Elon Musk has gone where no CEO has gone before, campaigning with Donald Trump, jumping for joy on stage with the presidential candidate, echoing political rants on social media, and handing out $1 million in daily prizes to registered swing voters. States.
Given Trump’s polarizing personality, you might wonder if the Tesla CEO’s high-profile political partisanship will turn off some potential car buyers. According to Tesla’s lawyers the answer is no.
In the company’s most recent 10-Q filing with the SEC, Tesla did not mention Trump or Musk’s political activities in a section titled “Risk Factors.” January first annual report. A long list of potential risks in the annual report notes that the company is heavily dependent on Musk’s (“technocking”) services, that employees may leave or look elsewhere for “various factors” and that there may be “negative publicity about us.” .”
But while Tesla’s high-profile move to connect its personal brand with MAGA politics has increased dramatically since July, when Musk publicly endorsed Trump and announced a superpack, the company sees no particular business risk.
Some Tesla investors aren’t so calm. Dozens Shareholders recently asked Tesla To release data on the extent to which Musk’s politics have affected hiring and sales. Some said Musk should stop campaigning or step down as CEO.
Like many things Musk does, his foray into politics challenges established norms, including the nuanced language of regulatory filings. Political activity isn’t something that typically shows up in Securities and Exchange Commission reports, experts on corporate leadership and securities say. But Musk, the face and chairman of a publicly traded company and one of the world’s richest men, has little precedent for showing such deep and steadfast devotion to one of the world’s most controversial political figures.
“Listing an individual CEO as a risk factor is very different,” said Hilary Sale, director of Cboe US Securities Exchanges, Cboe Futures Exchange and Cboe SEF and a professor at Georgetown University. “If a director feels that way about the CEO, they have a fiduciary duty to reconsider the CEO.”
The SEC requires companies to disclose all kinds of information, and companies can pose additional risks as long as those risks are material — meaning they significantly change business operations or regulations. Companies are often outspoken about their executives’ extracurriculars (see Mark Zuckerberg’s Meta about extreme sports or Tesla’s own comments about Musk’s focus on other business ventures). But some problems did not come – in 2008, Apple He faced questions Regarding whether Steve Jobs had a duty to disclose his ill health.
The US Supreme Court ruled earlier this year Investors cannot sue for wrongdoing An SEC filing. The SEC itself could theoretically bring a lawsuit, but the agency does not compel disclosures about political activity, and doing so could be criticized as an affront to free speech. (Or in Apple’s case, an invasion of privacy).
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As Musk’s political activities are far from a secret, investors aren’t completely in the dark, says Alan Harwich, a former defense attorney turned professor at Northwestern University. The question is whether Tesla knows anything about how Musk’s political sideshow is affecting stock value.
“We know what he’s doing, but do they know what risks he’s doing to the company?” Harwich said. His advice to his former clients when questions about disclosure arose: If there’s any internal debate about whether a risk is material or not, “Why don’t you disclose it?”
A specialty forum An investor call by the company ahead of quarterly earnings for Tesla shareholders earlier this week asked if the team has made efforts to ensure Musk’s “political involvement does not detract from Tesla’s core mission and protect shareholder value and brand integrity.” The post received 533 upvotes from investors who own a total of 397,000 Tesla shares, according to the company’s tally.
Tesla did not respond to Fortune’s request for comment.
Investors are used to Musk’s antics
Musk has a better chance of running the company than other CEOs of publicly traded companies, thanks to investors voting on a pay package that gives him about 20% control over Tesla, says Adam Wovak, a professor of management at the University of Notre Dame. . The voting role, combined with his deep ties to the brand, gives him more power over the board than his peers, who may have to steer things like big political donations or board member endorsements.
It’s not uncommon for Musk to get embroiled in issues that could cause problems for CEOs of other public companies — some might argue it’s part of his brand. He famously smoked on the Joe Rogan podcast in 2018. He also has a history of clashing with government agencies that oversee his various businesses, including space exploration company SpaceX, tunneling company Boring Co, human implant company Neuralink and an AI developer. X.AI, to name a few.
When the Federal Aviation Administration visited after the SpaceX rocket launch, Musk He threatened to file a case For breach of regulation. He has He said Democrats find his X social network so threatening that the Harris administration is threatening to sue Musk personally and “shut it down at any cost.” He condemned “Weaponization” of government agencies in response to Federal Trade Commission privacy probe.
Musk’s alliance with Trump raises the stakes. A Trump win would be a boon for Tesla, as Trump has appointed Musk as his “secretary of cost-cutting.”
But whichever way the election goes, Musk’s whole-hearted support for Trump shines a brighter light than Tesla’s faced with CEOs donating to or endorsing a political candidate.
“In general, CEOs tend to exercise some caution about getting deeply involved in politics because not all stakeholders will agree,” notes Georgetown Professor Sales.
Without speculating whether such entrenched political ties should be reported to the SEC, Chris Poliquin said, “There are certainly reasons to think that such persistent behavior by a public company CEO poses a serious risk to a company’s value.” Professor of Management at the UCLA Anderson School of Management.
As investors awaited Tesla’s quarterly results this week, the company’s stock has fallen 14% since Musk’s Trump endorsement in mid-July. The S&P 500, by contrast, gained 3% over the same period.
Tesla posted 2% growth in car sales, but Wall Street tops profit targets Thanks to the sale of regulatory credits to other carmakers and strength in its energy business. Musk said his “best guess” is that “automotive growth” will increase by 20% to 30% in the coming year.
Tesla shares are now up 7% after Musk’s Trump endorsement.
