Elon Musk has gone where no CEO has gone before, hitting the campaign trail with Donald Trump, jumping for joy on stage with the presidential candidate, echoing inflammatory political rhetoric on social media and even giving away daily prizes of 1 million dollars for registered voters on the move. states.
Given Trump’s polarizing personality, you might wonder if the Tesla CEO’s high-profile political partisanship risks turning off some potential car buyers. According to Tesla’s lawyers, the answer is no.
In the company’s latest 10-Q filing with the SEC, Tesla does not mention Trump or any of Musk’s political activities in the “risk factors” section, which has not been updated since Tesla’s annual report from January. The annual report’s lengthy list of potential risks notes that the company is heavily dependent on Musk’s services (“Technoking”) and that employees may leave or look elsewhere “due to various factors,” which may include “any negative publicity relating to us. .”
But when it comes to the Tesla technoking’s high-profile move to connect his personal brand with MAGA politics, something that has grown dramatically since July when Musk publicly endorsed Trump and announced a Super Pac, the company apparently doesn’t see any specific business risk.
Some Tesla investors are not so calm. Dozens of shareholders recently asked Tesla to disclose data about the extent to which Musk’s policies have affected hiring and sales. Some said Musk should either stop campaigning or step down as CEO.
As with much of what Musk does, his first dive into politics is challenging established norms, including the verbose language of regulatory filings. Political activism isn’t something that usually shows up in Securities and Exchange Commission reports, corporate governance and securities experts say. But there is little precedent for Musk, the face and head of a publicly traded company and one of the world’s richest men, showing such a deep and dedicated commitment to one of the world’s most controversial political figures.
“It would be strange at best to rank an individual CEO as a risk factor,” said Hillary Sale, director of Cboe US Securities Exchanges, Cboe Futures Exchange and Cboe SEF and a Georgetown University professor. “If a director felt that way about the CEO, they would have a fiduciary duty to reconsider the CEO.”
The SEC requires firms to disclose all kinds of information, and companies can voluntarily provide additional risks, as long as those risks are material—meaning they would significantly change business operations or regulations. Firms are often open about their executives’ extracurriculars (see Meta on Mark Zuckerberg’s affinity for extreme sports, or Tesla’s own comments on Musk’s attention to other business ventures). But some issues don’t come up – in 2008, Apple faced questions about whether it had a duty to disclose Steve Jobs’ declining health.
The U.S. Supreme Court ruled earlier this year that investors cannot bring a lawsuit over omissions in an SEC filing. The SEC itself could theoretically bring a case, but the agency does not mandate disclosures about political activities, and doing so would likely be criticized as an affront to free speech. (Or in Apple’s case, an invasion of privacy).
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And since Musk’s political activities are far from secret, investors aren’t completely in the dark, notes Allan Horwich, a former securities attorney turned professor emeritus at Northwestern University. The question is whether Tesla knows anything about how Musk’s political display is affecting the stock’s value — and failing to provide it in response to persistent shareholder questions.
“We know what he is doing, but do they know what the risks are that he has done this to the company?” Horwich 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?”
At a special forum for Tesla shareholders hosted by the company ahead of quarterly earnings earlier this week, an investor asked whether the board has made efforts to ensure that “Musk’s political involvement does not undermine Tesla’s core mission— s and protect shareholder value and brand integrity.” The post garnered 533 upvotes from investors who collectively own more than 397,000 Tesla shares, according to company records.
Tesla did not respond to Fortune’s request for comment.
Investors are used to Musk’s tricks
Musk has more freedom to run the company the way he wants than most other publicly traded CEOs, thanks to investors voting for a pay package that gives him roughly 20% control of Tesla, adds Adam Wowak , professor of management at the University of Notre Dame. . The voting share combined with his deep ties to the brand give him more power over the board than his peers, who may have to direct things like big political donations or board member endorsements.
It’s also not unusual for Musk to be involved in affairs that could cause problems for other CEOs of public companies — some might argue it’s part of his brand. He famously smoked pot on the Joe Rogan podcast in 2018. And he has a history of clashing with the government agencies that oversee his various businesses, which include space exploration company SpaceX, tunnel company Boring Co, implant firm human Neuralink and AI developer X.AI, to name a few.
When the Federal Aviation Administration went after SpaceX over rocket launches, Musk threatened to sue for regulatory overreach. He has said that Democrats find his social network X so threatening that a Harris administration would imprison and prosecute Musk personally and “shut him down by any means possible.” He condemned the “weaponization” of government agencies in response to a privacy investigation by the Federal Trade Commission.
Musk’s alliance with Trump raises risks. A Trump victory could be a boon for Tesla given that Trump has mentioned appointing Musk as his “secretary of cost-cutting.”
But however the election goes, Musk’s full support for Trump clearly puts Tesla in a spotlight that’s far brighter than that faced by CEOs who donate to or support a political candidate or cause.
“In general, CEOs tend to exercise some caution about getting deeply involved in politics because not all shareholders agree,” notes Sales, the Georgetown professor.
Without speculating whether such entrenched political ties should be reported to the SEC, “there’s definitely reason to think that this kind of repeated behavior by a CEO of a public company could be a serious risk to a firm’s value,” Chris said. Poliquin. a professor of management at the UCLA Anderson School of Management.
As investors awaited Tesla’s quarterly results this week, the company’s shares fell 14% since Trump’s endorsement of Musk in mid-July. The S&P 500, on the other hand, had gained 3% over the same period.
Tesla continued to report a modest 2% rise in car sales, but topped Wall Street’s profit targets thanks to regulatory credit sales to other automakers and strength in its energy business. Musk said his “best guess” was that next year’s “vehicle growth” would increase between 20% and 30%.
Tesla shares are now up 7% since Trump’s endorsement of Musk.