Elon Musk's Warning About AI Development Outside Tesla Exposes Potential Breach of His Duties as CEO

Elon Musk is the CEO of Tesla who wants to develop robotics. (photo: x @elonmuskusaaaaa)

JAKARTA - Elon Musk's warning about developing artificial intelligence (AI) and robotics outside Tesla, unless he gains more voting control, could violate his duties as CEO and raise questions about the company's valuation. This is what governance experts and analysts say.

The loudmouth billionaire said Monday January 15 that he would be "uncomfortable" building Tesla into a technology leader unless he had about 25% voting control of the company.

"Enough to be influential, but not so much that I can't be overthrown. Unless that happens, I'd rather build products outside of Tesla," he said on his X social media. Tesla shares (TSLA.O) rose about half a percent to 219.91 US dollars.

The move marks a sudden change for Musk, who has long promoted Tesla as an “AI/robotics company” because of its partially automated “Full Self-Driving” software and humanoid robot prototypes.

"The problem is that his tweets suggest that in his current capacity as CEO and chairman, he is not only denying Tesla profitable opportunities based on his personal preferences, but also diverting them to his own private companies," said Ann Lipton, a professor at Tulane Law School.

"This is a conflict of interest that represents a breach of his obligations as trustee to Tesla," Lipton said.

Some analysts also said that a move to move technology development outside of Tesla would only hurt the value of its shares by eliminating potential growth opportunities.

CEOs and directors are prohibited from taking business opportunities for themselves that are owned by the company, according to a legal principle called the corporate business opportunity doctrine.

"It would be illegal for him to proceed with building the technology advertised by Tesla without the company's permission," said Charles Elson, founding director of the Weinberg Center for Corporate Governance at the University of Delaware.

Musk, Tesla's largest shareholder with a stake of 13%, owns several companies including SpaceX, Neuralink, X, and xAI - his latest venture which hopes to compete with ChatGPT maker OpenAI.

However, his voting control of Tesla has fallen in the past two years as he sold tens of billions of company shares to fund his purchase of the platform formerly known as Twitter.

"Music is trying to regain control it has lost by selling its shares to fund Twitter," said CFRA Research analyst Garrett Nelson. "We view Musk's lawsuit as posturing ahead of a Delaware court ruling regarding his previous compensation package."

The Tesla CEO is awaiting a ruling in a shareholder lawsuit that accuses him of using his dominance over the company's board to obtain a disproportionate compensation package that does not require him to work full time at the electric car maker.

The investor, Richard Tornetta, has asked the court to overturn the pay package, which if granted could make it difficult for the board to approve a new compensation plan of similar size.

Estimates from executive pay research firm Equilar in 2022 show that Musk's compensation package is about six times larger than the combined salaries of the top 200 executives in 2021.

Musk said Monday there was no "disagreement" with the board over his new compensation package and a pending decision was holding up talks.

Some experts believe he will see little resistance from the board to his demands, pointing to Musk's importance at Tesla and his close relationship with some members, such as his brother Kimbal.

"Tesla's board has generally been tolerant of its erratic behavior in the past, making it easier compared to other tech companies to push through lawsuits like this," said Xu Jiang, an associate professor at Duke University's Fuqua School of Business.

"It will likely face strong resistance from large shareholders like Vanguard and BlackRock. My conjecture is that resistance, if any, from board members will stem from their concerns about resistance from shareholders."

Analyst J.P. Morgan's Ryan Brinkman said Musk's latest comments raised the possibility of his departure as CEO, or at least a grant of shares to him that would reduce investors' holdings. He added that publicly disclosing Musk's views may have been a move to put pressure on the board.

Some Tesla observers feel that the company has no choice but to comply with Musk's wishes or risk hurting efforts in AI and robotics.

"If he's not given what he wants, he's going to sit back and let them die. That's not in investors' best interests," said Gene Munster, managing partner at Deepwater Asset Management.