Elon Musk's Nvidia Chip Diversion Sparks Shareholder Outrage

Elon Musk Faces Backlash Over Nvidia Chip Diversion Amid Shareholder Vote on Compensation

by Faruk Imamovic
Elon Musk's Nvidia Chip Diversion Sparks Shareholder Outrage
© Getty Images/Apu Gomes

Several major Tesla shareholders have voiced their discontent over Elon Musk's recent decision to redirect a substantial shipment of valuable Nvidia chips away from the electric-vehicle company, further questioning the justification for his multibillion-dollar pay package. This controversy comes just weeks before a crucial shareholder vote on June 13 regarding the reinstatement of Musk's compensation deal.

Rising Opposition Among Shareholders

In May, a group of eight Tesla shareholders penned a letter urging their peers to vote against Musk's hefty compensation package. This faction is part of a growing movement of investors who are dissatisfied with Musk's leadership and compensation. The package, now estimated to be worth around $46 billion, was previously struck down by Delaware Chancery Court Chancellor Kathaleen McCormick in January. She deemed the process that led to this "unfair price" for Musk as "deeply flawed."

The recent revelation, reported by CNBC, that Musk diverted a $500 million shipment of Nvidia chips—essential for AI technology—from Tesla to his social-media platform, X, has only fueled this opposition. The internal memo from Nvidia, cited by CNBC, highlighted that this diversion occurred in December, several months before Musk emphasized Tesla's commitment to AI during an April earnings call. During that call, Musk declared plans to significantly increase the number of Nvidia chips at Tesla from 35,000 to 85,000 units by the end of 2024.

Musk defended his actions on X, stating, "Tesla had no place to send the Nvidia chips to turn them on, so they would have just sat in a warehouse." He added that the south extension of Giga Texas, which will house 50,000 H100s (Nvidia chips) for Full Self-Driving (FSD) training, is almost complete.

Investor Concerns Over Musk's Priorities

Despite Musk's explanations, some shareholders remain unconvinced. Tejal Patel, executive director of SOC Investment Group, criticized Musk's decision, arguing that it exemplifies Musk's tendency to prioritize his other ventures over Tesla due to inadequate oversight by the company's board.

"The diversion of Nvidia's processors to X and xAI is just another example of Tesla's CEO reallocating Tesla's resources in favor of his other businesses and treating Tesla as though it is his own coffer," Patel wrote in an email to Business Insider. She questioned why these valuable processors were "just sitting there" in the first place and why such an operational issue was not anticipated by management. "Whatever decision-making there was for the processors to go unused by Tesla would have been up to CEO Musk," she added.

Patel's sentiment is echoed by other shareholders who are pushing to block Musk's compensation package and the reelection of his brother, Kimbal Musk, and James Murdoch to Tesla's board. The coalition, comprising pension-fund managers, an asset-management firm, and a bank, includes notable entities such as Amalgamated Bank, AkademikerPension, Nordea Asset Management, New York City Comptroller Brad Lander, SHARE, Unison, and United Church Funds.

Lander described Musk's chip diversion as a "red flag to investors," highlighting growing concerns about Musk's commitment to Tesla and his apparent conflicts of interest. "There is a pressing need at Tesla for a genuinely independent board that will ensure Musk prioritizes company interests," Lander asserted.

Elon Musk
Elon Musk© Getty Images/Apu Gomes

The Stakes of the Upcoming Vote

The total ownership of Tesla stock by the eight shareholders remains unclear, but five of them—Amalgamated Bank, Unison, Nordea, the New York City Retirement System, and United Church Funds—collectively represent more than 4.9 million shares, valued at over $878 million as of the latest figures.

Additionally, the California Public Employees' Retirement System (CalPERS), which holds approximately 9.5 million shares of Tesla stock, has also indicated its intention to vote against Musk's pay package. "We do not believe that the compensation is commensurate with the performance of the company," CalPERS CEO Marcie Frost told CNBC. However, a CalPERS spokesperson declined to comment on Musk's decision to divert the Nvidia shipment.

The upcoming vote on Musk's compensation package is poised to be a critical moment for Tesla and its CEO. With increasing scrutiny from influential shareholders and growing concerns about Musk's management decisions, the outcome could significantly impact the future direction of the company and its governance.

Musk's Vision and Investor Skepticism

While Musk has grand visions for Tesla, including the development of autonomous vehicles and expanding the company's AI capabilities, his recent actions have sparked skepticism among investors. The diversion of Nvidia chips, crucial for AI training, to his social-media platform X instead of Tesla raises questions about his priorities and the level of oversight within the company.

Investors are particularly concerned about the potential conflicts of interest arising from Musk's involvement in multiple high-profile ventures. As the CEO of both Tesla and X, Musk's ability to balance the demands and resources of each company is under intense scrutiny. The shareholders argue that this dual role might be detrimental to Tesla's long-term success, as it could divert attention and resources away from the automaker's core mission.

Calls for Stronger Corporate Governance

The calls for stronger corporate governance at Tesla are not new, but the Nvidia chip diversion has amplified these demands. Shareholders are pushing for a more independent board that can effectively oversee Musk's decisions and ensure that the company's interests are prioritized. This includes re-evaluating Musk's compensation package, which many believe is excessively high and not aligned with the company's performance.

The growing dissent among Tesla's institutional investors highlights the need for a more robust governance framework that can address potential conflicts of interest and hold the CEO accountable. The upcoming vote on June 13 will be a pivotal moment in determining whether shareholders can effect meaningful change within the company's leadership structure.

Elon Musk