Pension funds and other institutional investors are calling on Tesla's board to improve corporate governance and control CEO Elon Musk, or risk their seats.
In a recent letter to the board, a group of 17 investors holding a combined $1.5 billion of Tesla stock expressed concern that Tesla's board of directors "is failing to adequately represent the interests of Tesla's shareholders."
The investor group signing the letter includes the New York City Comptroller's Office, which oversees the city's $248.2 billion pension system; AP7, Stockholm, with 900 billion Swedish kronor ($87.1 billion) in assets; PensionDanmark, Copenhagen, with €40 billion ($44 billion) in assets; Nordea Asset Management; Amalgamated Bank; and the Socially Responsible Investment Coalition.
In the April 21 letter, the investors said that each initially added Tesla to their portfolios because they saw it as a leader in producing products and services essential for a green economy. "Over time, however, we have grown increasingly concerned with governance and leadership issues at the company," the letter said. "Corporate boards can and should intervene if a chief executive appears to be distracted or overly focused on other ventures."
Those other ventures include SpaceX and Twitter, which as of April 3 had lost $582.4 billion in market capitalization since Mr. Musk first disclosed his stake in it in April 2022. "Meanwhile, Tesla is increasingly losing market share," the letter said.
The investors also cited poor human capital management at Tesla, including reports from workers and regulators that "point to a toxic culture at Tesla factories" that has triggered multiple lawsuits alleging racial discrimination, sexual harassment, hostile work environments and anti-union activity. Those and other charges have led to costly employee turnover as much as three times higher than the industry average, the investors said, adding that "poor workplace equity practices are linked to lower returns."
They also cited three criminal probes of Tesla's Autopilot system that Mr. Musk has not addressed and significant human rights risks related to Tesla's decision to open a showroom in Urumqi, China, where human rights abuses have been documented.
The Tesla board's failure to ensure that Mr. Musk addresses Tesla's many challenges has led the investors to lose confidence in it, they said. "Without a fulltime CEO and a Board willing to provide meaningful oversight, we are concerned that Tesla will not be prepared to effectively navigate the increasingly competitive environment for EV sales, the evolving global regulatory landscape, shifting consumer preferences, ongoing supply chain challenges, and investors' expectations," said the letter.
The signatory investors also asked to meet with the board by May 25 and said they will act independently regarding proxy voting but "are aligned in our belief that board oversight and director independence are relevant to director re-election voting decisions."
Tesla's board will also face a shareholder proposal on supply chain labor issues at its May 16 annual meeting. Filed by As You Sow on behalf of Investor Advocates for Social Justice, it asks the board to report on plans to eradicate child labor and forced labor in its supply chain by 2025 and to introduce more supply chain transparency.
