As Tesla shareholders prepare to vote on CEO Elon Musk’s 2018 compensation package that was voided by a Delaware judge earlier this year, reports suggest a conflict of interest as the billionaire reportedly diverted some of Nvidia’s most sought-after artificial intelligence (AI) chips to his other companies.

Musk is now leading Tesla, SpaceX, Neuralink, The Boring Company, X.ai (the latest AI startup), and also X (formerly Twitter) all at once. At least four of these – Tesla, X, SpaceX, and X.ai – are multi-billion-dollar companies that require a significant time commitment from Musk. X.ai incidentally raised $6 billion late last month which gave the OpenAI competitor a valuation of a mammoth $24 billion.

Delaware Judge Voided Elon Musk’s 2018 Compensation

In January, Chancery Court Judge Kathaleen McCormick voided Musk’s $56 billion compensation plan. The generous compensation that made Musk the highest-paid CEO in history was challenged by Tesla shareholder Richard Tornetta.

Among others, Tornetta argued that despite the pay structure offering him an extremely generous 1% of Tesla’s equity whenever the company achieved one of the 12 tranches, the board did not seek more time commitment from Musk.

Notably, since 2018, Musk’s commitment to his other business ventures has increased, especially after he bought Twitter in 2022 and later launched x.AI in 2023 after lambasting OpenAI (which he cofounded and abandoned).

The question of Musk reducing his involvement with Tesla, considering his association with multiple other companies, popped up during Tesla’s Q1 earnings call in April. Expectedly, Musk did not provide a straight answer to the question. He instead said that he barely takes time off and stressed, “I’m going to make sure Tesla is quite prosperous. And it is — like it is prosperous, and it will be very much so in the future.”

Is There a Conflict of Interest for Musk?

Musk shuffling his time between the multiple companies he manages is one thing. However, there are signs of a conflict of interest as emails obtained by CNBC show that he asked Nvidia to prioritize chips for X and X.ai before Tesla.

Nvidia’s high-power AI chips are in strong demand, and companies across the spectrum – from mega-cap names like Microsoft to tiny AI startups – are scrambling to buy them up.

A Nvidia memo from December said, “Elon prioritizing X H100 GPU cluster deployment at X versus Tesla by redirecting 12k of shipped H100 GPUs originally slated for Tesla to X instead.” It added, “In exchange, original X orders of 12k H100 slated for Jan and June to be redirected to Tesla.”

Musk touted higher AI spending during Tesla’s Q1 earnings call and later said on X that the electric vehicle giant will spend $10 “in combined training and inference AI” in 2024.

Nvidia’s emails from late April said that Musk’s comments during the Q1 earnings call, as well as his tweet on Tesla’s AI spending this year, are in “conflict” with the company’s bookings.

To be sure, this is not the first time that Musk has been accused of a conflict of interest. Whether it was Tesla acquiring troubled solar company SolarCity, where he held a stake, or more recently when he brought some Tesla employees to “voluntarily” assist Musk at Twitter, the billionaire has been in hot water over the apparent conflicts of interest.

AI Products Are Key to Tesla’s Valuation

Tesla is building AI products like self-driving, Optimus humanoid, and the Dojo Supercomputer – all of which are under different stages of development – and are key to Tesla’s mammoth valuation. The mercurial CEO has himself admitted to Tesla being more of an AI and tech company than an automaker and believes the company’s valuation is linked to its progress toward full autonomy.

At the same time, he has threatened that he won’t be comfortable building AI products at Tesla unless he has 25% voting rights in the company. Some onlookers said that the comments were tantamount to blackmail and given the focus he has put on X.ai we might yet again be staring at a massive conflict of interest.

Nvidia’s Chips Are Building Blocks of AI Models

Nvidia’s chips are the building blocks for AI as well as most other advanced gadgets. Tesla, for instance, needs these for its autonomous driving cars and the robotaxi which it is set to unveil in August after years of wait.

Musk was all praise for Nvidia’s H100 chips during Tesla’s Q1 earnings call and said that calling them GPUs (graphic processing units) would be a misnomer. He said that the company would increase its total inventory of H100 chips from 35,000 to 85,000 by the end of the year.

Meanwhile, after the CNBC report said that Nvidia was asked to prioritize X and X.ai for the chips, Musk tweeted that Tesla could not accept so many chips as its factory in Austin is still incomplete. He added that the company would purchase chips worth between $3 billion-$4 billion from Nvidia in 2024.

While we don’t know exactly why X is buying these chips from Nvidia, Meta Platforms which like Twitter relies predominantly on digital advertising is also spending billions on AI infrastructure, including buying chips from Nvidia.

Artificial intelligence is already making digital ads even more focused and effective. While increasingly better-targeted ads may not be what users want, this trend certainly helps companies like Meta Platforms. X may want to use the chips on this or it may simply want to refine its Grok AI chatbot (or make something entirely new).

As for X.ai, the company needs loads of Nvidia chips as it tried to take on ChatGPT’s parent company OpenAI which Musk has lambasted for transforming from a non-profit company to a “maximum profit” company.

Tesla Calls Upon Shareholders to Approve Musk’s Compensation

Tesla has again approached shareholders to approve Musk’s 2018 compensation saying the package delivered “tremendous value” for shareholders as they also benefited from the soaring stock price.

It argues that the company shouldn’t go back on the compensation package that was sealed years back. It said, “A deal should be a deal. He delivered on his end of the bargain. It’s time for us to deliver on ours.”

The EV company also says that “Stockholders should care enormously about value creation…and not about whether Elon’s perceived ‘focus’ was strong enough.”

Tesla’s annual meeting is scheduled for June 13 when shareholders would vote on Musk’s 2018 compensation. While Tesla and Musk are reaching out to shareholders to vote in favor of Musk’s package, proxy firms like Institutional Shareholder Services (ISS) and Glass Lewis have called upon shareholders to reject the package.

In a letter titled “What Glass Lewis Got Wrong About Tesla,” Tesla said the proxy firm “omits key considerations, uses faulty logic, and relies on speculation and hypotheticals.”

tesla stock price

The letter adds, “Tesla created over $735 billion of market value for stockholders from 2018 to 2023 because Elon helped Tesla achieve performance targets that were regarded by many as extremely difficult or impossible.”

To be sure, Tesla has been a miracle story and its success has prompted other automakers to pivot to electric cars. However, as shareholders prepare to vote on Musk’s compensation later this month, they might ask if he is devoting enough time to Tesla and whether there is a conflict of interest – especially in AI.

Also, they might ponder over what Judge Kathaleen McCormick said in her 200-page ruling; “The board never asked the $55.8 billion question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?”