Tesla (TSLA) stock is under pressure today following allegations that CEO Elon Musk pressured board members into drug use, according to a Wall Street Journal report.
This follows a Delaware judge ruling Tesla's board process for approving Musk's massive pay package was "deeply flawed," prompting concerns about his relationships with individuals of his executive board.
The troubling revelations about board oversight come as Tesla faces numerous headwinds including SAP SE (SAP) halting the use of Tesla as company cars and Piper Sandler's decision to cut it's price target on the stock.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Angel Smith
Video Transcript
JOSH LIPTON: It's also been a tricky day at Tesla as multiple headlines are weighing on that stock in today's trade. Piper Sandler lowering its price target on that stock. SAP, the German software firm, saying it is ditching all Tesla company cars. And the Wall Street Journal reporting that CEO Elon Musk has created a culture of drug-taking with certain members of the board. Pras Subramanian is here with the very latest. That's a lot of headlines, Pras.
PRAS SUBRAMANIAN: Yeah, a lot to go through there. But a lot of people are talking about this journal story. A really well sourced article here alleging more drug use than we originally thought with the Elon Musk, a portfolio of different drugs that he's been taking, right? But the big-- the big story here is the board sort of knew about more of these things and didn't-- and didn't investigate these matters further. In fact, in some cases felt pressured to actually take drugs with Musk in order to carry a favor with them.
So I looked at the story. And I think of it as more of a board sort of not fully competent, not fully out for what shareholders their best interests-- and Josh I got to ask. You've been around the Valley. Like, have you ever heard anything like this before with tech companies?
JOSH LIPTON: Well, I mean, a common-- a common criticism across all kinds of sectors and industries is that CEOs are often too close to the board. That's not, I mean, unusual. Well, you'll hear that about a lot of companies. And so I don't know if you would just ding them on that. I guess the question with this story in particular-- and to emphasize, these are allegations, right? That's all-- that's all what we have.
I mean, certainly, we have seen Elon Musk smoke marijuana with Joe Rogan. He's talked about publicly as a prescription for ketamine. But yeah, to your point, I think the broader story prize is what it means for the board. And are-- they are they as responsible as they should be?
JULIE HYMAN: Right. I mean, when this comes on the heels of course, as well of a Delaware court slapping down his pay package and implying that the board was not doing its due diligence and its duty. And I think that drugs are salacious. The drug allegations are salacious and all that. But as we're talking about it, really, it comes to the core of is this a board that has enabled bad, erratic, whatever you want to call it, behavior on the part of Elon Musk? And is that indeed best for shareholders? And obviously, it's a lot easier to ask these questions, Pras, when the stock is down as much as it is down. What, it's down something like 40% from its highs last year. And I think it's down something like 27% thus far this year.
PRAS SUBRAMANIAN: Yeah. I mean, a quarter of the value kind of gone in the last month. And the big thing you mentioned is that case, the Delaware case about how the judge there said that the-- the process to determine Musk's pay was, quote, "deeply flawed." The judge said that Chair Robin Denholm was lackadaisical in her approach to oversight with Musk and everything sort of going on with that company. And I think that--
JOSH LIPTON: Or is it also a true prize, just to be needed--
PRAS SUBRAMANIAN: Yeah.
JOSH LIPTON: --that and correct me if I'm wrong. Tesla investors saw that plan and voted on it, right? And then Musk hit his targets. I mean, we should note that. It's not as though it was under the radar.
JULIE HYMAN: Well, the allegation is that they were not transparent enough when they set the targets and that they were sort of low-hanging fruit for him to hit. Isn't that the sort of what is an issue here?
JOSH LIPTON: That's my point. I mean, I just want to make it clear to the audience. It's not as though this is just on the board. Tesla shareholders saw that plan, approved it, and he did hit his targets. Now, some may-- I know some of them apparently are arguing, well, I didn't have all the information I should have 10 years ago. I mean, a lot of people-- yeah, we can also skip ahead and say I didn't have the information I had 10 years from when I should have. I just want to make it clear to the audience. They did see the plan, correct?
PRAS SUBRAMANIAN: It's interesting because these-- these-- these targets are really audacious, right? And somehow he hit them, and he made a lot of money.
JOSH LIPTON: In 2018 people didn't even know if Tesla was going to be around.
PRAS SUBRAMANIAN: Right, right.
JOSH LIPTON: I mean, right.
PRAS SUBRAMANIAN: But it makes you wonder, you know, sort of-- Musk has been sort of, I don't want to say, cagey with the truth but basically kind of audacious about what the goals can be for the company to hit. FSD is one big sort of a factor here. Did he sort of make some promises that weren't necessarily going to be true in order to hit these big, audacious goals? I'm not alleging-- I'm just alleging that, because he really hit some--
If you're a shareholder and you look at these goals, they're-- they're pretty very, very, very out there. You wouldn't necessarily think they would hit all of them, but they did from a stock price point of view. And then he got the big-- big awards. So what does that make you think about what he says about the company going forward? I'm not-- I'm not sure. But the board should be more on top of these things, I think. And I think you're right, Julie, about that. What are you disclosing about what this-- this package is exactly to the actual shareholders?
JULIE HYMAN: Right. And what are the relationships between the board members and Musk himself, you know? It seems like they-- some of them have relationships with his privately-held companies as well. Also as the journal points out, they are unusually well paid versus Board members across corporate America.
PRAS SUBRAMANIAN: Right.
JULIE HYMAN: So that's part of it too.
PRAS SUBRAMANIAN: Massive payments. There's one quick thing. I'm kind of curious about this. In the Valley at least, right, you have a lot of people who are on boards, who are executives, who own bits and pieces of other companies, is it-- was it more so the case with Tesla than other tech companies, for instance, like the PayPal mafia and people like that? Like, is that sort of the norm out there in the Valley? I'm not sure.
JOSH LIPTON: Well, I'm sure any number of directors probably there is a sense of a kind of live and let live, right? Where you feel like, listen, this guy, when he goes to Burning Man, what he's doing on his own time, you know, as long as it's not affecting the business, maybe they kind of-- the feeling is I'm not going to step in at this point, right? Now this-- this-- this journal article raises a host of new questions. But I think you kind of nailed it. That's sort of what's really being debated here is that relationship.
PRAS SUBRAMANIAN: Yeah, and then long term value for stockholders, right?
JULIE HYMAN: Yes, most definitely.
PRAS SUBRAMANIAN: Yeah.
JULIE HYMAN: All right. Thanks, Pras. Appreciate it.