Elizabeth Warren Writes to Tesla Chairman Over Elon Musk’s Potential Conflicting Interests

Senator Elizabeth Warren who sits on the Senate’s Banking Committee has sent a letter to Tesla Chairperson Robyn Denholm expressing concerns over CEO Elon Musk’s potential conflicts of interests. The billionaire has faced the allegations regularly but things have been particularly charged up this year.

In her letter, Warren said, “Tesla’s Board of Directors appears to be failing to meet its fiduciary duties to Tesla’s shareholders by neglecting to address company CEO Elon Musk’s apparent conflicts of interest.”

Warren Flags Elon Musk’s Conflict of Interest

She pointed to Musk heading multiple private companies like SpaceX, Neuralink, The Boring Company, and X Corp. Warren said that it’s the responsibility of Tesla’s board to ensure that Musk is meeting his responsibilities towards Tesla. “In the event that the Board fails to meet this duty, I am requesting additional information to understand whether intervention by the Securities and Exchange Commission (SEC) or other regulatory agencies may be necessary,” said Warren in her letter.

To be sure, this is not the first time that Musk has faced allegations of conflicting interests, and apprehensions have been cast on the board’s independence. Earlier this year, a Delaware court voided Musk’s $56 billion compensation plan in yet another blow to the mercurial CEO.

Delaware Judge Questioned the Independence of Tesla Board

In her 200-page ruling, Chancery Court Judge Kathaleen McCormick said, “In addition to his 21.9% equity stake, Musk was the paradigmatic “Superstar CEO,” who held some of the most influential corporate positions (CEO, Chair, and founder), enjoyed thick ties with the directors tasked with negotiating on behalf of Tesla, and dominated the process that led to board approval of his compensation plan. At least as to this transaction, Musk controlled Tesla.”

Tesla yet again approached shareholders and the package was approved.

Musk Threatened to Build AI Products Outside Of Tesla

In a post on X earlier this year, Musk said, “I am uncomfortable growing Tesla to be a leader in AI & robotics without having ~25% voting control. Enough to be influential, but not so much that I can’t be overturned.”

Musk added, “Unless that is the case, I would prefer to build products outside of Tesla. You don’t seem to understand that Tesla is not one startup, but a dozen. Simply look at the delta between what Tesla does and GM. As for stock ownership itself being enough motivation, Fidelity and other own similar stakes to me. Why don’t they show up for work?”

Here it is worth noting that AI and software including autonomous driving account for the bulk of Tesla’s valuation. The company’s market cap is currently below $650 billion and peaked at above $1.2 billion in November 2021.

Musk has also acknowledged multiple times that the bulk of Tesla’s valuation comes from the software business. That said, the automotive business still accounts for the bulk of Tesla’s revenues.

Warren Questioned Musk Prioritizing His Private Companies for Nvidia’s Chips

Nvidia’s top-of-the-line artificial intelligence (AI) chips have been in short supply amid strong demand across the world, especially in the US. There were reports that Musk diverted Nvidia’s chips from Tesla to X which Warren said was a “glaring conflict of interest” – especially as he has sought to position Tesla as an AI company.

The question of Musk diverting Nvidia’s chips to his other companies also featured during Tesla’s Q2 2024 earnings call last month to which Musk replied that Tesla did not had a place to try them back then.

“It would have been a waste of Tesla capital because we would just have to order H100s and have no place to try them on. So I was just — this wasn’t a let’s pick xAI over Tesla. There was no — the Tesla data centers were full. There was no place to actually put them,” added the billionaire.

He emphasized that it was “in Tesla’s interest, not contrary to Tesla’s interest” as it would have made no sense to buy the chips that it would not have brought online.

He also clarified why he created his AI company (xAI) outside of Tesla. According to Musk, he found it hard to recruit AI talent for Tesla as many only want to work on artificial general intelligence (AGI) and not “Tesla’s specific problems.”

Musk said that the only two options were to let them do a startup where he was involved or a startup where he wasn’t involved. Musk obviously chose the former and emphasized that “they were not going to come to Tesla under any circumstances.”

Warren Asks Pointed Questions to the Tesla Board Over Musk’s Conflicting Interests

Meanwhile, in her letter, Warren said, “in recent years, the Tesla Board has allowed Mr. Musk’s apparent conflicts of interest to proliferate, thereby exposing shareholders to harm. In doing so, the Board appears to be neglecting its duty to adequately govern the company and refusing to establish clear policies to address the risks to Tesla posed by Mr. Musk’s multiple apparent conflicts of interest.”

She asked Tesla’s board 10 pointed questions. These include

• Did Musk divert chips meant for Tesla to X?
• What guardrails have Tesla’s board kept to protect the company from Musk’s conflict of interest and whether were they ever enforced?
• Did the board take any actions when Musk threatened to build AI products outside of Tesla?
• Has Tesla’s board reviewed his activities to ensure he is not appropriating the company’s resources including manpower for the benefit of xAI?
• Are there any agreements – formal or informal – between Tesla and X, or xAI?

In her letter, Warren has asked Tesla’s chairperson to reply to her questions by August 23. All said, many observers have raised concerns over Tesla’s functioning as a professional public company with an independent board even after Musk quit as the chairman. Markets would now look forward to Denholm’s response to Warren’s letter to gauge what actions the board took to address Musk’s conflict of interest.