DealBook: Tesla’s $29 billion do-over
Good morning. Andrew here. Tesla shares are up today after the company revealed its plan to give Elon Musk part of his long-promised blockbuster payday — some $29 billion, as its original proposal remains stuck in the Delaware courts. Today's announcement also includes an interesting disclosure: that efforts to fairly compensate Musk are "limited by the capacity of our current equity incentive plan. As such, we are also working on next steps to address that issue." The board also described trying to better keep "Elon's energies focused on Tesla." Depending on how you read those sentences, it could signal that Tesla may consider buying a stake in xAI in the future, something that's been widely speculated about. Given the importance Musk places on artificial intelligence — and the fact that Tesla is now using some of xAI's technology in its vehicles — such an investment wouldn't be out of the question. To critics, the sheer scale of the stock grant to Musk is too much. It's true that some executives, like Jeff Bezos at Amazon, did not top up their initial stakes in their companies, and that other C.E.O.s, including Satya Nadella at Microsoft, have generated trillions in market value with significantly less compensation. But remember that a specific agreement was made between Tesla's board, Musk, and ultimately, shareholders approved of the plan. Twice. (Was this newsletter forwarded to you? Sign up here.)
A $29 billion "first step"Tesla just revealed how it intends to make good on its plan to give Elon Musk a blockbuster compensation package: a roughly $29 billion stock grant to recognize "his contributions to our company and shareholders." The move, described as a "first step, 'good faith' payment" to Musk, comes as the company continues to battle in court over reinstating an even bigger pay package that a Delaware judge struck down. And it is occurring as Tesla experiences falling global sales and focuses on Musk's vision of autonomous vehicles and artificial intelligence. What's in the pay package: Tesla is offering Musk a "down payment" of about one-third of what he would have received under the prior agreement, representing roughly 3 percent of the company. While that's an astounding figure, remember that Tesla's market capitalization is still nearly $1 trillion, a testament to the value created under its C.E.O. since the company's original plan was conceived. The context: Back in 2018, I broke the news of Musk's initial pay package. At the time, it seemed audacious: He would receive no compensation unless Tesla surpassed some truly enormous hurdles, including a significant increase in the company's market capitalization (then around $50 billion). I called it "about as friendly to shareholders as they come" because of how it tied Musk's compensation to the company: If he didn't perform, "shareholders pay nothing." But a Delaware judge rejected it, ruling that Tesla's board hadn't been independent enough and that shareholders hadn't received proper disclosure. Even after shareholders overwhelmingly re-approved the plan, the judge struck it down again. Some things are different now: Tesla moved its incorporation to Texas, which is seen as more management-friendly than Delaware. The pay package announced today was approved by a special board committee composed of just two members: Robyn Denholm, Tesla's chair, and Kathleen Wilson-Thompson, another director. And the company said that if Delaware courts reinstate the 2018 pay package, either this stock grant will be forfeited or a portion of the old one will be. "To put it simply, there cannot be any 'double dip," Denholm and Wilson-Thompson wrote in a letter to shareholders. What hasn't changed is Tesla's rationale for paying Musk so much. Denholm and Wilson-Thompson wrote that the company was focusing more on becoming "a leader in A.I., robotics and related services," requiring a leader with a strong vision and execution skills. That person, they wrote, was Musk — who has threatened to leave Tesla if he doesn't get what he believes is fair compensation and adequate control of the carmaker.
Berkshire Hathaway takes a $3.8 billion hit from Kraft Heinz. Warren Buffett's conglomerate disclosed in its earnings report on Saturday that it had written down the value of its stake in the consumer products giant. It's the latest sign of how the deal — which Buffett helped shepherd into existence in 2015 — has weighed on Berkshire. (Kraft Heinz is now weighing a breakup.) Boeing workers who make fighter jets go on strike. About 3,200 machinists in the St. Louis area, who help build aircraft like the F-15 jet and components for the 777X commercial airliner, walked off the job today after rejecting proposed increases to wages and retirement contributions. The move is the latest headache for Boeing, which despite reporting blockbuster revenues last week, is still battling back from several damaging episodes in recent years. Corporate earnings are in focus this week. Quarterly reports by Disney, McDonald's, Shopify and Uber, all on Wednesday, could shed more light on various aspects of consumer spending. Results from Novo Nordisk (Wednesday) and Eli Lilly (Thursday) are expected to reveal how supply and demand for blockbuster weight-loss drugs are going. Others to keep an eye on: Palantir (today); AMD and Pfizer (Tuesday); and SoftBank (Thursday). Data dependentThe fallout from Friday's lousy jobs report could dominate Washington and Wall Street for some time. S&P 500 futures point to a slight rebound today. But that's not enough to recoup last week's market losses as investors brace for a slowing economy and President Trump's multifront assault on trading partners, the Fed — and now on the government's data crunchers. A recap: On Friday, Trump fired Erika McEntarfer, the head of the Bureau of Labor Statistics, the organization that issues the monthly nonfarm payrolls report. It had reported a sharp slowdown in hiring over the past three months, nudging up the unemployment rate to 4.2 percent, contradicting Trump's assertions on social media that the country was "doing GREAT." While most economists think a recession is unlikely, that kind of hiring downturn has historically heralded rough economic times ahead. Trump claims the problem lies with the data collectors. He said that the labor statistics was "RIGGED in order to make the Republicans, and ME, look bad." He didn't offer proof. The reliability of some government data has been under scrutiny for a while. Deconstructing the usually mundane task has been done by both those aligned with Trump and those worried that steep budget and job cuts may have hampered collection. Politicizing or meddling with data collection risks scaring off investors. "President Trump is now coming dangerously close" to doing just that, Daniel Hornung, a former deputy director of the National Economic Council, wrote on Friday, adding that it "would be a terrible mistake, with lasting economic consequences." Kevin Hassett, the director of the National Economic Council, tried to downplay the controversy yesterday. He told NBC News that the administration was "absolutely not" trying to discredit the messenger. But he added that "the president wants his own people there, so that when we see the numbers, they're more transparent and more reliable." (Perhaps worth noting: Hassett is a contender to replace Powell as Fed chair.) Trump has said he aims to name a replacement for McEntarfer this week. He also intends to name a successor to Adriana Kugler, a Fed governor who announced on Friday that she would step down from the central bank this week, months ahead of schedule. That said, the weak job numbers could persuade the Fed to lower borrowing costs, something Trump wants. The odds of a September cut jumped to 83 percent this morning, nearly double where they were before Friday's jobs report. In many ways, Friday's data reinforces what business leaders have said for months: anxiety over tariffs and an increasingly thrifty consumer could dent economic growth. A new flight path for BladeFor some in the jet set crowd, Blade Air Mobility has become synonymous with services to beat traffic to get to ritzy locations — by flying over it in a helicopter. But the company announced today that it planned to sell its core commercial passenger business for up to $125 million to Joby Aviation, a start-up developing electric aircraft that can take off and land vertically. The deal: Joby will buy Blade's original operations — known as "urban air mobility" — in the U.S. and Europe and the Blade brand with cash or stock. Up to $35 million is contingent on the deal meeting certain milestones and key employees staying on. (Rob Wiesenthal, Blade's founder and C.E.O., will continue to lead the business at Joby.) What the agreement doesn't include is Blade's medical transport division, which represented about two-thirds of the company's revenue in the first quarter of the year. That operation will remain publicly traded under the name Strata, though it has agreed to eventually use Joby's vertical takeoff and landing (VTOL, for short) aircraft. Behind the deal: Blade is known for transporting well-heeled passengers at significant cost: A one-way helicopter flight to the Hamptons from Manhattan can cost nearly $1,200 per seat. The company said that it flew more than 50,000 passengers last year from its network of terminals, including at John F. Kennedy International Airport and Newark Liberty International Airport. But Blade hasn't been profitable since going public in 2021. (It did so by merging with a so-called SPAC.) The company's shares have fallen by nearly half during that time. What Joby gets out of the transaction: The company, which also went public in 2021 via SPAC, says it would benefit by acquiring Blade's brand and network in New York City and southern France as it plans to introduce VTOL taxis. Joby plans to begin VTOL commercial flights in Dubai in 2026; U.S. approval for such flights is expected to take several more years. "Luckily, I took an early vacation this year, so I'm ready."— Frank Aquila, a senior M.&A. partner at the law firm Sullivan & Cromwell. A flurry of takeovers has kept deal makers especially busy this summer, leading many to prioritize closing transactions over the usual trips to the beach or to Europe. Silicon Valley goes hard techAs the tech world's focus shifts to artificial intelligence from consumer apps, Silicon Valley is undergoing its own transformation. Tech giants have scaled back on endless perks. Google, Meta, OpenAI and many venture capitalists have embraced the military-industrial complex. And the whiz kids are dropping out of college to build A.I. start-ups in San Francisco, not social platforms in Palo Alto, Calif. "Some call it the 'hard tech' era," The Times's Mike Isaac reports, "and the signs are everywhere." He writes: Tech giants like Google are no longer hiring in droves as they once did. And those with jobs at those behemoths are met by the watchful eyes of managers looking to cut dead weight rather than coddle employees. The region, long known for its capital-L Liberal politics, is no longer a political monoculture. A contingent of venture capitalists and entrepreneurs have spurred a rightward shift, leading to the rise of the "Liberaltarian" — a term coined by two Stanford political economists to describe the tech industry's proclivity toward trumpeting liberalism in some social issues but maintaining antigovernment posturing in regulating businesses. Alongside that change, industries that were once politically incorrect among techies — like defense and weapons development — have become a chic category for investment.
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