Should Tesla Advertise? TSLA Shareholder Meeting Scheduled, Proposal Discussion

Tesla has scheduled their annual meeting for July 7th, 2020.
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Tesla Annual Shareholder Meeting Scheduled

Tesla has announced that they will hold this year’s Annual Shareholder Meeting on July 7th, 2020 in Mountain View, CA. As always, this event will be stream lived, including video. Tesla does plan to hold the meeting in person.

Although we currently intend to hold the 2020 Annual Meeting on July 7, 2020 and in person, we will continue to monitor public health and travel safety protocols required or recommended by federal, state and local governments. If necessary or advisable to protect our personnel and stockholders, we will change the date, time, location and/or format of the 2020 Annual Meeting. If we do so, we will publicly announce any such changes in advance, such as through a press release and/or a filing with the Securities and Exchange Commission.

Tesla's shareholder meetings are generally noteworthy, including presentations from Elon Musk and other key executives. For a look at the structure and general content, Tesla's 2019 shareholder meeting is still available to watch.

Shareholder Meeting Proposals

Seven proposals are up for vote by TSLA shareholders at the shareholder meeting. Three have been proposed by Tesla, while four have been proposed by shareholders. The board has recommended voting "For" the first three proposals, and "Against" the four shareholder proposals.

Tesla's proposals are relatively standard items relating to Board of Director elections, executive compensation and their public accounting firm. The shareholder proposals relate to advertising, voting structure, employee arbitration, and reporting of human rights.

Proposal Four - Should Tesla Advertise?

Of the proposals, the fourth is likely to be the most controversial.

Should Tesla spend at least $50/car produced to advertise its products/services in order to increase brand and product awareness and interest, achieve other goals set forth in the supporting statement below and to help mitigate and/or reduce harm to Tesla's goals, objectives, reputation and finances?

Musk has expressed his distain for advertising in the past. This is understandable from a first principles point of view, as that money can go towards expanding production or offering a lower price for Tesla's vehicles, both of which could accelerate Tesla’s growth and mission.

As with most topics, though, there are nuances worth considering. One consideration is that demand is not a singular concept and it depends on time and regionality. As such, advertising can be a lever to smooth out these demand pockets. Tesla may have been doing this when lowering prices earlier this week. It is possible that advertising could be a more cost-effective method, allowing Tesla to capture higher profits and expand capacity faster or choose to further vertically integrate, accelerating the advent of sustainable energy.

There is a lot of education needed in terms of EV adoption and how revolutionary Tesla's products are. Tesla does a spectacular job of marketing, that can't be understated, but spending money on advertising could help further the cause even more and be a net positive for the company and the world in general. Musk has acknowledged that advertising will probably make sense for Tesla at some point in the future.

This is not an argument that advertising is the right move for Tesla, just an argument for open-mindedness. It is very possible that it's not that right time yet. As it relates to the shareholder proposal, if you can't trust management to make proper decisions on these matters, it may be time to reevaluate whether or not you want to hold the shares in the first place.

TSLA Initiated With Outperform Rating by Daiwa

Daiwa has initiated coverage of TSLA stock with an Outperform rating and a $910 price target. Their analyst Jairam Nathan in a research note to the investors talks about the reason for his rating.

“Tesla is on the cusp of replicating its success in the U.S. electric vehicle market to potentially larger markets in China and Europe” - Jairam Nathan

Nathan is forecasting Tesla to deliver 450,000 units in 2020 and 3 million vehicles per year by 2030. On Tesla's last earnings call, Musk stated that a compound annual growth rate below 40% would be "very shocking" to him. That rate translates to 15M vehicles per year by 2030.

Nathan's forecast would mean Musk misses his worst case estimates by 80 percent, which is arguably a bolder forecast than projecting in-line with Musk's estimates. Nathan's price target is based on a discounted cash flow model out to the year 2030, so even at 3 million vehicles, he believe's TSLA would be undervalued today.

UK Gigafactory?

In an article titled “UK Government seeking site for sprawling Tesla EV 'Gigafactory'”, Automotive Management Online reported that the UK government is on “the hunt” for a location of a new Tesla gigafactory. Musk has confirmed that Tesla's next Gigafactory will be in the US, but that doesn’t rule out possible plans for other regions. However, Musk has also stated in the past that the Brexit situation had made a UK Gigafactory too risky.

Another consideration would be the size of the land Tesla is reportedly seeking.

"An article published in Property Week said that the Department for International Trade (DIT) is seeking a four million square foot site to accommodate an electric vehicle (EV) research, development and manufacturing plant for Elon Musk’s car brand." - Automotive Management Online

4 million square feet is roughly 92 acres. Giga Shanghai is around 210 acres, so this would be less than half that size. Tesla has almost 3,000 acres for Giga Nevada and around 740 acres for Giga Berlin. That said, Tesla is indeed looking for ways to reduce the footprint for their manufacturing process so perhaps this is a possibility.

Other Notes :

Ron Baron, whose investment management firm Baron Capital has a significant stake in TSLA, is expected to appear on CNBC on Monday, June 1st. Tesla would likely be discussed, if so.

Writing assistance by Pranshu Agarwal