12.6.1 and V13.2.4 in the Same Update: What Caused This and What It Means

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Tesla launched two FSD updates simultaneously on Saturday night, and what’s most interesting is that they arrived on the same software version. We’ll dig into that a little later, but for now, there’s good news for everyone. For Hardware 3 owners, FSD V12.6.1 is launching to all vehicles, including the Model 3 and Model Y. For AI4 owners, FSD V13.2.4 is launching, starting with the Cybertruck.

FSD V13.2.4

A new V13 build is now rolling out to the Cybertruck and is expected to arrive for the rest of the AI4 fleet soon. However, this build seems to be focused on bug fixes. There are no changes to the release notes for the Cybertruck with this release, and it’s unlikely to feature any changes when it arrives on other vehicles.

While this update focuses on bug fixes, Tesla’s already working on bigger features for FSD V13.3, which we have already confirmed to include improvements to highway following and speed control.

FSD V12.6.1

FSD V12.6.1 builds upon V12.6, which is the latest FSD version for HW3 vehicles. While FSD V12.6 was only released for the redesigned Model S and Model X with HW3, FSD V12.6.1 is adding support for the Model 3 and Model Y.

While this is only a bug-fix release for users coming from FSD V12.6, it includes massive improvements for anyone coming from an older FSD version. Two of the biggest changes are the new end-to-end highway stack that now utilizes FSD V12 for highway driving and a redesigned controller that allows FSD to drive “V13” smooth.

It also adds speed profiles, earlier lane changes, and more. You can read our in-depth look at all the changes in FSD V12.6.

Same Update, Multiple FSD Builds

What’s interesting about this software version is that it “includes" two FSD updates, V12.6.1 for HW3 and V13.2.4 for HW4 vehicles. While this is interesting, it’s less special when you understand what’s happening under the hood.

The vehicle’s firmware and Autopilot firmware are actually completely separate. While a vehicle downloading a firmware update may look like a singular process, it’s actually performing several functions during this period. First, it downloads the vehicle’s firmware. Upon unpacking the update, it’s instructed which Autopilot/FSD firmware should be downloaded.

While the FSD firmware is separate, the vehicle can’t download any FSD update. The FSD version is hard-coded in the vehicle’s firmware that was just downloaded. This helps Tesla keep the infotainment and Autopilot firmware tightly coupled, leading to fewer issues.

What we’re seeing here is that HW3 vehicles are being told to download one FSD version, while HW4 vehicles are being told to download a different version.

While this is the first time Tesla has had two FSD versions tied to the same vehicle software version, the process hasn’t actually changed, and what we’re seeing won’t lead to faster FSD updates or the ability to download FSD separately. What we’re seeing is the direct result of the divergence of HW3 and HW4.

While HW3/4 remained basically on the same FSD version until recently, it is now necessary to deploy different versions for the two platforms. We expect this to be the norm going forward, where HW3 will be on a much different version of FSD than HW4. While each update may not include two different FSD versions going forward, we may see it occasionally, depending on which features Autopilot is dependent on.

Thanks to Greentheonly for helping us understand what happened with this release and for the insight into Tesla’s processes.

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