tsla-pre14a_20190611.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

(Amendment No.    )

Filed by the Registrant 

Filed by a Party other than the Registrant 

Check the appropriate box:

 

Preliminary Proxy Statement

 

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6 (e) (2))

 

 

Definitive Proxy Statement

 

 

Definitive Additional Materials

 

 

Soliciting Material Pursuant to Section 240.14a-11 (c) or Section 240.14a-12

TESLA, INC.

 

(Name of Registrant as Specified in its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

No fee required.

 

 

Fee computed on table below per Exchange Act Rules 14a-6 (i) (1) and 0-11.

 

 

 

(1)

Title of each class of securities to which transaction applies:

 

 

 

 

(2)

Aggregate number of securities to which transaction applies:

 

 

 

 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

 

 

(4)

Proposed maximum aggregate value of transaction:

 

 

 

 

(5)

Total fee paid:

$

 

 

Fee paid previously with preliminary materials.

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

(1)

Amount previously paid:

 

 

 

 

(2)

Form, Schedule or Registration Statement No.:

 

 

 

 

(3)

Filing Party:

 

 

 

 

(4)

Date Filed:

 

 


 

NOTICE OF 2019 ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON JUNE 11, 2019

Dear Tesla Stockholders:

We are pleased to inform you that our 2019 Annual Meeting of Stockholders (the “2019 Annual Meeting”) will be held on Tuesday, June 11, 2019, at 2:30 p.m. Pacific Time, at the Computer History Museum located at 1401 N. Shoreline Blvd., Mountain View, CA 94043. For your convenience, we will also webcast the 2019 Annual Meeting live via the Internet at www.tesla.com/2019shareholdermeeting. The agenda of the 2019 Annual Meeting will be the following items of business, which are more fully described in this proxy statement:

 

Agenda Item

  

Board Vote Recommendation

1.    A Tesla proposal to elect two Class III directors to serve for a term of three years, subject to the approval of Proposal Five, or until their respective successors are duly elected and qualified (“Proposal One”).

  

“FOR”

 

 

2.    A Tesla proposal to approve the Tesla, Inc. 2019 Equity Incentive Plan (“Proposal Two”).

 

“FOR”

 

 

3.    A Tesla proposal to approve the Tesla, Inc. 2019 Employee Stock Purchase Plan (“Proposal Three”).

 

“FOR”

 

 

4.    A Tesla proposal to approve and adopt amendments to our certificate of incorporation and bylaws to eliminate applicable supermajority voting requirements (“Proposal Four”).

 

“FOR”

 

 

5.    A Tesla proposal to approve an amendment to our certificate of incorporation to reduce director terms from three years to two years (“Proposal Five”).

“FOR”

 

 

6.    A Tesla proposal to ratify the appointment of PricewaterhouseCoopers LLP as Tesla’s independent registered public accounting firm for the fiscal year ending December 31, 2019 (“Proposal Six”).

  

“FOR”

 

 

 

7.    A stockholder proposal regarding a public policy committee, if properly presented (“Proposal Seven”).

 

“AGAINST”

 

 

8.    A stockholder proposal regarding simple majority voting provisions in our governing documents, if properly presented (“Proposal Eight”).

  

“AGAINST”

All stockholders as of close of business on April 15, 2019 are cordially invited to attend the 2019 Annual Meeting in person. Please read this proxy statement carefully to ensure that you have proper evidence of stock ownership as of April 15, 2019, as we will not be able to accommodate guests without such evidence at the 2019 Annual Meeting.

We are providing our proxy materials to our stockholders over the Internet. This reduces our environmental impact and our costs while ensuring our stockholders have timely access to this important information. Accordingly, stockholders of record at the close of business on April 15, 2019, will receive a Notice of Internet Availability of Proxy Materials (the “Notice of Internet Availability”) with details on accessing these materials. Beneficial owners of Tesla common stock at the close of business on April 15, 2019 will receive separate notices on behalf of their brokers, banks or other intermediaries through which they hold shares.

 


 

Your vote is very important. Whether or not you plan to attend the 2019 Annual Meeting, we encourage you to read the proxy statement and vote as soon as possible. For specific instructions on how to vote your shares, please refer to the section entitled “Questions and Answers About the 2019 Annual Meeting and Procedural Matters” and the instructions on the Notice of Internet Availability or the notice you receive from your broker, bank or other intermediary.

If you have any questions concerning any Proposal to be voted on at the 2019 Annual Meeting or this proxy statement, would like additional copies of this proxy statement or need help voting your shares of Tesla common stock, please contact Tesla’s proxy solicitor:

Innisfree M&A Incorporated

501 Madison Avenue

New York, NY 10022

Stockholders Call Toll Free: (877) 717-3929

International Callers: +1 (412) 232-3651

Thank you for your ongoing support of Tesla.

 

 

 

 

 

Elon Musk

 

Robyn Denholm

 

 

 

 

 

 


 

 

PROXY STATEMENT

FOR 2019 ANNUAL MEETING OF STOCKHOLDERS

Table of Contents

 

 

 

Page

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on June 11, 2019

 

1

Questions and Answers About the 2019 Annual Meeting and Procedural Matters

 

1

Proposal One — Tesla Proposal for Election of Directors

 

9

General

 

9

Nominees for Class III Directors

 

10

Information Regarding the Board and Director Nominees

 

11

Proposal Two — Tesla Proposal for Approval of Tesla, Inc. 2019 Equity Incentive Plan

 

15

Background

 

15

Key Considerations

 

15

Summary of the 2019 Plan

 

18

New Plan Benefits

 

22

Summary of Material U.S. Federal Income Tax Considerations

 

22

Other Information

 

23

Proposal Three — Tesla Proposal for Approval of Tesla, Inc. 2019 Employee Stock Purchase Plan

 

24

Background

 

24

Summary of the 2019 ESPP

 

24

New Plan Benefits

 

26

Summary of Material U.S. Federal Income Tax Considerations

 

26

Other Information

 

27

Proposal Four — Tesla Proposal for Approval and Adoption of Amendments to Certificate of Incorporation and Bylaws to Eliminate Applicable Supermajority Voting Requirements

 

28

General

 

28

Summary of the Proposed Amendments

 

29

Proposal Five — Tesla Proposal for Approval of Amendment to Certificate of Incorporation to Reduce Director Terms

 

30

General

 

30

Summary of the Proposed Amendment

 

30

Proposal Six — Tesla Proposal for Ratification of Appointment of Independent Registered Public Accounting Firm

 

32

General

 

32

Principal Accounting Fees and Services

 

32

Pre-Approval of Audit and Non-Audit Services

 

32

Proposal Seven — Stockholder Proposal Regarding Public Policy Committee

 

34

Stockholder Proposal and Supporting Statement

 

34

Opposing Statement of the Board

 

34

Proposal Eight — Stockholder Proposal Regarding Simple Majority Voting Provisions in Governing Documents

 

36

Stockholder Proposal and Supporting Statement

 

36

Opposing Statement of the Board

 

37

Corporate Governance

 

38

Investor Outreach

 

38

Code of Business Conduct and Ethics and Corporate Governance Guidelines

 

38

Director Independence

 

39

 


 

 

Board Leadership Structure

 

41

Board Role in Risk Oversight

 

42

Board Meetings and Committees

 

42

Compensation Committee Interlocks and Insider Participation

 

44

Process and Considerations for Nominating Board Candidates

 

45

Attendance at Annual Meetings of Stockholders by the Board

 

46

Stock Transactions

 

46

Contacting the Board

 

47

Executive Officers

 

48

Executive Compensation

 

49

Compensation Discussion and Analysis

 

49

Compensation Committee Report

 

59

Summary Compensation Table

 

60

Pay Ratio Disclosure

 

61

Grants of Plan-Based Awards in 2018

 

62

Outstanding Equity Awards at 2018 Fiscal Year-End

 

63

2018 Option Exercises and Stock Vested

 

65

Potential Payments Upon Termination or Change in Control

 

65

Compensation of Directors

 

66

Equity Compensation Plan Information

 

69

Certain Relationships and Related Party Transactions

 

70

Review of Related Party Transactions

 

70

Related Party Transactions

 

70

Section 16(a) Beneficial Ownership Reporting Compliance

 

71

Ownership of Securities

 

72

Audit Committee Report

 

75

Other Matters

 

76

Appendix A — Tesla, Inc. 2019 Equity Incentive Plan

 

A-1

Appendix B — Tesla, Inc. 2019 Employee Stock Purchase Plan

 

B-1

Appendix C — Amended and Restated Certificate of Incorporation of Tesla, Inc.

 

C-1

Appendix D — Amended and Restated Bylaws of Tesla, Inc.

 

D-1

 

 

 


 

TESLA, INC.

3500 Deer Creek Road

Palo Alto, California 94304

PROXY STATEMENT

FOR 2019 ANNUAL MEETING OF STOCKHOLDERS

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON JUNE 11, 2019

The proxy statement and annual report are available at www.envisionreports.com/TSLA.

In accordance with U.S. Securities and Exchange Commission (the “SEC”) rules, we are providing access to our proxy materials over the Internet to our stockholders rather than in paper form, which reduces the environmental impact of our annual meeting and our costs.

Accordingly, if you are a stockholder of record, a one-page Notice of Internet Availability of Proxy Materials (the “Notice of Internet Availability”) has been mailed to you on or about    , 2019. Stockholders of record may access the proxy materials on the website listed above or request a printed set of the proxy materials be sent to them by following the instructions in the Notice of Internet Availability. The Notice of Internet Availability also explains how you may request that we send future proxy materials to you by e-mail or in printed form by mail. If you choose the e-mail option, you will receive an e-mail next year with links to those materials and to the proxy voting site. We encourage you to choose this e-mail option, which will allow us to provide you with the information you need in a timelier manner, will save us the cost of printing and mailing documents to you and will conserve natural resources. Your election to receive proxy materials by e-mail or in printed form by mail will remain in effect until you terminate it.

If you are a beneficial owner, you did not receive a Notice of Internet Availability directly from us, but your broker, bank or other intermediary forwarded you a notice with instructions on accessing our proxy materials and directing that organization how to vote your shares, as well as other options that may be available to you for receiving our proxy materials.

Please refer to the question entitled “What is the difference between holding shares as a stockholder of record or as a beneficial owner?” below for important details regarding different forms of stock ownership.

QUESTIONS AND ANSWERS ABOUT THE 2019 ANNUAL MEETING AND PROCEDURAL

MATTERS

Q:

Why am I receiving these proxy materials?

A:

The Board of Directors (the “Board”) of Tesla, Inc. (the “Company,” “Tesla,” “we,” “us” or “our”) has made available on the Internet or is providing to you in printed form these proxy materials. We do this in order to solicit voting proxies for use at Tesla’s 2019 Annual Meeting of Stockholders (the “2019 Annual Meeting”), to be held Tuesday, June 11, 2019, at 2:30 p.m., Pacific Time, and at any adjournment or postponement thereof. If you are a stockholder of record and you submit your proxy to us, you direct certain of our officers to vote your shares of Tesla common stock in accordance with the voting instructions in your proxy. If you are a beneficial owner and you follow the voting instructions provided in the notice you receive from your broker, bank or other intermediary, you direct such organization to vote your shares in accordance with your instructions. These proxy materials are being made available or distributed to you on or about    , 2019. As a stockholder, you are invited to attend the 2019 Annual Meeting and we request that you vote on the proposals described in this proxy statement.

1

 


 

Q:

Can I attend the 2019 Annual Meeting?

A:

You may attend the 2019 Annual Meeting if, on April 15, 2019 (the “Record Date”), you were a stockholder of record or a beneficial owner. You will be asked to show photo identification and the following:

 

If you are a stockholder of record, the Notice of Internet Availability addressed to you, or admission ticket that you received with a paper proxy card or that you obtained from our stockholder voting site at www.envisionreports.com/TSLA; or

 

If you are a beneficial owner, the notice you received from your broker, bank or other intermediary, or a printed statement from such organization or online access to your brokerage or other account, showing your stock ownership on the Record Date.

We will not be able to accommodate guests without proper evidence of stock ownership as of the Record Date at the 2019 Annual Meeting, including guests of our stockholders.

The meeting will begin promptly at 2:30 p.m., Pacific Time and you should leave ample time for the check-in procedures.

Q:

Where is the 2019 Annual Meeting?

A:

The 2019 Annual Meeting will be held at the Computer History Museum located at 1401 N. Shoreline Blvd., Mountain View, CA 94043. Stockholders may request directions to the 2019 Annual Meeting by calling (650) 681-5000 or by visiting http://ir.tesla.com/contactus.cfm.

Q:

Will I be able to view the 2019 Annual Meeting via the Internet?

A:

Yes. We will webcast the 2019 Annual Meeting live via the Internet at www.tesla.com/2019shareholdermeeting.

Q:

Who is entitled to vote at the 2019 Annual Meeting?

A:

You may vote your shares of Tesla common stock if you owned your shares at the close of business on the Record Date. You may cast one vote for each share of common stock held by you as of the Record Date on all matters presented. See the questions entitled “How can I vote my shares in person at the 2019 Annual Meeting?” and “How can I vote my shares without attending the 2019 Annual Meeting?” below for additional details.

As of the Record Date, holders of common stock were eligible to cast an aggregate of 173,709,191 votes at the 2019 Annual Meeting.

Q:

What is the difference between holding shares as a stockholder of record or as a beneficial owner?

A:

You are the “stockholder of record” of any shares that are registered directly in your name with Tesla’s transfer agent, Computershare Trust Company, N.A. We have sent the Notice of Internet Availability directly to you if you are a stockholder of record. As a stockholder of record, you may grant your voting proxy directly to Tesla or to a third party, or vote in person at the 2019 Annual Meeting.

You are the “beneficial owner” of any shares (which are considered to be held in “street name”) that are held on your behalf by a brokerage account or by a bank or another intermediary that is the stockholder of record for those shares. If you are a beneficial owner, you did not receive a Notice of Internet Availability directly from Tesla, but your broker, bank or other intermediary forwarded you a notice together with voting instructions for directing that organization how to vote your shares. You may also attend the 2019 Annual Meeting, but because a beneficial owner is not a stockholder of record, you may not vote in person at the 2019 Annual Meeting unless you obtain a “legal proxy” from the organization that holds your shares, giving you the right to vote the shares at the 2019 Annual Meeting.

2

 


 

Q:

How can I vote my shares in person at the 2019 Annual Meeting?

A:

You may vote shares for which you are the stockholder of record in person at the 2019 Annual Meeting. You may vote shares for which you are the beneficial owner in person at the 2019 Annual Meeting only if you obtain a “legal proxy” from the broker, bank or other intermediary that holds your shares, giving you the right to vote the shares. Even if you plan to attend the 2019 Annual Meeting, we recommend that you also direct the voting of your shares as described below in the question entitled “How can I vote my shares without attending the 2019 Annual Meeting?” so that your vote will be counted even if you later decide not to attend the 2019 Annual Meeting .

Q:

How can I vote my shares without attending the 2019 Annual Meeting?

A:

Whether you hold shares as a stockholder of record or a beneficial owner, you may direct how your shares are voted without attending the 2019 Annual Meeting, by the following means:

By Internet—Stockholders of record with Internet access may submit proxies by following the voting instructions on the Notice of Internet Availability until 1:00 a.m., Central time on June 11, 2019. If you are a beneficial owner of shares held in street name, please check the voting instructions in the notice provided by your broker, bank or other intermediary for Internet voting availability.

By telephone—Stockholders of record who live in the United States (or its territories) or Canada may request a paper proxy card from Tesla by following the procedures in the Notice of Internet Availability, and submit proxies by following the applicable “Phone” instructions on the proxy card. If you are a beneficial owner of shares held in street name, please check the voting instructions in the notice provided by your broker, bank or other intermediary for telephone voting availability.

By mail—Stockholders of record may request a paper proxy card from Tesla by following the procedures in the Notice of Internet Availability. If you elect to vote by mail, please complete, sign and date the proxy card where indicated and return it in the prepaid envelope included with the proxy card. Proxy cards submitted by mail must be received by the time of the meeting in order for your shares to be voted. If you are a beneficial owner of shares held in street name, you may vote by mail by completing, signing and dating the voting instructions in the notice provided by your broker, bank or other intermediary and mailing it in the accompanying pre-addressed envelope.

Q:

How many shares must be present or represented to conduct business at the 2019 Annual Meeting?

A:

The stockholders of record of a majority of the shares entitled to vote at the 2019 Annual Meeting must either (1) be present in person at the 2019 Annual Meeting or (2) have properly submitted a proxy in order to constitute a quorum at the 2019 Annual Meeting.

Under the General Corporation Law of the State of Delaware, abstentions and broker “non-votes” are counted as present, and therefore are included for the purposes of determining whether a quorum is present at the 2019 Annual Meeting. A broker “non-vote” occurs when an organization that is the stockholder of record that holds shares for a beneficial owner and that is otherwise counted as present or represented by proxy does not vote on a particular proposal because that organization does not have discretionary voting power under applicable regulations to vote on that item and has not received specific voting instructions from the beneficial owner.

Q:

What proposals will be voted on at the 2019 Annual Meeting?

A:

The proposals scheduled to be voted on at the 2019 Annual Meeting are:

 

A Tesla proposal to elect two Class III directors listed in this proxy statement to serve for a term of three years, subject to the approval of Proposal Five, or until their respective successors are duly elected and qualified (Proposal One);

 

A Tesla proposal to approve the Tesla, Inc. 2019 Equity Incentive Plan (Proposal Two);

 

A Tesla proposal to approve the Tesla, Inc. 2019 Employee Stock Purchase Plan (Proposal Three);

3

 


 

 

A Tesla proposal to approve and adopt amendments to our certificate of incorporation and bylaws to eliminate applicable supermajority voting requirements (Proposal Four);

 

A Tesla proposal to approve an amendment to our certificate of incorporation to reduce director terms from three years to two years (Proposal Five);

 

A Tesla proposal to ratify the appointment of PricewaterhouseCoopers LLP as Tesla’s independent registered public accounting firm for the fiscal year ending December 31, 2019 (Proposal Six);

 

A stockholder proposal regarding a public policy committee, if properly presented (Proposal Seven); and

 

A stockholder proposal regarding simple majority voting provisions in our governing documents, if properly presented (Proposal Eight).

Q:

What is the voting requirement to approve each of the proposals?

A:

 

Proposal

 

Vote Required

 

Broker

Discretionary

Voting Allowed

Proposal One—Tesla proposal to elect two Class III directors

 

Majority of the shares entitled to vote and present in person or represented by proxy

 

No

Proposal Two—Tesla proposal to approve Tesla, Inc. 2019 Equity Incentive Plan

 

Majority of the shares entitled to vote and present in person or represented by proxy

 

No

Proposal Three—Tesla proposal to approve Tesla, Inc. 2019 Employee Stock Purchase Plan

 

Majority of the shares entitled to vote and present in person or represented by proxy

 

No

Proposal Four—Tesla proposal to approve and adopt amendments to certificate of incorporation and bylaws to eliminate applicable supermajority voting requirements

 

66 2/3% or greater of the total outstanding shares entitled to vote

 

No

Proposal Five—Tesla proposal to approve an amendment to certificate of incorporation to reduce director terms from three years to two years

 

66 2/3% or greater of the total outstanding shares entitled to vote

 

No

Proposal Six—Tesla proposal to ratify the appointment of independent registered public accounting firm

 

Majority of the shares entitled to vote and present in person or represented by proxy

 

Yes

Proposal Seven—Stockholder proposal regarding public policy committee

 

Majority of the shares entitled to vote and present in person or represented by proxy

 

No

Proposal Eight—Stockholder proposal regarding simple majority voting provisions in governing documents

 

Majority of the shares entitled to vote and present in person or represented by proxy

 

No

 

4

 


 

Q:

How are votes counted?

A:

All shares entitled to vote and that are voted in person at the 2019 Annual Meeting will be counted, and all shares represented by properly executed and unrevoked proxies received prior to the 2019 Annual Meeting will be voted at the 2019 Annual Meeting as indicated in such proxies. You may vote “FOR,” “AGAINST” or “ABSTAIN” on each of the nominees for election as director (Proposal One), and on each of Proposals Two, Three, Four, Five, Six, Seven, and Eight.

With respect to the election of directors, Tesla’s bylaws provide that in an uncontested election, the affirmative vote of a majority of the shares entitled to vote and present in person or represented by proxy at the meeting of stockholders is required to elect a director. Abstentions with respect to any director nominee (Proposal One) or any of Proposals Two, Three, Six, Seven, and Eight will have the same effect as a vote against such nominee or proposal. Consequently, each director nominee will be elected, and each of Proposals Two, Three, Six, Seven, and Eight will be approved or ratified, as applicable, only if the number of shares voted “FOR” such nominee or Proposal exceeds the total number of shares voted “AGAINST” or to “ABSTAIN” with respect to such nominee or Proposal.

With respect to each of Proposals Four and Five, the affirmative vote of at least 66 2/3% of the total outstanding shares entitled to vote, regardless of whether such shares are present in person or represented by proxy at the 2019 Annual Meeting, is required to approve such Proposal. Your failure to vote or your abstention with respect to either of Proposals Four and Five will have the same effect as a vote against such Proposal.

Q:

What is the effect of not casting a vote or if I submit a proxy but do not specify how my shares are to be voted?

A:

If you are the stockholder of record and you do not vote by proxy card, by telephone, via the Internet or in person at the 2019 Annual Meeting, your shares will not be voted at the 2019 Annual Meeting, which will have the same effect as a vote against each of Proposals Four and Five. If you submit a proxy, but you do not provide voting instructions, your shares will be voted in accordance with the recommendation of the Board, if any.

If you are a beneficial owner and you do not provide the organization that is the stockholder of record for your shares with voting instructions, the organization will determine if it has the discretionary authority to vote on the particular matter. Under applicable regulations, brokers and other intermediaries have the discretion to vote on routine matters such as Proposal Six but do not have discretion to vote on non-routine matters such as Proposals One, Two, Three, Four, Five, Seven, or Eight. Therefore, if you do not provide voting instructions to that organization, it may vote your shares only on Proposal Six and any other routine matters properly presented for a vote at the 2019 Annual Meeting.

Q:

What is the effect of a broker “non-vote”?

A:

An organization that holds shares of Tesla’s common stock for a beneficial owner will have the discretion to vote on routine proposals if it has not received voting instructions from the beneficial owner at least ten days prior to the 2019 Annual Meeting. A broker “non-vote” occurs when a broker, bank or other intermediary that is otherwise counted as present or represented by proxy does not receive voting instructions from the beneficial owner and does not have the discretion to vote the shares. A broker “non-vote” will be counted for purposes of calculating whether a quorum is present at the 2019 Annual Meeting, but will not be counted for purposes of determining the number of votes present in person or represented by proxy and entitled to vote with respect to a particular proposal as to which that broker “non-vote” occurs. Thus, a broker “non-vote” will not impact our ability to obtain a quorum for the 2019 Annual Meeting and will not otherwise affect the approval by a majority of the votes present in person or represented by proxy and entitled to vote of any of the Proposals other than Proposals Four and Five. Because the affirmative vote of at least 66 2/3% of the total outstanding shares entitled to vote is required to approve each of Proposals Four and Five, a broker “non-vote” will have the same effect as a vote against each such Proposal.

5

 


 

Q:

How does the Board recommend that I vote?

A:

The Board recommends that you vote your shares:

 

FOR” the two nominees for election as directors (Proposal One);

 

FOR” the approval of the Tesla, Inc. 2019 Equity Incentive Plan (Proposal Two);

 

FOR” the approval of the Tesla, Inc. 2019 Employee Stock Purchase Plan (Proposal Three);

 

FOR” the approval and adoption of amendments to our certificate of incorporation and bylaws to eliminate applicable supermajority voting requirements (Proposal Four);

 

FOR” the approval of an amendment to our certificate of incorporation to reduce director terms from three years to two years (Proposal Five);

 

FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as Tesla’s independent registered public accounting firm for the fiscal year ending December 31, 2019 (Proposal Six);

 

AGAINST” the approval of the stockholder proposal regarding a public policy committee (Proposal Seven); and

 

AGAINST” the approval of the stockholder proposal regarding simple majority voting provisions in our governing documents (Proposal Eight).

Q:

What happens if additional matters are presented at the 2019 Annual Meeting?

A:

If any other matters are properly presented for consideration at the 2019 Annual Meeting, including, among other things, consideration of a motion to adjourn the 2019 Annual Meeting to another time or place, the persons named as proxy holders, Elon Musk, Zachary Kirkhorn and Jonathan Chang, or any of them, will have discretion to vote the proxies held by them on those matters in accordance with their best judgment. Tesla does not currently anticipate that any other matters will be raised at the 2019 Annual Meeting.

Q:

Can I change my vote?

A:

If you are the stockholder of record, you may change your vote (1) by submitting a new proxy bearing a later date (which automatically revokes the earlier proxy) using any of the voting methods described above in the question entitled “How can I vote my shares without attending the 2019 Annual Meeting?,” (2) by providing a written notice of revocation to Tesla’s Corporate Secretary at Tesla, Inc., 3500 Deer Creek Road, Palo Alto, CA 94304 prior to your shares being voted, or (3) by attending the 2019 Annual Meeting and voting in person, which will supersede any proxy previously submitted by you. However, merely attending the meeting will not cause your previously granted proxy to be revoked unless you specifically request it.

If you are a beneficial owner of shares held in street name, you may generally change your vote by (1) submitting new voting instructions to your broker, bank or other intermediary or (2) if you have obtained a “legal proxy” from the organization that holds your shares giving you the right to vote your shares, by attending the 2019 Annual Meeting and voting in person. However, please consult that organization for any specific rules it may have regarding your ability to change your voting instructions.

Q:

What should I do if I receive more than one Notice of Internet Availability, notice from my broker, bank or other intermediary, or set of proxy materials?

A:

You may receive more than one Notice of Internet Availability, notice from your broker, bank or other intermediary or set of proxy materials, including multiple copies of proxy cards or voting instruction cards. For example, if you are a beneficial owner with shares in more than one brokerage account, you may receive a separate notice or voting instruction card for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one name, you will receive more than one Notice of Internet Availability or proxy card. Please complete, sign, date and return each Tesla proxy card or voting instruction card that you receive, and/or follow the voting instructions on each Notice of Internet Availability or other notice you receive, to ensure that all your shares are voted.

6

 


 

Q:

Is my vote confidential?

A:

Proxy instructions, ballots and voting tabulations that identify individual stockholders are handled in a manner that protects your voting privacy. Your vote will not be disclosed either within Tesla or to third parties, except: (1) as necessary for applicable legal requirements, (2) to allow for the tabulation and certification of the votes and (3) to facilitate a successful proxy solicitation. Occasionally, stockholders provide written comments on their proxy cards, which may be forwarded to Tesla management.

Q:

Who will serve as inspector of election?

A:

The inspector of election will be Computershare Trust Company, N.A.

Q:

Where can I find the voting results of the 2019 Annual Meeting?

A:

We will publish final voting results in our Current Report on Form 8-K, which will be filed with the SEC and made available on its website at www.sec.gov within four (4) business days of the 2019 Annual Meeting.

Q:

Who will bear the cost of soliciting votes for the 2019 Annual Meeting?

A:

Tesla will pay the entire cost of preparing, assembling, printing, mailing and distributing these proxy materials and soliciting votes. We may reimburse brokerage firms, custodians, nominees, fiduciaries and other persons representing beneficial owners for their reasonable expenses in forwarding solicitation material to those beneficial owners. Our directors, officers and employees may also solicit proxies in person or by other means. These directors, officers and employees will not be additionally compensated but may be reimbursed for reasonable out-of-pocket expenses incurred in doing so. Tesla has retained Innisfree M&A Incorporated to assist in its solicitation of proxies and has agreed to pay them a fee of up to $15,000, plus reasonable expenses, for these services.

Q:

What is the deadline to propose actions for consideration at next year’s annual meeting of stockholders or to nominate individuals to serve as directors?

A:

You may submit proposals, including recommendations of director candidates, for consideration at future stockholder meetings.

For inclusion in Tesla’s proxy materials—Stockholders may present proper proposals for inclusion in Tesla’s proxy statement and for consideration at the next annual meeting of stockholders by submitting their proposals in writing to Tesla’s Corporate Secretary in a timely manner. In order to be included in the proxy statement for the 2020 annual meeting of stockholders, stockholder proposals must be received by Tesla’s Corporate Secretary no later than    , and must otherwise comply with the requirements of Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

To be brought at annual meeting—In addition, you can find in Tesla’s bylaws an advance notice procedure for stockholders who wish to present certain matters, including nominations for the election of directors, at an annual meeting of stockholders.

In general, Tesla’s bylaws provide that the Board will determine the business to be conducted at an annual meeting, including nominations for the election of directors, as specified in the Board’s notice of meeting or as properly brought at the meeting by the Board. However, a stockholder may also present at an annual meeting any business, including nominations for the election of directors, specified in a written notice properly delivered to Tesla’s Corporate Secretary within the Notice Period (as defined below), if the stockholder held shares at the time of the notice and the record date for the meeting. The notice must contain specified information about the proposed business or nominees and about the proponent stockholder. If a stockholder who has delivered such a notice does not appear to present his or her proposal at the meeting, Tesla will not be required to present the proposal for a vote.

7

 


 

The “Notice Period” is the period not less than 45 days nor more than 75 days prior to the one year anniversary of the date on which Tesla mailed its proxy materials to stockholders for the previous year’s annual meeting of stockholders. As a result, the Notice Period for the 2020 annual meeting of stockholders will start on    , 2020 and end on    , 2020.

This is only a summary of the advance notice procedure. Complete details regarding all requirements that must be met are found in our bylaws. You can obtain a copy of the relevant bylaw provisions by writing to Tesla’s Corporate Secretary at our principal executive offices at 3500 Deer Creek Road, Palo Alto, CA 94304 or by accessing Tesla’s filings on the SEC’s website at www.sec.gov. All notices of proposals by stockholders, whether or not requested for inclusion in Tesla’s proxy materials, should be sent to Tesla’s Corporate Secretary at our principal executive offices.

Q:

How may I obtain a separate copy of the Notice of Internet Availability or the proxy materials?

A:

If you are a stockholder of record and share an address with another stockholder of record, each stockholder may not receive a separate copy of the Notice of Internet Availability or proxy materials. Stockholders may request to receive separate or additional copies of the Notice of Internet Availability or proxy materials by calling our Investor Relations department at (650) 681-5000 or by writing to Tesla, Inc., 3500 Deer Creek Road, Palo Alto, CA 94304, Attention: Investor Relations. Upon such written or oral request, we will deliver promptly a separate copy of the Notice of Internet Availability and, if applicable, our proxy materials, to any stockholder at a shared address to which we delivered a single copy of any of these materials. Stockholders who share an address and receive multiple copies of the Notice of Internet Availability or proxy materials can also request to receive a single copy by following the instructions above.

Q:

Who can help answer my questions?

A:

Please contact our Investor Relations department by calling (650) 681-5000 or by writing to Tesla, Inc., 3500 Deer Creek Road, Palo Alto, CA 94304, Attention: Investor Relations or ir@tesla.com. If you have questions about any Proposal to be voted on at the 2019 Annual Meeting or the information contained in this proxy statement, or desire additional copies of this proxy statement, or if you are a stockholder of record, additional proxy cards, please contact:

Innisfree M&A Incorporated

501 Madison Avenue

New York, New York 10022

Stockholders Call Toll Free: (877) 717-3929

International Callers: +1 (412) 232-3651

8

 


 

PROPOSAL ONE

TESLA PROPOSAL FOR ELECTION OF DIRECTORS

General

Tesla’s Board currently consists of 11 members who are divided into three classes with staggered three-year terms. Our bylaws permit the Board to establish by resolution the authorized number of directors, and 11 directors are currently authorized. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of an equal number of directors. However, if our stockholders approve Proposal Five at the 2019 Annual Meeting, the Board will thereafter be divided into two classes with staggered two-year terms, with directors distributed as equally between them as is possible. See “Proposal Five—Tesla Proposal for Approval of Amendment to Certificate of Incorporation to Reduce Director Terms” below for additional detail.

In connection with its determination and recommendation to the Board of candidates for election to the Board at the 2019 Annual Meeting pursuant to the procedures outlined in “Corporate Governance— Process and Considerations for Nominating Board Candidates” below, the Nominating and Corporate Governance Committee considered in particular, in addition to all other relevant factors, the overall composition of the Board, the significant increase in the size of the Board from seven to 11 directors in the past five years, and the duplication of certain areas of experience or expertise on the Board. As part of such consideration, the Nominating and Corporate Governance Committee evaluated and discussed with each member of the Board regarding these factors as well as his or her professional commitments and other plans, with the goal of (i) streamlining the size of the Board to allow it to operate more nimbly and efficiently, (ii) increasing the proportion of newer directors with outside viewpoints to complement directors with a long-standing familiarity of Tesla, (iii) retaining directors with the current professional and personal wherewithal to devote a greater degree of time and focus than may be expected of other public company board members; and (iv) achieving a model of diversity wherein each director offers an expertise and background that is unique to him or her on the Board, while the Board collectively embodies key aspects of our business such as technological excellence, environmental and social responsibility, customer awareness, industry leadership, and workforce optimization.

The following resulted from such evaluation and discussions:

 

Two of the four current Class III directors, Ira Ehrenpreis and Kathleen Wilson-Thompson, were nominated by the Board, upon the recommendation of the Nominating and Corporate Governance Committee, for re-election at the 2019 Annual Meeting. Moreover, the Nominating and Corporate Governance Committee, the Board and each of Brad Buss and Linda Johnson Rice collectively determined that Mr. Buss and Ms. Rice will not stand for re-election to the Board at the 2019 Annual Meeting, at which time their current terms will expire. The Nominating and Corporate Governance Committee and the Board determined not to nominate alternate candidates for their Board seats for election at the 2019 Annual Meeting.

 

Stephen Jurvetson, who in April 2019 returned from a leave of absence from the Board, determined collectively with the Nominating and Corporate Governance Committee and the Board that he will not stand for re-election to the Board when his current term ends at the 2020 annual meeting of stockholders, both as the Board is currently structured and as will be the case if our stockholders approve Proposal Five at the 2019 Annual Meeting. See “Proposal Five—Tesla Proposal for Approval of Amendment to Certificate of Incorporation to Reduce Director Terms” for more detail on the composition of the Board classes as approved by the Board if Proposal Five is approved by stockholders.

 

Antonio Gracias determined collectively with the Nominating and Corporate Governance Committee and the Board that he will not stand for re-election to the Board when his current term ends, which will be at the 2020 annual meeting of stockholders if our stockholders approve Proposal Five at the 2019 Annual Meeting. See “Proposal Five—Tesla Proposal for Approval of Amendment to Certificate of Incorporation to Reduce Director Terms” for more detail on the composition of the Board classes as approved by the Board if Proposal Five is approved by stockholders.

9

 


 

The Board also determined that the authorized number of directors will be reduced to nine, effective immediately following the expiration of Mr. Buss’s and Ms. Rice’s terms at the 2019 Annual Meeting. Additionally, following the future expiration of Mr. Jurvetson’s and Mr. Gracias’ terms, the Board currently expects to further reduce the authorized number of directors by the number of their Board seats. However, the Board and the Nominating and Corporate Governance Committee will continue to frequently evaluate the optimal size of the Board and the collective experience and expertise of its members.

The Board is immensely grateful for the contributions of Messrs. Buss, Jurvetson and Gracias and of Ms. Rice to the Board, its committees and to Tesla, including for over nine years in the case of Messrs. Buss, Jurvetson and Gracias, and both recognizes their critical roles to Tesla’s growth and success and respects their desire to focus on other commitments, responsibilities and plans. Furthermore, the Board is confident that with three continuing independent Board members—Lawrence J. Ellison, James Murdoch and Kathleen Wilson-Thompson—who joined Tesla within the past two years, the Board remains poised to lead Tesla with fresh perspectives balanced by deep historical knowledge of our company, while maintaining a wealth of diverse experience and expertise. For example, notwithstanding Mr. Buss’s departure, the Board will continue have access to a seasoned financial expert in Robyn Denholm. Moreover, following a brief transition period, Mr. Gracias has fully passed on the duties he performed as Lead Independent Director to Ms. Denholm, who now has such responsibilities as part of her role as independent Chair of the Board. Likewise, while Ms. Rice’s contributions will be missed, the Board will continue to benefit from diverse industry viewpoints of directors such as Mr. Murdoch, Kimbal Musk, and Ms. Wilson-Thompson. Finally, through Messrs. Ehrenpreis and Ellison, as well as Elon Musk, the Board expects that there will continue to be a strong presence of entrepreneurship and technological innovation on the Board even following the future departures of Messrs. Gracias and Jurvetson.

Nominees for Class III Directors

Two candidates have been nominated for election as Class III directors at the 2019 Annual Meeting for a three-year term expiring in 2022, provided that if our stockholders approve Proposal Five, each such candidate will be reclassified following re-election to a Class II director having a two-year term expiring in 2021. See “Proposal Five—Tesla Proposal for Approval of Amendment to Certificate of Incorporation to Reduce Director Terms” for more detail on the composition of the Board classes as approved by the Board if Proposal Five is approved.

Upon recommendation of the Nominating and Corporate Governance Committee, the Board has nominated Ira Ehrenpreis and Kathleen Wilson-Thompson for re-election as Class III directors. Biographical information about each of the nominees is contained in the following section. A discussion of the qualifications, attributes and skills of each nominee that led the Board and the Nominating and Corporate Governance Committee to the conclusion that he or she should continue to serve as a director follows each of the director and nominee biographies.

If you are a stockholder of record and you sign your proxy card or vote by telephone or over the Internet but do not give instructions with respect to the voting of directors, your shares will be voted “FOR” the re-election of Mr. Ehrenpreis and Ms. Wilson-Thompson. Each of Mr. Ehrenpreis and Ms. Wilson-Thompson has accepted such nomination; however, in the event that a nominee is unable or declines to serve as a director at the time of the 2019 Annual Meeting, the proxies will be voted for any nominee who shall be designated by the Board to fill such vacancy. As discussed above, Brad Buss and Linda Johnson Rice will not stand for re-election at the 2019 Annual Meeting, and the Board has determined that the authorized number of directors immediately thereafter will be reduced to nine. In addition, the Board has determined that if our stockholders do not approve Proposal Five, Lawrence J. Ellison, who is currently a Class II director, will be re-classified to a Class III director with a term expiring in 2022 immediately following the 2019 Annual Meeting, such that our Board classes will remain equal in size. If you wish to give specific instructions with respect to the voting of directors, you may do so by indicating your instructions on your proxy card or when you vote by telephone or over the Internet. If you are a beneficial owner holding your shares in street name and you do not give voting instructions to your broker, bank or other intermediary, that organization will leave your shares unvoted on this matter.

The Board recommends a vote

FOR the Tesla proposal for the election of Ira Ehrenpreis and Kathleen Wilson-Thompson.

10

 


 

Information Regarding the Board and Director Nominees

Background and Qualifications

The names of the members of the Board and Tesla’s proposed director nominees, their respective ages, their positions with Tesla and other biographical information as of April 19, 2019, are set forth below. Except for Messrs. Elon Musk, our Chief Executive Officer and a director, and Kimbal Musk, a director, who are brothers, there are no other family relationships among any of our directors or executive officers.

 

Name

 

Age

 

Chair of the

Board

 

Audit

Committee

 

Compensation

Committee

 

Nominating

and

Corporate

Governance

Committee

 

Disclosure

Controls

Committee

Elon Musk

 

47

 

 

 

 

 

 

 

 

 

 

Brad Buss (1)

 

55

 

 

 

X

 

 

 

 

 

X

Robyn Denholm

 

55

 

X

 

X

 

X

 

X

 

X

Ira Ehrenpreis

 

50

 

 

 

 

 

X

 

X

 

 

Lawrence J. Ellison

 

74

 

 

 

 

 

 

 

 

 

 

Antonio Gracias (2)

 

48

 

 

 

 

 

 

 

 

 

 

Stephen Jurvetson (3)

 

52

 

 

 

X

 

 

 

 

 

X

James Murdoch

 

46

 

 

 

X

 

 

 

X

 

X

Kimbal Musk

 

46

 

 

 

 

 

 

 

 

 

 

Linda Johnson Rice (1)

 

61

 

 

 

 

 

X

 

 

 

 

Kathleen Wilson-Thompson

 

51

 

 

 

 

 

X

 

X

 

 

 

(1)

Will not stand for re-election at the 2019 Annual Meeting.

(2)

Mr. Gracias will not stand for re-election when his current term expires, which will be at the 2020 annual meeting of stockholders if Proposal Five is approved.

(3)

In April 2019, Mr. Jurvetson returned from a leave of absence from the Board that commenced in November 2017. Mr. Jurvetson will not stand for re-election when his current term expires at the 2020 annual meeting of stockholders.

Elon Musk has served as our Chief Executive Officer since October 2008 and as a member of the Board since April 2004. Mr. Musk has also served as Chief Executive Officer, Chief Technology Officer and Chairman of Space Exploration Technologies Corporation, a company which is developing and launching advanced rockets for satellite, and eventually human, transportation (“SpaceX”), since May 2002, and served as Chairman of the Board of SolarCity Corporation, a solar installation company (“SolarCity”), from July 2006 until its acquisition by us in November 2016. Mr. Musk is also a founder of The Boring Company, an infrastructure company, and Neuralink Corp, a company focused on developing brain-machine interfaces. Prior to SpaceX, Mr. Musk co-founded PayPal, an electronic payment system, which was acquired by eBay in October 2002, and Zip2 Corporation, a provider of Internet enterprise software and services, which was acquired by Compaq in March 1999. Mr. Musk holds a B.A. in physics from the University of Pennsylvania and a B.S. in business from the Wharton School of the University of Pennsylvania.

We believe that Mr. Musk possesses specific attributes that qualify him to serve as a member of the Board, including the perspective and experience he brings as our Chief Executive Officer, one of our founders and our largest stockholder, which brings historic knowledge, operational expertise and continuity to the Board.

11

 


 

Brad Buss has been a member of the Board since November 2009. From August 2014 until his retirement in February 2016, Mr. Buss served as the Chief Financial Officer of SolarCity. Prior to joining SolarCity, from August 2005 to June 2014, Mr. Buss was the Executive Vice President of Finance and Administration and Chief Financial Officer of Cypress Semiconductor Corporation, a semiconductor design and manufacturing company. Mr. Buss served as Vice President of Finance at Altera Corp., a semiconductor design and manufacturing company, from March 2000 to March 2001 and from October 2001 to August 2005. From March 2001 to October 2001, Mr. Buss served as the Chief Financial Officer of Zaffire, Inc., a developer and manufacturer of optical networking equipment. Mr. Buss also serves as a director of Advance Auto Parts, Inc. and Marvell Technology Group Ltd., and served as a director of CafePress Inc. from October 2007 to July 2016 and of Cavium, Inc. from July 2016 until its acquisition by Marvell in July 2018. Mr. Buss holds a B.A. in economics from McMaster University and an honors business administration degree, majoring in finance and accounting, from the University of Windsor.

We believe that Mr. Buss possesses specific attributes that qualify him to serve as a member of the Board, including his executive experience and his financial and accounting expertise with both public and private companies in diverse industries.

Mr. Buss will not stand for re-election at the 2019 Annual Meeting.

Robyn Denholm has been a member of the Board since August 2014. Since October 2018, Ms. Denholm has been Chief Financial Officer and Head of Strategy of Telstra Corporation Limited, a telecommunications company (“Telstra”), where she also served as its Chief Operations Officer from January 2017 to October 2018. Ms. Denholm is transitioning from her role with Telstra, during which she is serving as our independent Chair of the Board and Chair of the Audit committee. Prior to Telstra, from August 2007 to February 2016, Ms. Denholm was with Juniper Networks, Inc., a manufacturer of networking equipment, serving in executive roles including Executive Vice President, Chief Financial Officer and Chief Operations Officer. Prior to joining Juniper Networks, Ms. Denholm served in various executive roles at Sun Microsystems, Inc. from January 1996 to August 2007. Ms. Denholm also served at Toyota Motor Corporation Australia for seven years and at Arthur Andersen & Company for five years in various finance assignments. Ms. Denholm previously served as a director of ABB Ltd. from 2016 to 2017 and of Echelon Corporation Inc. from 2008 to 2013. Ms. Denholm is a Fellow of the Institute of Chartered Accountants of Australia and holds a Bachelor’s degree in Economics from the University of Sydney and a Master’s degree in Commerce from the University of New South Wales.

We believe that Ms. Denholm possesses specific attributes that qualify her to serve as a member of the Board and as its Chair, such as her executive leadership experience and her financial and accounting expertise with international companies, including in the technology and automotive industries.

Ira Ehrenpreis has been a member of the Board since May 2007. Mr. Ehrenpreis has been a venture capitalist since 1996. He is founder and managing partner of DBL Partners, a leading impact investing venture capital firm formed in 2015, and previously led the Energy Innovation practice at Technology Partners. In the venture capital industry, Mr. Ehrenpreis has served on the Board, Executive Committee, and as Annual Meeting Chairman of the National Venture Capital Association (NVCA). Mr. Ehrenpreis currently serves as the President of the Western Association of Venture Capitalists (WAVC) and as the Chairman of the VCNetwork, the largest and most active California venture capital organization. In the Cleantech sector, he has served on several industry boards, including the American Council on Renewable Energy and the Cleantech Venture Network (Past Chairman of Advisory Board), as the Chairman of the Clean-Tech Investor Summit for nine years, and on the Stanford Precourt Institute for Energy (PIE) Advisory Council. Mr. Ehrenpreis also serves as Chairman of the World Energy Innovation Forum. Mr. Ehrenpreis was recently awarded the 2018 NACD Directorship 100 for his influential leadership in the boardroom and corporate governance community. Mr. Ehrenpreis holds a B.A. from the University of California, Los Angeles and a J.D. and M.B.A. from Stanford University.

We believe that Mr. Ehrenpreis possesses specific attributes that qualify him to serve as a member of the Board and to serve as chair of each of our Nominating and Corporate Governance Committee and our Compensation Committee, including his experience in the Cleantech and venture capital industries.

12

 


 

Lawrence J. Ellison has been a member of the Board since December 2018. Mr. Ellison is the founder of Oracle Corporation, a software and technology company, has served as its Chief Technical Officer since September 2014 and previously served as its Chief Executive Officer from June 1977 to September 2014. Mr. Ellison has also served on Oracle’s board of directors since June 1977, including as its Chairman since September 2014 and previously from May 1995 to January 2004.

We believe that Mr. Ellison possesses specific attributes that qualify him to serve as a member of the Board, including his long-term leadership of one of the most successful technology companies in the world and experience with technology product development and strategy.

Antonio Gracias has been a member of the Board since May 2007 and served as our Lead Independent Director from September 2010 to April 2019. Since 2003, Mr. Gracias has been Chief Executive Officer of Valor Management Corp., a private equity firm (“VMC”). Mr. Gracias is a director of SpaceX, and was a director of SolarCity until its acquisition by us in November 2016. Mr. Gracias holds a joint B.S. and M.S. degree in international finance and economics from the Georgetown University School of Foreign Service and a J.D. from the University of Chicago Law School.

We believe that Mr. Gracias possesses specific attributes that qualify him to serve as a member of the Board, including his management experience with a nationally recognized private equity firm and his operations management and supply chain optimization expertise.

Mr. Gracias will not stand for re-election when his current term expires, which will be at the 2020 annual meeting of stockholders if Proposal Five is approved.

Stephen Jurvetson has been a member of the Board since June 2009, and was on a leave of absence from the Board from November 2017 to April 2019. Mr. Jurvetson is a co-founder of Future Ventures, a venture capital firm, and previously was a Managing Director of Draper Fisher Jurvetson, a venture capital firm, from 1995 to 2017. Mr. Jurvetson is a director of SpaceX. Mr. Jurvetson holds B.S. and M.S. degrees in electrical engineering from Stanford University and an M.B.A. from the Stanford Business School.

We believe that Mr. Jurvetson possesses specific attributes that qualify him to serve as a member of the Board, including his experience in the venture capital industry and his years of business and leadership experience.

Mr. Jurvetson will not stand for re-election when his current term expires at the 2020 annual meeting of stockholders.

James Murdoch has been a member of the Board since July 2017. Mr. Murdoch has been the Chief Executive Officer of Lupa Systems, a private investment company that he founded, since March 2019. Previously, Mr. Murdoch held a number of leadership roles at Twenty-First Century Fox, Inc., a media company (“21CF”), over two decades, including its Chief Executive Officer from 2015 to March 2019, its Co-Chief Operating Officer from 2014 to 2015, its Deputy Chief Operating Officer and Chairman and Chief Executive Officer, International from 2011 to 2014 and its Chairman and Chief Executive, Europe and Asia from 2007 to 2011. Previously, he served as the Chief Executive Officer of Sky plc from 2003 to 2007, and as the Chairman and Chief Executive Officer of STAR Group Limited, a subsidiary of 21CF, from 2000 to 2003. Mr. Murdoch also serves on the board of News Corporation, and formerly served on the boards of 21CF from 2017 to March 2019, of Sky plc from 2016 to 2018, of GlaxoSmithKline plc from 2009 to 2012 and of Sotheby’s from 2010 to 2012.  

We believe that Mr. Murdoch possesses specific attributes that qualify him to serve as a member of the Board, including his lengthy executive and board experience across numerous companies, extensive knowledge of international markets and strategies, and experience with the adoption of new technologies.

Kimbal Musk has been a member of the Board since April 2004. Mr. Musk is a co-founder of The Kitchen, a growing family of businesses with the goal of providing all Americans with access to real food, and has also served as its Chief Executive Officer since its founding in 2004. In 2010, Mr. Musk became the Executive Director of Big Green (formerly The Kitchen Community), a non-profit organization that creates learning gardens in schools across

13

 


 

the United States. Mr. Musk also co-founded Square Roots, an urban farming incubator program, in 2016. Previously, Mr. Musk was a co-founder of Zip2 Corporation, a provider of enterprise software and services, which was acquired by Compaq in March 1999. From 2012 to 2015, Mr. Musk was a director of the Anschutz Health and Wellness Center, a facility at the University of Colorado School of Medicine providing research, education and wellness services with the goal of achieving healthier lifestyles. Mr. Musk is a director of SpaceX. Mr. Musk is also a director of Chipotle Mexican Grill, Inc., for which he has decided not to stand for re-election upon the expiration of his current term in 2019. Mr. Musk holds a B. Comm. in business from Queen’s University and is a graduate of The French Culinary Institute in New York City.

We believe that Mr. Musk possesses specific attributes that qualify him to serve as a member of the Board, including his business experience in retail and consumer markets, his experience on the Board, and his experience with technology companies.

Linda Johnson Rice has been a member of the Board since July 2017. Ms. Rice is currently the Chair and Chief Executive Officer of Johnson Publishing Company, which owns Fashion Fair Cosmetics as well as extensive published works, where she has served in one or both capacities continuously since 1988 after joining in 1980. Ms. Rice is also a director and Chair Emeritus of EBONY Media Holdings, the parent company of EBONY Media Operations, which publishes EBONY and Jet magazines, and also served as Chief Executive Officer of EBONY Media Operations from March 2017 to March 2018. Ms. Rice also serves on the boards of the Omnicom Group and GrubHub Inc. Ms. Rice is a Trustee at the Art Institute of Chicago, President of the Chicago Public Library Board of Directors, Council Member of The Smithsonian’s National Museum of African American History and Culture, and board member of After School Matters and Northwestern Memorial Corporation. Ms. Rice holds a B.A. in Journalism from the University of Southern California’s Annenberg School of Communication and an M.B.A. from Northwestern University’s Kellogg School of Management.

We believe that Ms. Rice possesses specific attributes that qualify her to serve as a member of the Board, including her extensive corporate management and board experience and her understanding of consumer businesses.

Ms. Rice will not stand for re-election at the 2019 Annual Meeting.

Kathleen Wilson-Thompson has been a member of the Board since December 2018. Ms. Wilson-Thompson has served as Executive Vice President and Global Chief Human Resources Officer of Walgreens Boots Alliance, Inc., a global pharmacy and wellbeing company, since December 2014, and previously served as Senior Vice President and Chief Human Resources Officer from January 2010 to December 2014. Prior to Walgreens, Ms. Wilson-Thompson held various legal and operational roles at The Kellogg Company, a food manufacturing company, from July 2005 to December 2009, including most recently as its Senior Vice President, Global Human Resources. Ms. Wilson-Thompson also serves on the boards of directors of Ashland Global Holdings Inc. and Vulcan Materials Company. Ms. Wilson-Thompson holds an A.B. in English Literature from the University of Michigan and a J.D. and L.L.M. (Corporate and Finance Law) from Wayne State University.

We believe that Ms. Wilson-Thompson possesses specific attributes that qualify her to serve as a member of the Board, including her executive and board experience with both consumer-focused and industrial companies, as well as her expertise in managing human resources and other operations at mature companies with large workforces.

Additional Information

On October 16, 2018, the U.S. District Court for the Southern District of New York entered a final judgment approving the terms of a settlement filed with the court on September 29, 2018, in connection with the actions taken by the SEC relating to Elon Musk’s August 7, 2018 Twitter post that he was considering taking Tesla private. Mr. Musk did not admit or deny any of the SEC’s allegations, and there is no restriction on Mr. Musk’s ability to serve as an officer or director on the Board (other than as its Chair).

On April 9, 2019, Johnson Publishing Company, of which Linda Johnson Rice is the Chair and Chief Executive Officer, filed a voluntary case under Chapter 7 of the U.S. Bankruptcy Code, following a number of marketplace changes and business issues outside of its control that could not be overcome.

See “Corporate Governance” and “Executive Compensation—Compensation of Directors” below for additional information regarding the Board.

14

 


 

PROPOSAL TWO

TESLA PROPOSAL FOR APPROVAL OF TESLA, INC. 2019 EQUITY INCENTIVE PLAN

Background

We are asking stockholders to approve the Tesla, Inc. 2019 Equity Incentive Plan (the “2019 Plan”), which the Board has approved subject to the approval of our stockholders.

Currently, we maintain the Tesla, Inc. 2010 Equity Incentive Plan, as amended (the “2010 Plan”), which is the only existing plan other than the Tesla, Inc. 2010 Employee Stock Purchase Plan (the “2010 ESPP”) under which we may currently issue new equity-based compensation to our employees, directors or consultants. The 2010 Plan will terminate in accordance with its terms in December 2019, after which we will not be allowed to grant equity awards thereunder. Therefore, we are asking stockholders to approve the 2019 Plan so that we may continue to grant equity awards, which is a key component of the compensation we provide to our personnel.

We are seeking approval of 12,500,000 shares for issuance under the 2019 Plan, which is equal to our estimate of the number of shares that will remain available for grants under the 2010 Plan at the time of the 2019 Annual Meeting. The Board has determined that the 2010 Plan will terminate immediately at and contingent upon our stockholders’ approval of the 2019 Plan, reflecting our intention that the approval of the 2019 Plan will not result in an overall increase of the number of shares currently available for grants of equity awards. Moreover, in designing the 2019 Plan, we have incorporated certain changes from the 2010 Plan to reflect developments in strong equity plan governance practices.

If stockholders approve the 2019 Plan at the 2019 Annual Meeting, the 2010 Plan will terminate and no new awards will be granted thereunder following the 2019 Annual Meeting, but such termination will not affect outstanding awards under the 2010 Plan. In that event, we expect that new grants of equity awards following the 2019 Annual Meeting will generally be made under the 2019 Plan.

If stockholders do not approve the 2019 Plan at the 2019 Annual Meeting, the 2010 Plan will not terminate and we will continue to have the ability to grant new equity awards thereunder following the 2019 Annual Meeting. However, the 2010 Plan will terminate in December 2019 and we will not have the ability to grant new equity awards to our personnel thereunder after such time, unless our stockholders have earlier approved an extension of the 2010 Plan at a special meeting of stockholders. If we are unable to grant new equity awards to our employees, directors and consultants, we may need to consider other compensation alternatives which may not as effectively align their interests with the long-term interests of our stockholders, and such alternatives may also negatively impact our results of operation and financial condition. Such alternative compensation may also not be successful in attracting, motivating or retaining our personnel. See “Executive Compensation—Compensation Discussion and Analysis—Compensation Philosophy—Introduction” below for more information regarding the importance of equity-based compensation to Tesla and our employees.

Key Considerations

No Net Increase in Shares Available for Grant

As of April 1, 2019, a total of 15,564,054 shares of our common stock were subject to outstanding awards under the 2010 Plan, and an additional 13,456,395 shares were available for new grants of awards under the 2010 Plan.

We are seeking approval of 12,500,000 shares under the 2019 Plan, which is equal to our estimate of the number of shares that will remain available for new grants under the 2010 Plan at the time of the 2019 Annual Meeting. In addition, shares subject to stock options or similar awards granted under the 2010 Plan that expire or otherwise terminate without being exercised in full, and shares issued pursuant to awards granted under the 2010 Plan that are forfeited to or repurchased by Tesla due to failure to vest, will also become available for new grants under the 2019 Plan, whereas they would become available for new grants under the 2010 Plan if the 2010 Plan did not terminate. Because the Board has determined that the 2010 Plan will terminate immediately at and contingent upon our stockholders’ approval of the 2019 Plan, the approval of the 2019 Plan is intended not to result in an overall increase of the number of shares currently available to us for new grants of equity awards.

15

 


 

Moreover, because the 2019 Plan does not include an evergreen provision that would permit the administrator to periodically increase the number of shares available for grants thereunder without stockholder approval, future increases to such number of shares under the 2019 Plan will require the approval of our stockholders.

We expect that future grants of equity awards to our personnel following the 2019 Annual Meeting, including to our executive officers and directors, will generally be made under the 2019 Plan if it is approved by our stockholders. However, in January 2018, we granted a performance-based stock option award to our Chief Executive Officer, Elon Musk (the “2018 CEO Performance Award”), that was designed to be his exclusive compensation over its term, which is up to 10 years. The 2018 CEO Performance Award was not granted pursuant to the 2010 Plan. Consequently, we do not currently expect to grant any new equity awards to Mr. Musk under the 2019 Plan or otherwise until the completion, expiration or other termination of the 2018 CEO Performance Award. See “Executive Compensation—Compensation Discussion and Analysis—Chief Executive Officer Compensation—2018 CEO Performance Award” below for more details regarding the 2018 CEO Performance Award.

Given the foregoing, we currently expect that if stockholders approve the 2019 Plan, we will have flexibility to continue to grant equity awards for approximately two years, or until June 2021. However, such timing and the total number of shares subject to the equity awards that we may actually need to grant in the future will depend on a number of factors, including the market value of our common stock, changes in our competitors’ or industry-wide compensation practices, changes in the number of personnel that we may hire or need to compensate, the need to attract, retain and motivate our employees, the extent to which vesting conditions to awards under the 2019 Plan are satisfied in the future, our acquisition activity and related hiring of new employees, and the mix between types of equity awards and the mix between equity awards and other forms of compensation that we may elect for our personnel. We cannot predict our future equity grant practices, the future market value of our common stock or other factors with any degree of certainty at this time, and the share reserve under the 2019 Plan could ultimately last for a shorter or longer period of time.

Burn and Dilution

Because the specific number of equity awards that we may grant under the 2019 Plan (if approved by stockholders) is indeterminable at this time, we have provided certain information regarding our past grant practices (excluding the impact of the 2018 CEO Performance Award, as explained below), and the associated burn rates and equity overhang, over the past three fiscal years, in the table below to assist in assessing the potential dilutive impact of the 2019 Plan.

 

Year

  

(A)

Shares

Subject to

New Awards

Granted or

Assumed

During Fiscal

Year (1)

 

(B)

Shares Subject

to Canceled

Awards During

Fiscal Year (2)

 

(C)

Shares Subject

to Outstanding

Awards at

December 31

(3)

 

(D)

Shares Available

for New Awards

under 2010 Plan

at December 31

 

(E)

Total Shares

Outstanding at

December 31

 

Gross Burn

Rate (4)

 

Net Burn Rate

(5)

 

Equity

Overhang (6)

2018

 

5,314,679

 

2,171,384

 

15,602,726

 

9,089,194

 

172,603,000

 

3.08%

 

1.82%

 

14.31%

2017

 

4,237,082

 

1,737,498

 

15,570,335

 

7,045,637

 

168,797,000

 

2.51%

 

1.48%

 

13.40%

2016

 

5,338,648

 

1,081,900

 

16,957,511

 

4,698,501

 

161,561,000

 

3.30%

 

2.63%

 

13.40%

 

(1)

Includes shares subject to any new equity awards, other than the 2018 CEO Performance Award, granted and any equity awards assumed in acquisitions during the applicable fiscal year.

(2)

Includes shares subject to any outstanding equity awards that became unexercisable or, as applicable, were forfeited to or repurchased due to failure to vest, during the applicable fiscal year.

(3)

Does not include the 2018 CEO Performance Award.

(4)

Defined as the amount in column A divided by the amount in column E.

(5)

Defined as (i) the amount in column A minus the amount in column B, divided by (ii) the amount in column E.

(6)

Defined as (i) the amount in column C plus the amount in column D, divided by (ii) the amount in column C plus the amount in column D plus the amount in column E.

16

 


 

We have excluded from the above calculations the impact of the 2018 CEO Performance Award, which was not granted under the 2010 Plan, as we believe that such award is fundamentally different from any other equity awards we have granted or assumed, for the following reasons:

 

The structure of the 2018 CEO Performance Award is truly extraordinary and was not intended to be a periodically recurring award. Each of the market capitalization and operational milestones was carefully selected to be challenging to achieve, and not attainable merely with the passage of time or with the growth of Tesla at a modest pace. For example, each of the 12 market capitalization milestones requires that Tesla add an amount in market capitalization nearly equal to the total market capitalization of Tesla at the time of the grant, and achieving all 12 such milestones would make Tesla one of the most valuable companies in the world as of the time of the grant. Likewise, achieving the first of each of the applicable revenue-based and Adjusted EBITDA-based (as defined in “Executive Compensation—Compensation Discussion and Analysis—Chief Executive Officer Compensation—2018 CEO Performance Award” below) operational milestones required increasing by approximately 70% the total annual revenue in 2017, the last completed year prior to the grant of the 2018 CEO Performance Award, and increasing by approximately 133% the Adjusted EBITDA for 2017. Achieving all of the revenue-based operational milestones or all of the Adjusted EBITDA-based operational milestones would require increases by factors of 15 or 22, respectively, from the applicable 2017 levels. To date, Mr. Musk has not vested in any of the 12 tranches of the 2018 CEO Performance Award. To the extent that he does in the future, we believe that the impact of any resulting dilution to our stockholders would be more than offset by the significant improvements to our stock price and results of operations, to an extent that is unique among our equity awards.

 

The Board intends the 2018 CEO Performance Award to be the exclusive form of compensation for Mr. Musk until it is completed, expires or otherwise terminates. Unlike any of our other executive officers, Mr. Musk does not have any equity awards vesting solely with the passage of time, and other than an immaterial amount of awards granted pursuant to a company-wide patent incentive program, he has not been granted any time-vesting awards since 2009. Moreover, the base salary for Mr. Musk reflects the legally required minimum wage, and Mr. Musk has declined to accept it. Accordingly, the 2018 CEO Performance Award is unique among all of our outstanding equity awards in that it is entirely at risk and represents the only compensation that is currently incentivizing a contributor at Tesla.

 

The 2018 CEO Performance Award was granted following more than six months of careful analysis and development led by the Compensation Committee, with participation by every independent Board member serving at the time of its grant, the help of Compensia, Inc., a leading national compensation consulting firm (“Compensia”), and engagement with and feedback from our largest institutional stockholders. Moreover, the 2018 CEO Performance Award was separately approved by approximately 73% of the votes cast by stockholders (other than Mr. Musk or Kimbal Musk, his brother and a member of the Board) at a meeting to approve such award, and therefore is the only equity award granted by us that was specifically considered and approved by our stockholders.

See “Executive Compensation—Compensation Discussion and Analysis—Chief Executive Officer Compensation” below for more details on the 2018 CEO Performance Award and Mr. Musk’s compensation more generally.

However, the table below sets forth the burn rates and equity overhang using the methodology given above for 2018, the year in which the 2018 CEO Performance Award was granted, if its impact is included:

 

Gross Burn

Rate

 

Net Burn Rate

 

Equity Overhang

 

14.82

%

13.56

%

26.05

%

17

 


 

Equity Plan Governance Features

In designing the 2019 Plan, we have incorporated developments in strong equity plan governance practices, including those intended to address concerns raised by our stockholders in our engagements with them, such as the following:

 

No evergreen feature*—The 2019 Plan provides for a limited number of shares available for the grant of future equity awards, which may be increased only with the approval of stockholders.

 

No liberal share counting*—The 2019 Plan does not allow shares used to pay the exercise price of an award or to satisfy tax withholding obligations under an award, or shares netted out of the shares issued pursuant to exercised stock appreciation rights, to become available for future grant, and does not allow any shares repurchased by us with the proceeds of the exercise prices for any stock options to be reissued under the 2019 Plan.

 

No exchange programs*—The 2019 Plan does not provide for the administrator to institute an exchange program through a third party intermediary to exchange outstanding awards for awards with different exercise prices and terms.

 

Limits on dividends and dividend equivalents*—The 2019 Plan provides that no dividends or dividend equivalents will generally be paid or accrue on awards other than restricted stock, restricted stock units, performance units or performance shares, provided that any stock- or cash-based dividends or dividend equivalents paid on unvested awards will be subject to the same restrictions on transferability and forfeiture as the underlying awards.

 

Clawback*—The 2019 Plan provides that certain awards will be subject to clawback policies of Tesla, including in our Corporate Governance Guidelines as described below in “Executive Compensation—Compensation Discussion and Analysis—Clawback Policy,” or similar clawback requirements that arise under applicable laws, which could result in the forfeiture of all or part of such awards.

 

No repricing*—The 2019 Plan prohibits actions that have the purpose or effect of repricing a stock option or stock appreciation right (except as adjusted for certain recapitalizations or approved by stockholders) or any modification of this restriction.

 

No transfers for value*— The 2019 Plan does not allow awards to be transferred for value, and any transfers may be subject to additional terms and conditions determined by the administrator.

 

No automatic single-trigger acceleration—The 2019 Plan does not provide for an automatic acceleration of awards upon a change in control unless the acquiring or successor company does not assume or substitute for such awards.

* Includes one or more changes from the 2010 Plan.

Summary of the 2019 Plan

The following general description of material features of the 2019 Plan is qualified in its entirety by reference to the provisions of the 2019 Plan set forth in Appendix A.

Background, Purpose and Eligibility under the 2019 Plan

The 2019 Plan is intended to attract, retain and incentivize our employees, members of the Board and our eligible consultants to promote the success of Tesla. The 2019 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), to Tesla’s employees and any of our subsidiary corporations’ employees, and for the grant of nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares (each individually, an “Award”). Our employees, directors and eligible consultants and our subsidiary corporations’ employees and eligible consultants are eligible to receive Awards under the 2019 Plan. As of April 1, 2019, we had approximately 42,742 employees, including four executive officers, and 10 non-employee directors, who would have been eligible to participate in the 2019 Plan if it had been in effect. As a result, our executive officers and directors have an interest in this proposal because they are eligible to participate in the 2019 Plan.

18

 


 

Plan Administration

The 2019 Plan will be administered by the Board, Compensation Committee and one or more additional committees to which the Board, at its discretion or as legally required, may delegate such administration.

Subject to the provisions of the 2019 Plan, the administrator has the power to determine the terms of Awards, including the recipients, the exercise price, if any, the number of shares subject to each Award, the fair market value per share of our common stock, the vesting schedule applicable to the Awards, together with any vesting acceleration, and the form of consideration, if any, payable upon exercise of the Award and the terms of the award agreements for use under the 2019 Plan. The administrator also has the authority, subject to the terms of the 2019 Plan, to amend existing Awards to reduce or increase their exercise price under certain circumstances (except as described in “No Repricing” below), to prescribe rules and to construe and interpret the 2019 Plan and Awards granted thereunder.

 

Maximum Shares Reserved for Awards

The maximum aggregate number of shares that may be issued pursuant to Awards under the 2019 Plan will be equal to:

 

12,500,000 shares, which is management’s good-faith estimate of the remaining shares that will be available for grant pursuant to the 2010 Plan at the time of the 2019 Annual Meeting, reflecting our intention of not seeking approval of additional shares for issuance under the 2019 Plan than remains available pursuant to the 2010 Plan, plus

 

The number of shares subject to stock options or similar awards granted under the 2010 Plan that expire or otherwise terminate without having been exercised in full, plus

 

The number of shares issued pursuant to awards granted under the 2010 Plan that are forfeited to or repurchased by Tesla due to failure to vest.

For the avoidance of doubt, other than as described in the second and third bullet points above, no shares subject to, issued or available for issuance pursuant to awards under the 2010 Plan will be available for issuance under the 2019 Plan.

In addition, no more than an aggregate of 13,000,000 shares may be granted pursuant to incentive stock options under the 2019 Plan.

Share Counting Rules

The following rules also govern the determination of shares that may be issued pursuant to Awards under the 2019 Plan:

 

If an Award under the 2019 Plan expires or becomes unexercisable or, as applicable, is forfeited to or repurchased by us due to failure to vest, the shares subject to the expired, unexercisable, forfeited or repurchased portion of such Award will become available for future grant under the 2019 Plan.

 

Shares that have actually been issued under the 2019 Plan under any Award (other than an unvested Award of restricted stock) will not be returned to the 2019 Plan and will not become available for future distribution under the 2019 Plan.

 

With respect to exercised stock appreciation rights, the total number of shares subject to such stock appreciation rights (and not the net number of shares actually issued pursuant to such stock appreciation rights) will cease to be available under the 2019 Plan.  

 

Shares used to pay the exercise price of an Award or to satisfy the tax withholding obligations related to an Award will not become available for future grant under the 2019 Plan.

 

Shares repurchased by us with the proceeds of the exercise prices for any stock options may not be reissued under the 2019 Plan.

19

 


 

 

To the extent an Award under the 2019 Plan is paid out in cash rather than shares, such cash payment will not reduce the number of shares available for issuance under the 2019 Plan.

 

Shares issued in connection with awards that are assumed, converted or substituted pursuant to certain corporate transactions will not reduce the number of shares available for issuance under the 2019 Plan.

No Repricing

In no event will the administrator reduce the exercise price of a stock option or stock appreciation right, exchange a stock option or stock appreciation right for cash or another Award for the purpose of repricing such stock option or stock appreciation right, exchange a stock option or stock appreciation right for another stock option or stock appreciation right with a lower exercise price, or take any other action with respect to a stock option or stock appreciation right that constitutes a repricing under applicable laws. Moreover, the Board may not amend the 2019 Plan to modify the foregoing restrictions. However, any adjustment of a stock option or stock appreciation right as provided under “Adjustments” below or any action taken with the approval of our stockholders will not constitute a prohibited repricing under the 2019 Plan.

Stock Options

The administrator may grant incentive and/or nonstatutory stock options under the 2019 Plan; provided that incentive stock options are only granted to employees. The exercise price of all options must equal at least the fair market value of our common stock on the date of grant. The term of an option may not exceed ten years, provided, however, that an incentive stock option held by a participant who owns more than 10% of the total combined voting power of all classes of our stock, or of certain of our parent or subsidiary corporations, may not have a term in excess of five years and must have an exercise price of at least 110% of the fair market value of our common stock on the grant date. The administrator will determine the methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the plan administrator. Subject to the provisions of the 2019 Plan, the administrator determines the remaining terms of the options (e.g., vesting). After the termination of service of an employee, director or consultant, the participant may exercise his or her option, to the extent vested as of such date of termination, for the period of time stated in his or her option agreement. Generally, if termination is due to death or disability, the option will remain exercisable for twelve months. In all other cases, the option will generally remain exercisable for three months following the termination of service. However, in no event may an option be exercised later than the expiration of its term. No dividends or dividend equivalent rights will be paid or accrued on stock options under the 2019 Plan.

Restricted Stock

Restricted stock may be granted under the 2019 Plan. Restricted stock awards are grants of shares of our common stock that are subject to various restrictions, including restrictions on transferability and forfeiture provisions. Shares of restricted stock will vest and the restrictions on such shares will lapse, in accordance with terms and conditions established by the administrator. Such terms may include, among other things, vesting upon the achievement of specific performance goals determined by the administrator and/or continued service to us. The administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Recipients of restricted stock awards generally will have voting and dividend rights with respect to such shares upon grant without regard to vesting, provided that all dividends, whether paid in shares or cash, will be subject to the same restrictions on transferability and forfeitability as the restricted stock with respect to which they were paid. Shares of restricted stock that do not vest for any reason will be forfeited by the recipient and will revert to being available for future grant under the 2019 Plan. The specific terms, which are subject to the provisions of the 2019 Plan, will be set forth in an award agreement.

Restricted Stock Units

Restricted stock units may be granted under the 2019 Plan. Each restricted stock unit granted is a bookkeeping entry representing an amount equal to the fair market value of one share of our common stock. Subject to the provisions of the 2019 Plan, the administrator determines the terms and conditions of restricted stock units including the vesting criteria, which may include achievement of specified performance criteria or continued service to us, and

20

 


 

the form and timing of payment. The administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. The administrator determines in its sole discretion whether an award will be settled in stock, cash or a combination of both. Any dividend equivalents on restricted stock units may be earned in shares or cash but will be subject to the same restrictions on transferability and forfeitability as the restricted stock units with respect to which they relate. The specific terms will be set forth in an award agreement.

Stock Appreciation Rights

Stock appreciation rights may be granted under the 2019 Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of our common stock between the exercise date and the date of grant. Subject to the provisions of the 2019 Plan, the administrator determines the terms of stock appreciation rights, including when such rights vest and become exercisable and whether to settle such awards in cash or with shares of our common stock, or a combination thereof, except that the per share exercise price for the shares to be issued pursuant to the exercise of a stock appreciation right will be no less than 100% of the fair market value per share on the date of grant. The term of an Award of stock appreciation rights may not exceed ten years. After the termination of service of an employee, director or consultant, the participant may exercise his or her stock appreciation rights, to the extent vested as of such date of termination, for the period of time stated in his or her award agreement. Generally, if termination is due to death or disability, the stock appreciation rights will remain exercisable for twelve months. In all other cases, the stock appreciation rights will generally remain exercisable for three months following the termination of service. However, in no event may stock appreciation rights be exercised later than the expiration of their term. No dividends or dividend equivalent rights will be paid or accrued on stock appreciation rights. The specific terms will be set forth in an award agreement.

Performance Units/Performance Shares

Performance units and performance shares may be granted under the 2019 Plan. Performance units and performance shares are awards that will result in a payment to a participant only if performance goals established by the administrator are achieved or the awards otherwise vest. The administrator will establish organizational or individual performance goals in its discretion, which, depending on the extent to which they are met, will determine the number and/or the value of performance units and performance shares to be paid out to participants. After the grant of a performance unit or performance share, the administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such performance units or performance shares. Performance units shall have an initial dollar value established by the administrator prior to the grant date. Performance shares shall have an initial value equal to the fair market value of our common stock on the grant date. The administrator, in its sole discretion, may pay earned performance units or performance shares in the form of cash, in shares or in some combination thereof. Any dividend equivalents on performance units or performance shares may be earned in shares or cash but will be subject to the same restrictions on transferability and forfeiture as the Performance units or performance shares with respect to which they relate. The specific terms, which are subject to the provisions of the 2019 Plan, will be set forth in an award agreement.

Adjustments

In the event of certain changes in our capitalization, to prevent diminution or enlargement of the benefits or potential benefits available under the 2019 Plan, the administrator will make adjustments to one or more of the number and class of shares that may be delivered under the 2019 Plan, the number, class and price of shares covered by each outstanding Award, and/or the numerical share limits contained in the 2019 Plan.

Dissolution or Liquidation

In the event of our proposed liquidation or dissolution, the administrator will notify participants as soon as practicable and all awards will terminate immediately prior to the consummation of such proposed transaction.

21

 


 

Certain Transactions or Change in Control

The 2019 Plan provides that in the event of a merger, consolidation or similar transaction, each outstanding Award or portion thereof will be treated as the administrator determines, except that if such transaction results in a change in control, as defined under the 2019 Plan, in which an acquiring or successor corporation or its parent or subsidiary does not assume or substitute an equivalent award for any outstanding Award or portion thereof, then such Award or portion thereof will fully vest, all restrictions on such Award or portion thereof will lapse, all performance goals or other vesting criteria applicable to such Award or portion thereof will be deemed achieved at 100% of target levels and such Award or portion thereof will become fully exercisable, if applicable, for a specified period determined by the administrator, unless provided otherwise under the applicable award agreement. The Award or portion thereof will then terminate upon the expiration of the specified period of time. If Awards granted to an outside director are assumed or substituted and such director’s service is terminated at or following such assumption or substitution, other than pursuant to a voluntary resignation, his or her options and stock appreciation rights, if any, will vest fully and become immediately exercisable, all restrictions on his or her restricted stock and restricted stock units, if any, will lapse, and all performance goals or other vesting requirements for his or her performance shares and units will be deemed achieved at 100% of target levels, and all other terms and conditions met, unless provided otherwise under the applicable award agreements.

Clawback

Certain participants under the 2019 Plan and any Awards held by them will be subject to any clawback policy of Tesla currently in effect, such as provided in our Corporate Governance Guidelines as described below in “Executive Compensation—Compensation Discussion and Analysis—Clawback Policy,” or that may be established and/or amended from time to time, or other forfeiture, return or reimbursement obligations arising under applicable laws. The administrator may require such participants to forfeit, return or reimburse to us all or a portion of their Awards and any amounts paid thereunder pursuant to the terms of such clawback policy or as necessary or appropriate to comply with such applicable laws.

New Plan Benefits

The amount and timing of Awards granted under the 2019 Plan are determined in the sole discretion of the administrator and therefore cannot be determined in advance. Future Awards that would be received under the 2019 Plan by directors, executive officers and other employees are discretionary and are therefore not determinable at this time. We have not approved any Awards that are conditioned on stockholder approval of the 2019 Plan.

Summary of Material U.S. Federal Income Tax Considerations

The following summary is intended only as a general guide to the material U.S. federal income tax consequences of participation in the 2019 Plan. The summary is based on existing U.S. laws and regulations, and there can be no assurance that those laws and regulations will not change in the future. The summary does not purport to be complete and does not discuss the tax consequences upon a participant’s death, or the provisions of the income tax laws of any municipality, state or foreign country in which the participant may reside. As a result, tax consequences for any particular participant may vary based on individual circumstances.

Stock Options

A 2019 Plan participant who is granted an incentive stock option does not recognize taxable income at the time the option is granted or upon its exercise, although the exercise is an adjustment item for alternative minimum tax purposes and may subject the participant to the alternative minimum tax. Upon a disposition of the shares more than two years after grant of the option and one year after exercise of the option, any gain or loss is treated as long-term capital gain or loss. If these holding periods are not satisfied, the participant recognizes ordinary income at the time of disposition equal to the difference between the exercise price and the lower of (i) the fair market value of the shares at the date of the option exercise, or (ii) the sale price of the shares. Any gain or loss recognized on such a premature disposition of the shares in excess of the amount treated as ordinary income is treated as long-term or short-term capital gain or loss, depending on the holding period.

22

 


 

A participant does not recognize any taxable income at the time he or she is granted a nonstatutory stock option. Upon exercise, the participant recognizes taxable income generally measured by the excess of the then fair market value of the shares over the exercise price. Any taxable income recognized in connection with an option exercise by an employee is subject to tax withholding. Upon a disposition of such shares by the participant, any difference between the sale price and the participant’s exercise price, to the extent not recognized as taxable income as provided above, is treated as long-term or short-term capital gain or loss, depending on the holding period.

Stock Appreciation Rights

No taxable income is reportable when a stock appreciation right is granted to a participant. Upon exercise, the participant will recognize ordinary income in an amount equal to the amount of cash received and the fair market value of any shares received. Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.

Restricted Stock, Restricted Stock Units, Performance Units and Performance Shares

A participant generally will not have taxable income at the time an award of restricted stock or restricted stock units are granted. Instead, he or she will recognize ordinary income in the first taxable year in which his or her interest in the shares underlying the Award becomes either (i) freely transferable, or (ii) no longer subject to substantial risk of forfeiture (e.g., vested). However, a holder of a restricted stock award may elect to recognize income at the time he or she receives the award in an amount equal to the fair market value of the shares underlying the award less any amount paid for the shares on the date the award is granted.

Deductibility of Awards

We generally will be entitled to a tax deduction in connection with an Award under the 2019 Plan in an amount equal to the ordinary income realized by a participant and at the time the participant recognizes such income (for example, the exercise of a nonqualified stock option). However, Section 162(m) of the Code places a $1,000,000 annual limit on the compensation deductible by us paid to certain of our employees, including our chief executive officer, chief financial officer and each of our other three most highly paid executive officers. Therefore, we will be unable to seek a full income tax deduction for any Award granted to a covered person under Section 162(m) under the 2019 Plan to the extent it causes such person’s annual compensation to exceed $1,000,000.

Other Information

The 2019 Plan was approved by the Board on April 18, 2019, subject to stockholder approval. The Board may at any time amend, alter, suspend or terminate the 2019 Plan, provided that we must obtain stockholder approval of any amendment if required under applicable law or stock exchange rule, and provided further that the Board may not modify the restriction on repricing actions with respect to stock options or stock appreciation rights in the 2019 Plan. Unless earlier terminated by the Board, the 2019 Plan will continue in effect for a term of 10 years from the date of approval by our stockholders. The termination or amendment of the 2019 Plan may not adversely affect any outstanding Award thereunder unless mutually agreed between the participant and the administrator.

Awards granted under the 2019 Plan generally may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the applicable laws of descent or distribution and may be exercised, during the lifetime of the participant, only by the participant. The administrator may make an Award transferable (provided that it be for no consideration), and such transfer may contain such additional terms and conditions as the administrator deems appropriate. Other terms and conditions of each Award will be set forth in award agreements, subject to the provisions of the 2019 Plan.

On April 1, 2019, the closing price on the NASDAQ Global Select Market of our common stock was $289.18 per share.

The Board recommends a vote FOR the Tesla proposal for the approval of the Tesla, Inc. 2019 Equity Incentive Plan.

23

 


 

PROPOSAL THREE

TESLA PROPOSAL FOR APPROVAL OF TESLA, INC. 2019 EMPLOYEE STOCK PURCHASE PLAN

Background

We are asking stockholders to approve the Tesla, Inc. 2019 Employee Stock Purchase Plan (the “2019 ESPP”), which the Board has approved subject to the approval of our stockholders.

Currently, we maintain the 2010 ESPP, under which our employees are permitted to purchase our common stock through payroll deductions at the end of consecutive, non-overlapping six-month offering periods. There is currently in effect an offering period under the 2010 ESPP that is scheduled to end in August 2019. However, because the 2010 ESPP is scheduled to terminate in accordance with its terms in December 2019, there will not be any subsequent offerings under the 2010 ESPP. Therefore, we are seeking approval of the 2019 ESPP to allow us to continue to offer this benefit to our employees following the current offering period under the 2010 ESPP.

Tesla strongly promotes a culture of stock ownership in order to incentivize employees to contribute to our successes, from which they reap the benefit of increases in our stock’s value. For this reason, in addition to establishing minimum stock ownership and holding periods for our directors and named executive officers, as described below in “Corporate Governance—Stock Transactions—Stock Ownership by Board and Management,” we offer equity awards to all of our employees. In addition, the ability to contribute a portion of earnings to purchase our shares, which we have offered under the 2010 ESPP and would like to continue to offer under substantially the same terms and conditions pursuant to the 2019 ESPP, is a key benefit for our employees. Such a program is crucial to our ability to attract, retain and incentivize our talent, and ultimately, better aligns the interests of our employees with those of our stockholders.

Whether or not stockholders approve the 2019 ESPP at the 2019 Annual Meeting, the current offering period under the 2010 ESPP will complete in August 2019, after which no more offerings will be conducted under the 2010 ESPP, and the 2010 ESPP will terminate in accordance with its terms in December 2019. However, if our stockholders approve the 2019 ESPP, a new offering will commence under the 2019 ESPP in September 2019, and subsequent offerings will be under the 2019 ESPP for as long as it is in effect.

Summary of the 2019 ESPP

The following general description of material features of the 2019 ESPP is qualified in its entirety by reference to the provisions of the 2019 ESPP set forth in Appendix B.

Purpose and Eligibility

The 2019 ESPP is intended to attract, retain and incentivize our employees. The 2019 ESPP is intended to qualify as an employee stock purchase plan under Section 423 of the Code. In addition, the 2019 ESPP authorizes offerings that do not qualify under Section 423 of the Code pursuant to rules, procedures or sub-plans adopted by the administrator that are designed to achieve desired tax or other objectives for us or participants in the 2019 ESPP (the “Non-423 Component”). The Non-423 Component is intended to be operated and administered in the same manner as offerings intended to qualify under Section 423 of the Code, except where prohibited by law.

Our executive officers and all of our other employees will be allowed to participate in the 2019 ESPP, provided that other than for an offering under the Non-423 Component:

 

An employee will be eligible to participate only if he or she is customarily employed by us or any participating subsidiary for at least 20 hours per week and more than five months in any calendar year; and

 

An employee may not be granted rights to purchase shares under the 2019 ESPP if such employee (i) would immediately after such grant own shares or options to purchase shares with 5% or more of the total combined voting power of all classes of our capital stock, or (ii) holds rights to purchase stock under all of our “employee stock purchase plans” (within the meaning of Section 423 of the Code) that would accrue at a rate in excess of $25,000 in fair market value of our stock (determined at the time the rights are granted) for each calendar year in which such rights are outstanding at any time.

24

 


 

As of April 1, 2019, approximately 42,742 employees would have been eligible to participate in the 2019 ESPP if it has been in effect as of such time. For illustrative purposes, approximately 38% of eligible employees are enrolled in the current offering period under the 2010 ESPP.

Administration

The 2019 ESPP will be administered by the Board, Compensation Committee and one or more additional committees to which the Board may delegate such administration, subject to applicable laws. The administrator will have full and exclusive authority to interpret the terms of the 2019 ESPP and determine eligibility.

Share Reserve

The maximum aggregate number of shares that may be issued pursuant to the 2019 ESPP will be equal to:

 

7,500,000 shares, minus

 

The total number of shares that are actually issued under the 2010 ESPP pursuant to any offering period thereunder commencing on or after March 1, 2019 (which is expected to include only the current offering period thereunder that is scheduled to end in August 2019).

As of the date of this filing, a total of 1,802,826 shares were available for issuance under the 2010 ESPP, approximately 245,000 shares of which we currently anticipate being issued in the current and final offering period thereunder that is scheduled to end in August 2019, subject to movements in our stock price, employee withdrawals and certain other factors that we cannot predict. In 2019, the Board declined to increase the number of shares available for issuance pursuant to the evergreen feature of the 2010 ESPP. As a result, if our stockholders approve the 2019 ESPP, the total shares that may be issued in the current and final offering period under the 2010 ESPP that is scheduled to end in August 2019 and in the future under the 2019 ESPP will not exceed 7,500,000 shares, which represents approximately 4.3% of the total number of shares outstanding as of April 1, 2019.

The 2019 ESPP does not include an evergreen provision that would permit the administrator to periodically increase the number of shares available for grants thereunder without stockholder approval.

Contributions and Purchases

The 2019 ESPP will permit participants to purchase common stock through payroll deductions of up to 15% of their eligible compensation, which includes a participant’s regular and recurring straight time gross earnings, payments for overtime and shift premium, exclusive of payments for incentive compensation, bonuses and other similar compensation. Subject to the eligibility requirements discussed above, a participant may purchase a maximum of 500 shares of common stock during each six-month offering period. The offering periods generally start on the first trading day on or after March 1 and September 1 of each year. The administrator may, in its discretion, modify the terms of future offering periods, provided that no offering period may be longer than 27 months.

Amounts deducted and accumulated by the participant will be used to purchase shares of our common stock at the end of each six-month offering period. The purchase price of the shares will be 85% of the lower of the fair market value of our common stock on the first trading day of the offering period or on the last trading day of the offering period.

Withdrawal and Termination of Participation

Participants may end their participation at any time during an offering period, and will be paid their accrued payroll deductions that have not yet been used to purchase shares. Participation will also end automatically upon termination of employment with us.

25

 


 

Restriction on Transfers

A participant may not transfer rights granted under the 2019 ESPP other than by will, the laws of descent and distribution or as otherwise provided under the 2019 ESPP.

Adjustments

In the event of certain changes in our capitalization, to prevent dilution or enlargement of the benefits or potential benefits available under the 2019 ESPP, the administrator will make adjustments to one or more of the number and class of shares that may be delivered, the applicable purchase price for shares, and/or the numerical share limits, pursuant to the 2019 ESPP.

Dissolution or Liquidation

In the event of our proposed liquidation or dissolution, any offering period then in progress will be shortened and will terminate immediately prior to such liquidation or dissolution unless the administrator otherwise determines. The administrator will notify participants of the new exercise date, at which time any participant’s purchase rights will be automatically exercised unless the participant has earlier withdrawn from the offering period.

Certain Transactions

In the event of a merger, consolidation or similar transaction, an acquiring or successor corporation may assume or substitute each outstanding purchase right. If the successor corporation refuses to assume or substitute for the outstanding purchase rights, the offering period then in progress will be shortened, and a new exercise date will be set. The administrator will notify each participant in writing that the exercise date has been changed and that the participant’s option will be exercised automatically on the new exercise date unless the participant has already withdrawn from the offering period.

New Plan Benefits

Participation in the 2019 ESPP will be optional and completely within the discretion of our employees, and therefore the number of shares that we may issue under the 2019 ESPP cannot be determined in advance.

Summary of Material U.S. Federal Income Tax Considerations

The following summary is intended only as a general guide to the material U.S. federal income tax consequences of participation in the 2019 ESPP. However, this summary is not intended to apply to any offerings under the Non-423 Component. The summary is based on existing U.S. laws and regulations, and there can be no assurance that those laws and regulations will not change in the future. The summary does not purport to be complete and does not discuss the tax consequences upon a participant’s death, or the provisions of the income tax laws of any municipality, state or foreign country in which the participant may reside. As a result, tax consequences for any particular participant may vary based on individual circumstances.

The rights of participants to make purchases under the 2019 ESPP are intended to qualify under the provisions of Section 423 of the Code. Assuming such qualification, no income will be taxable to a participant until the sale or other disposition of shares purchased under the 2019 ESPP. Upon such sale or disposition, the participant will generally be subject to tax in an amount that depends upon the holding period of such shares prior to disposing of them.

If the shares are sold or disposed of more than two years from the first day of the offering period during which the shares were purchased and more than one year from the date of purchase, or if the participant dies while holding the shares, the participant (or his or her estate) will recognize ordinary income measured as the lesser of (i) the excess of the fair market value of the shares at the time such sale or disposition over the purchase price of such shares or (ii) an amount equal to 15% of the fair market value of the shares as of the first day of the offering period. Any additional gain will be treated as long-term capital gain. If the shares are held for at least the holding periods described above but are sold for a price that is less than the purchase price, there will be no ordinary income and the difference will be a long-term capital loss. We will not be entitled to an income tax deduction with respect to the grant or exercise of a right to purchase our shares, or the sale of such shares by a participant, where such participant holds such shares for at least the holding periods described above.

26

 


 

Any sale or other disposition of shares before the expiration of the holding periods described above will be a “disqualifying disposition,” and the participant will recognize ordinary income generally measured as the excess of the fair market value of the shares on the date the shares are purchased over the purchase price, and we will be entitled to an income tax deduction for such ordinary income. Any additional gain or loss on such sale or disposition will be a long-term or short-term capital gain or loss, depending on the holding period following the date the shares were purchased by the participant prior to such sale or disposition, and we will not be entitled to an income tax deduction for any such capital gain.

Other Information

The 2019 ESPP was approved by the Board on April 18, 2019, subject to stockholder approval. The administrator may at any time amend, suspend or terminate the 2019 ESPP, provided that with certain exceptions described in the 2019 ESPP, no such action may adversely affect any outstanding rights to purchase stock. Unless earlier terminated by the administrator, the 2019 ESPP will continue in effect for a term of 10 years from the date of approval by our stockholders.

On April 1, 2019, the closing price on the NASDAQ Global Select Market of our common stock was $289.18 per share.

The Board recommends a vote FOR the Tesla proposal for the approval of the Tesla, Inc. 2019 Employee Stock Purchase Plan.

 

27

 


 

PROPOSAL FOUR

TESLA PROPOSAL FOR APPROVAL AND ADOPTION OF AMENDMENTS TO CERTIFICATE OF INCORPORATION AND BYLAWS TO ELIMINATE APPLICABLE SUPERMAJORITY VOTING REQUIREMENTS

General

We are asking stockholders to approve and adopt at the 2019 Annual Meeting each of the following:

 

The inclusion in an amendment and restatement (the “Amended Certificate”) of our current certificate of incorporation of revisions to Article IX thereof to eliminate the current requirements that certain categories of changes to our certificate of incorporation be approved by the affirmative vote of at least 66 2/3% of the total voting power of all outstanding shares of Tesla common stock (the “Supermajority Amendment”); and

 

An amendment and restatement (the “Amended Bylaws”) of our current bylaws to eliminate the current requirements therein that certain categories of changes to our bylaws be approved by the affirmative vote of at least 66 2/3% of the total voting power of all outstanding shares of Tesla common stock.

The Board has approved and adopted the Supermajority Amendment, subject to the approval of our stockholders, and has approved the submission of the Amended Bylaws to our stockholders for their approval and adoption. Accordingly, upon the approval of this Proposal by our stockholders: (i) we will file the Amended Certificate including the Supermajority Amendment with the Secretary of State of the State of Delaware as soon as practicable following the 2019 Annual Meeting, at which time the Amended Certificate will become effective, and (ii) the Amended Bylaws will be adopted by our stockholders and become immediately effective. In addition, if our stockholders also approve Proposal Five relating to an amendment of our certificate of incorporation to reduce the terms of our directors from three years to two years, the Amended Certificate we file will also include such amendment. Finally, if our stockholders approve either or both of this Proposal and Proposal Five, the Amended Certificate we file will also incorporate a prior certificate of amendment, effective February 1, 2017, to our certificate of incorporation to reflect the change of our corporate name from “Tesla Motors, Inc.” to “Tesla, Inc.,” which did not and does not require the approval of our stockholders. See “Proposal Five—Tesla Proposal for Approval of Amendment to Certificate of Incorporation to Reduce Director Terms” below for more information.

Reasons for the Proposed Amendments

Tesla’s mission is to accelerate the world’s transition to sustainable energy. This mission continues to require a long-term focus that we believe will ultimately maximize value to our stockholders, and we face the risk of distractions posed by special interests that seek only short-term returns. At the same time, the Board continuously evaluates our corporate governance structure, practices and policies, and also weighs feedback from our stockholders. As part of this evaluation, the Board considered recent feedback from our institutional investors as described below in “Corporate Governance—Investor Outreach,” and reviewed the stockholder proposals we have historically received for our annual meetings of stockholders, including Proposal Eight and a stockholder proposal to vote on an advisory basis to fully declassify the Board, which our stockholders did not approve at the 2017 annual meeting of stockholders. The Board also determined that Tesla has established enough momentum, particularly through a very successful fiscal 2018, to set its course for the foreseeable future, establish credibility for its mission, and more effectively defend itself from opportunistic corporate raiders. Accordingly, the Board is asking our stockholders to approve this Proposal and Proposal Five, having determined that it is the appropriate time to give our stockholders a greater voice by facilitating their ability to effect changes to certain corporate and Board matters, and allowing them to vote on the performance of our directors with greater frequency.

On the other hand, while the Board believes it appropriate to give this greater voice to our stockholders in approving fundamental corporate matters and in more frequently approving the Board’s performance, Tesla is still at a point in its development where we may experience significant short-term swings in the price of our stock that are unrelated or disproportionate to our long-term prospects. Accordingly, it would not be in the best interests of Tesla and its stockholders at this time to subject to the entire Board to an annual re-election that could, if opportunistic short-term interests prevailed, potentially eliminate in one step all continuity at the Board and leave it less capable of carrying on the implementation and execution of key projects to drive long-term stockholder value. Likewise, the Board continues to oppose stockholder initiatives that seek to direct Tesla’s strategic business decisions and day-to-

28

 


 

day operations in ways that are not critical to or in furtherance of Tesla’s core mission, such as Proposal Seven with respect to the formation of a public policy committee of the Board. The Board considers all reasonable stockholder viewpoints in good faith, but ultimately must consider the interests of all of our stockholders and what is best for sustainable value creation.

Summary of the Proposed Amendments

The following are summaries of the proposed Supermajority Amendment and Amended Bylaws. Each summary is qualified in its entirety by reference to the full text of the Amended Certificate as set forth in Appendix C, specifically Article IX thereof, and of the Amended Bylaws as set forth in Appendix D (in each case, with additions shown as underlined and deletions shown as struck through).

Supermajority Amendment

The Supermajority Amendment that is proposed to be included in the Amended Certificate provides for the deletion of the requirement that an affirmative vote of the holders of at least 66 2/3% of the voting power of all outstanding shares of capital stock of Tesla entitled to vote generally in the election of directors, voting together as a single class, be required to amend, alter or repeal, or adopt any provision in our certificate of incorporation inconsistent with the purpose and intent of the provisions currently therein relating to: (i) the general powers, number, elections, terms, removals, vacancies of, or newly created directorships for, members of the Board; (ii) the authority of the Board to adopt, amend or repeal our bylaws; (iii) actions by written consent of stockholders, special meetings of stockholders, and the required advance notice for director nominations and business to be brought by stockholders at meetings; and (iv) the amendment of our certificate of incorporation. Consequently, if the Supermajority Amendment is approved, the Amended Certificate will not require that a proposed amendment, alteration, change or repeal of any provision in the Amended Certificate be subject to approval by a supermajority of our stockholders.

Amended Bylaws

The Amended Bylaws provide for the deletion of the requirement that an affirmative vote of the holders of at least 66 2/3% of the voting power of all outstanding voting securities of Tesla, voting together as a single class, be required for the stockholders of Tesla to alter, amend or repeal, or adopt any bylaw inconsistent with, the provisions currently therein relating to: (i) meetings of stockholders; (ii) the powers, number, resignations, vacancies and removals of members of the Board; (iii) indemnification of directors and officers; and (iv) the amendment of our bylaws. Consequently, if the Amended Bylaws are approved and adopted by our stockholders, our stockholders will be permitted to adopt, amend or repeal the Amended Bylaws pursuant to a simple majority vote, or any other standard required by applicable laws.

The Board recommends a vote FOR the Tesla proposal for the approval and adoption of amendments to our certificate of incorporation and bylaws to eliminate applicable supermajority voting requirements.

29

 


 

PROPOSAL FIVE

TESLA PROPOSAL FOR APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION TO REDUCE DIRECTOR TERMS

General

We are asking stockholders to approve at the 2019 Annual Meeting the inclusion in the Amended Certificate of revisions to Section 5.2 thereof to reduce the number of classes into which the Board is divided from three to two, resulting in each director’s term being reduced from three years to two years (the “Director Term Amendment”).

The Board has approved and adopted this amendment, subject to the approval of our stockholders. Accordingly, upon the approval of this Proposal by our stockholders, we will file the Amended Certificate including the Director Term Amendment with the Secretary of State of the State of Delaware as soon as practicable following the 2019 Annual Meeting, at which time the Amended Certificate will become effective. In addition, if our stockholders also approve Proposal Four relating to amendments of our governing documents to eliminate applicable supermajority voting requirements, the Amended Certificate we file will also include such applicable amendment. Finally, if our stockholders approve either or both of this Proposal and Proposal Four, the Amended Certificate we file will also incorporate a prior certificate of amendment, effective February 1, 2017, to our certificate of incorporation to reflect the change of our corporate name from “Tesla Motors, Inc.” to “Tesla, Inc.,” which did not and does not require the approval of our stockholders. See “Proposal Four—Tesla Proposal for Approval and Adoption of Amendments to Certificate of Incorporation and Bylaws to Eliminate Applicable Supermajority Voting Requirements” above for more information.

Reasons for the Proposed Amendment

Please see “Proposal Four—Tesla Proposal for Approval and Adoption of Amendments to Certificate of Incorporation and Bylaws to Eliminate Applicable Supermajority Voting Requirements—Reasons for the Proposed Amendments” above for the Board’s reasons for recommending that our stockholders approve both this Proposal and Proposal Four.

Summary of the Proposed Amendment

The following is a summary of the proposed Director Term Amendment, and is qualified in its entirety by reference to the full text of the Amended Certificate as set forth in Appendix C, specifically Section 5.2 thereof (with additions shown as underlined and deletions shown as struck through).

The Director Term Amendment that is proposed to be included in the Amended Certificate provides for the reduction of the classes of the Board from three to two, comprised of Class I and Class II, with: (i) directors divided between them as nearly equal in size as is practicable by the Board (including following future increases or decreases in the number of directorships); (ii) the terms of the initial Class I directors expiring at the 2020 annual meeting of stockholders and thereafter at each second annual meeting of stockholders next succeeding the most recent election at which directors of such class were elected; and (iii) the terms of the initial Class II directors expiring at the 2021 annual meeting of stockholders and thereafter at each second annual meeting of stockholders next succeeding the most recent election at which directors of such class were elected. Consequently, if the Director Term Amendment is approved, each director’s term will be reduced from three years to two years, subject to any increase to a director’s term resulting from a re-assignment of Board classes in order to maintain classes as nearly equal in size as is practicable.

30

 


 

The Board has approved the following assignments of our directors to the two classes of the Board, contingent upon the approval of the Director Term Amendment by our stockholders:

 

Name

 

Class (Next Term

Expiration following

2019 Annual Meeting) if

Amendment is

Approved (1)

 

Class (Next Term

Expiration following 2019

Annual Meeting) if

Amendment is Not

Approved (2)

 

Elon Musk

 

I (2020)

 

I (2020)

 

Brad Buss (3)

 

 

 

Robyn Denholm

 

I (2020)

 

I (2020)

 

Ira Ehrenpreis

 

II (2021)

 

III (2022)

 

Lawrence J. Ellison (4)

 

II (2021)

 

III (2022)

 

Antonio Gracias (5)

 

I (2020)

 

II (2021)

 

Stephen Jurvetson (5)

 

I (2020)

 

I (2020)

 

James Murdoch

 

II (2021)

 

II (2021)

 

Kimbal Musk

 

I (2020)

 

II (2021)

 

Linda Johnson Rice (3)

 

 

 

Kathleen Wilson-Thompson

 

II (2021)

 

III (2022)

 

 

(1)

Reflects the Board classes as approved by the Board and the next applicable term expirations following the 2019 Annual Meeting, assuming approval of the Director Term Amendment and re-election at the 2019 Annual Meeting (if applicable).

(2)

Reflects the current Board classes and the next applicable term expirations following the 2019 Annual Meeting, if the Amended Certificate is not approved and assuming re-election at the 2019 Annual Meeting (if applicable).

(3)

Will not stand for re-election at the 2019 Annual Meeting.

(4)

If the Director Term Amendment is not approved, Mr. Ellison, who is currently a Class II director, will be re-classified to a Class III director with a term expiring in 2022 immediately following the 2019 Annual Meeting, such that our Board classes will remain equal in size.

(5)

Will not stand for re-election when his current term expires.

The Board recommends a vote FOR the Tesla proposal for the approval of an amendment to our certificate of incorporation to reduce director terms.

31

 


 

PROPOSAL SIX

TESLA PROPOSAL FOR RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

General

The Audit Committee has selected PricewaterhouseCoopers LLP as Tesla’s independent registered public accounting firm to audit the consolidated financial statements of Tesla for the fiscal year ending December 31, 2019, which will include an audit of the effectiveness of Tesla’s internal control over financial reporting. PricewaterhouseCoopers LLP has audited Tesla’s financial statements since 2005. A representative of PricewaterhouseCoopers LLP is expected to be present at the meeting, will have the opportunity to make a statement if he or she desires to do so, and is expected to be available to respond to appropriate questions.

Stockholder ratification of the selection of our independent registered public accounting firm is a matter of good corporate practice. In the event that this selection is not ratified by the affirmative vote of a majority of the shares present and voting at the meeting in person or by proxy, the appointment of the independent registered public accounting firm will be reconsidered by the Audit Committee. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different accounting firm at any time during the year if the Audit Committee determines that such a change would be in the best interests of Tesla and our stockholders.

Principal Accounting Fees and Services

The following table presents fees billed for professional audit services and other services rendered to Tesla by PricewaterhouseCoopers LLP for the years ended December 31, 2017 and 2018. The dollar amounts in the table and accompanying footnotes are in thousands.

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

2018

 

Audit Fees (1)

  

$

10,613

 

  

$

12,088

 

Audit-Related Fees (2)

  

 

240

 

  

 

160

 

Tax Fees (3)

  

 

64

 

  

 

514

 

All Other Fees (4)

  

 

2

 

  

 

3

 

 

 

 

 

 

 

 

 

 

Total

  

$

10,919

 

  

$

12,766

 

 

(1)

Audit Fees consist of fees billed for professional services rendered for the audit of Tesla’s consolidated financial statements included in Tesla’s Annual Report on Form 10-K and for the review of the financial statements included in Tesla’s Quarterly Reports on Form 10-Q, as well as services that generally only Tesla’s independent registered public accounting firm can reasonably provide, including statutory audits and services rendered in connection with SEC filings. The Audit Fees incurred in 2017 also include fees of $403 relating to services performed in connection with Tesla’s securities offerings, in each case including comfort letters, consents and review of documents filed with the SEC and other offering documents.

(2)

Audit-Related Fees consist of fees billed for professional services for assistance with interpretation of accounting standards.

(3)

Tax Fees in 2017 and 2018 consisted of fees related to consultation and assistance with foreign taxation matters.

(4)

Other Fees in 2017 and 2018 consisted of fees for use of accounting software.

Pre-Approval of Audit and Non-Audit Services

Tesla’s Audit Committee has adopted a policy for pre-approving audit and non-audit services and associated fees of Tesla’s independent registered public accounting firm. Under this policy, the Audit Committee must pre- approve all services and associated fees provided to Tesla by its independent registered public accounting firm, with certain de minimis exceptions described in the policy.

All PricewaterhouseCoopers LLP services and fees in fiscal 2017 and 2018 were pre-approved by the Audit Committee.

32

 


 

The Board recommends a vote FOR the Tesla proposal for the ratification of the appointment of PricewaterhouseCoopers LLP as Tesla’ s independent registered public accounting firm for the fiscal year ending December 31, 2019.

33

 


 

PROPOSAL SEVEN

STOCKHOLDER PROPOSAL REGARDING PUBLIC POLICY COMMITTEE

In accordance with SEC rules, we have set forth below a stockholder proposal from Jing Zhao, along with a supporting statement of Mr. Zhao, exactly as submitted by Mr. Zhao. Mr. Zhao has notified us that he is the beneficial owner of 12 shares of Tesla’s common stock and intends to present the following proposal at the 2019 Annual Meeting. Mr. Zhao’s address is 1745 Cooperleaf Ct., Concord, CA 94519. The stockholder proposal will be required to be voted upon at the 2019 Annual Meeting only if properly presented.  

Stockholder Proposal and Supporting Statement

***

Shareholder Proposal on Public Policy Committee

Resolved: shareholders recommend that Tesla Inc. (the Company) establish a Public Policy Committee to oversee the Company's policies including human rights, environment, domestic governmental regulations, foreign affairs and international relations affecting the Company's business.

Supporting Statement

A lot of things happened in the Company since the board rejected my independent Chairman proposal at our 2018 shareholders meeting; a lot of things happened in the United States since Mr. Donald Trump became the President; a lot of things happened in US-China relations, particularly the tense trade disputes affecting the Company’s business in China, since Mr. Xi Jinping removed his own term limit as China’s President. A lot of things will happen more unpredictably affecting the Company’s business.

Many companies, such as the dead Yahoo and the troubled facebook [sic], failed without a public policy committee. The Company’s current Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee are not adequate to deal with the new age of global competition, confusion, conflicts and confrontation. The Company needs not only an independent Chairman (or Chairwoman), but also a public policy committee.

***

Opposing Statement of the Board

The Board has considered this proposal and has determined that it would not serve the best interests of Tesla or our stockholders.

The Board has broad authority as to Tesla’s key policies, and has a key role in implementing and periodically updating them. These policies, such as our Code of Business Conduct and Ethics, contain guidelines for operating on an increasingly global stage, including with respect to interactions with governments and officials, awareness of foreign laws and practices, and management of business issues relating to competition and fair dealing. The Board is also assisted in its risk oversight function by its various committees, including the Audit Committee, which has oversight over Tesla’s global legal and regulatory compliance, and the Nominating and Corporate Governance Committee, which has authority with respect to addressing any conflicts of interest issues. Moreover, we have assembled specific personnel with specialized expertise to address the types of issues cited by the proponent, including our Environment, Health and Safety and Government Relations and Policy teams, as well as locally-sourced teams in regional locations around the world. True to our startup origins, the Board frequently communicates and meets with our management with respect to these and other operational areas. Ultimately, the Board is responsible for overseeing the major risks that we face, and its members represent a unique collection of diverse backgrounds and experience in a variety of industries that allows them to react to new risks and business conditions.

34

 


 

On the other hand, the proponent does not indicate whether and how the Board has failed with respect to human rights, the environment, or domestic or foreign affairs, other than a broad allusion to trade disputes affecting Tesla’s business in China. Rather, the proponent simply makes unsupported conclusions that our existing Board committees are inadequate, without providing any evidence or rationale for such statements or explaining the mechanisms through which a public policy committee could better address challenges than Tesla’s Board, Board committees, or management.

While the Board recognizes there are important decisions and policies to be made as the Company continues to expand in an increasingly competitive global environment, the Company already has in place a suitable governance structure for that purpose. Without any coherent evidence or rationale for a public policy committee, the Board believes that creating such a committee would be inefficient and introduce an unnecessary administrative burden on the Board process.

The Board recommends a vote AGAINST the stockholder proposal regarding a public policy committee.

 

 


35

 


 

PROPOSAL EIGHT

STOCKHOLDER PROPOSAL REGARDING SIMPLE MAJORITY VOTING PROVISIONS IN GOVERNING DOCUMENTS

In accordance with SEC rules, we have set forth below a stockholder proposal from James McRitchie, along with a supporting statement of the proponent, exactly as submitted by Mr. McRitchie. Mr. McRitchie has notified us that he is the beneficial owner of 90 shares of Tesla’s common stock and intends to present the following proposal at the 2019 Annual Meeting through his designee, John Chevedden. Mr. McRitchie’s address is 9295 Yorkship Court, Elk Grove, CA 95758. The stockholder proposal will be required to be voted upon at the 2019 Annual Meeting only if properly presented.  

Stockholder Proposal and Supporting Statement

***

Proposal Eight - Simple Majority Vote

RESOLVED, Tesla, Inc. (“Tesla” or “Company”) shareholders request that our board take each step necessary so that each voting requirement in our charter and bylaws that calls for a greater than simple majority vote be eliminated, and replaced by a requirement for a majority of the votes cast for and against applicable proposals, or a simple majority in compliance with applicable laws. This means the closest standard to a majority of the votes cast for and against such proposals consistent with applicable laws. It is also important that our company take each step necessary to avoid a failed vote on this proposal topic.

Supporting Statement: Shareowners are willing to pay a premium for shares of companies that have excellent corporate governance. Supermajority voting requirements have been found to be one of six entrenching mechanisms that are negatively related to company performance according to “What Matters in Corporate Governance” by Lucien Bebchuk, Alma Cohen and Allen Ferrell of the Harvard Law School (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=593423).

Large funds, such as T. Rowe Price, BlackRock, SSgA and Northern Trust generally support elimination of supermajority requirements, since most view them as an entrenchment device for management. For example, BlackRock's Proxy Voting Guidelines for U.S. Securities (https://www.blackrock.com/corporate/literature/fact-sheet/blk-responsible-investment-guidelines-us.pdf) includes the following:

We generally favor a simple majority voting requirement to pass proposals. Therefore, we will support the reduction or the elimination of supermajority voting requirements to the extent that we determine shareholders’ ability to protect their economic interests is improved.

This proposal topic won from 59.2% to 80.1% of the vote at Kaman, DowDuPont, Salseforce.com [sic] and Ryder System in early 2018. Prior to that, it won 74% to 99% support at Weyerhaeuser, Alcoa, Waste Management, Goldman Sachs, FirstEnergy, McGraw-Hill, Macy’s, Ferro Arconic, and Cognizant Technology Solutions.  

Consideration should also be given to the fact that Tesla shareholders do not elect each director annually, no action can be taken by written consent, shareholders cannot call special meetings and we have no right to proxy access to nominate directors.

Currently a 1 % special interest minority of shares can frustrate the will of shareholders casting 66% of shares in favor. In other words a 1 % special interest minority could have the power to prevent shareholders from improving our corporate governance.

36

 


 

Shareholder lawsuits mount. Federal investigations are ongoing, with the SEC reportedly looking into the adequacy of Tesla's disclosures around supply chain problems. Shareholders need more than deny, deflect, and delay. We need a real voice through governance reforms, including a Simple Majority Vote standard. Please vote to enhance shareholder value:

Simple Majority Vote - Proposal Eight

***

Opposing Statement of the Board

The Board has determined that this proposal would not serve the best interests of Tesla or our stockholders, because we have separately included a proposal (Proposal Four) for our stockholders to directly approve amendments to each of our Certificate of Incorporation and our Bylaws to eliminate any voting requirements therein that require greater than a majority vote of our stockholders. Unlike this proposal, which is advisory and non-binding, Proposal Four would result in our implementing such amendments upon approval, and the Board urges our stockholders to vote for Proposal Four.

The Board recommends a vote AGAINST the stockholder proposal regarding simple majority voting.

 

37

 


 

CORPORATE GOVERNANCE

Investor Outreach

During 2014, the Board determined to formally identify, approach and establish an active dialogue with our largest stockholders and conduct an extensive and recurring review of our corporate governance practices. We inaugurated a program of periodic investor outreach to ensure that Tesla’s Board and management understand and consider the issues that matter most to our stockholders. We have gradually expanded this program over time to include senior members of management and the Board, who have participated in hosting extended series of meetings with and preparing presentations to a broad base of investors. Through this program, we have received and continue to periodically receive helpful input regarding a number of stockholder-related matters, and have adopted a number of significant changes to our corporate governance practices.

For example, in March 2019, a Tesla delegation including Robyn Denholm, our independent Chair of the Board, met with representatives of over 75% of our active institutional investors as of such time in order to obtain investor feedback on a variety of corporate governance and operational matters, including our board structure and accountability, equity incentive plan and public disclosures, and report back to the Board. Such discussions in part inspired the Board to approve and submit to our stockholders for approval at the 2019 Annual Meeting our Proposals Four and Five to implement certain steps to increase Board accountability to stockholders, as well as to incorporate a number of strong corporate governance practices into the 2019 Plan that will also be voted on at the 2019 Annual Meeting. See “Proposal Two—Tesla Proposal for Approval of Tesla, Inc. 2019 Equity Incentive Plan,” “Proposal Four—Tesla Proposal for Approval and Adoption of Amendments to Certificate of Incorporation and Bylaws to Eliminate Applicable Supermajority Voting Requirements,” and “Proposal Five—Tesla Proposal for Approval of Amendment to Certificate of Incorporation to Reduce Director Terms” above for more information.

Moreover, members of the Board and management from time to time seek input from our investors when considering important corporate actions that involve matters of corporate governance and alignment with stockholder interests. Such discussions in 2017 with our largest institutional stockholders were instrumental in the Board’s deliberations regarding the design of the 2018 CEO Performance Award, which was subsequently approved by approximately 73% of the votes cast by stockholders (other than Elon Musk or Kimbal Musk) at the special meeting to approve such award.

We do not expect that we will always be able to address all of our stockholders’ feedback. However, we seek to optimize our corporate governance by continually refining our relevant policies, procedures and practices to align the needs of the Company with evolving regulations and best practices, issues raised by our stockholders, and other factors as circumstances warrant.

Code of Business Conduct and Ethics and Corporate Governance Guidelines

The Board sets high standards for Tesla’s employees, officers and directors. Tesla is committed to establishing an operating framework that exercises appropriate oversight of responsibilities at all levels throughout the Company and managing its affairs in a manner consistent with high principles of business ethics. Accordingly, Tesla has adopted a Code of Business Conduct and Ethics, which is applicable to Tesla and its subsidiaries’ directors, officers and employees. Tesla has also adopted Corporate Governance Guidelines, which, in conjunction with our certificate of incorporation, bylaws, and charters of the standing committees of the Board, form the framework for Tesla’s corporate governance. The Code of Business Conduct and Ethics and the Corporate Governance Guidelines are each available on Tesla’s website at: http://ir.tesla.com/corporate-governance/highlights. Tesla will disclose on its website any amendment to the Code of Business Conduct and Ethics, as well as any waivers of the Code of Business Conduct and Ethics, that are required to be disclosed by the rules of the SEC or The NASDAQ Stock Market LLC (“NASDAQ”).

38

 


 

Director Independence

Other than Elon Musk, no current director is or has ever been an employee of Tesla. In the course of determining whether each non-employee director is independent, the Board considers, among other things, the annual amount of Tesla’s sales to, or purchases from, any company where a non-employee director or his or her close family member serves as a partner, controlling stockholder or executive officer. In order to find that a director is independent, the Board must determine that any such sales or purchases were made in the ordinary course of business and the amount of such sales or purchases in each of the past three fiscal years was less than 5% of Tesla’s or the applicable company’s consolidated gross revenues for the applicable year. The Board undertook an analysis for each non-employee director and considered all other relevant facts and circumstances, including the director’s other commercial, accounting, legal, banking, consulting, charitable and familial relationships. The Board specifically reviewed the considerations described immediately below to the extent they were identified with respect to any of the non-employee directors. Pursuant to its review, the Board determined that with respect to each of its current members other than Elon Musk and Kimbal Musk, there are no disqualifying factors with respect to director independence enumerated in the listing standards of NASDAQ or any relationships that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, and that each such member is an “independent director” as defined in the listing standards of NASDAQ.

With respect to Robyn Denholm, the following was among the relevant considerations:

 

Ms. Denholm is Chief Financial Officer and Head of Strategy of Telstra, from which Tesla is a customer of connectivity services in Australia pursuant to an agreement that was fully negotiated through ordinary course contracting processes. During 2018, Tesla purchased approximately $608,110 in such services.

The Board has concluded that given that (i) Tesla is a customer of Telstra in the ordinary course of business pursuant to a business relationship in which Ms. Denholm was not involved in negotiating nor has any material interest, and (ii) Ms. Denholm does not have a direct or indirect material interest in any pertinent transaction or relationship described below in “Certain Relationships and Related Party Transactions—Related Party Transactions,” there are no relationships that would impede the exercise of independent judgment by Ms. Denholm.

With respect to Ira Ehrenpreis, the following were among the relevant considerations:

 

Mr. Ehrenpreis is a co-owner and manager of DBL Partners. Each of Mr. Ehrenpreis and DBL Partners is a minority investor in SpaceX. Tesla and certain Tesla directors have relationships with SpaceX as set forth in this section and below in “Certain Relationships and Related Party Transactions—Related Party Transactions—SpaceX.

The Board has concluded that given that (i) Mr. Ehrenpreis’ and DBL Partners’ interests in SpaceX are minority positions, and (ii) Mr. Ehrenpreis does not have a direct or indirect material interest in any pertinent transaction or relationship described below in “Certain Relationships and Related Party Transactions—Related Party Transactions,” there are no relationships that would impede the exercise of independent judgment by Mr. Ehrenpreis.

With respect to Lawrence J. Ellison, the following were among the relevant considerations:

 

In March 2017, an entity of which Mr. Ellison is a significant shareholder purchased a Tesla Energy microgrid system from us for a greenhouse farming project in Lanai, Hawaii for approximately $1.9 million. Such purchase was completed pursuant to an agreement that was fully negotiated through ordinary course contracting processes.

 

Mr. Ellison is Executive Chairman and Chief Technology Officer of Oracle Corporation, from which Tesla is a customer of software and database services. During 2018, Tesla purchased approximately $667,139 in such services pursuant to agreements that were fully negotiated through ordinary course contracting processes.

39

 


 

The Board has concluded that given that (i) Mr. Ellison is neither a director nor officer of the entity which purchased a Tesla Energy system, such purchase was fully negotiated pursuant to ordinary course sales channels without Mr. Ellison’s involvement, and such purchase was entered into well before Mr. Ellison’s appointment to the Board, (ii) Tesla has been since prior to Mr. Ellison’s appointment to the Board a customer of Oracle in the ordinary course of business pursuant to a business relationship in which Mr. Ellison was not involved in negotiating nor has any material interest, and (iii) Mr. Ellison does not have a direct or indirect material interest in any pertinent transaction or relationship described below in “Certain Relationships and Related Party Transactions—Related Party Transactions,” there are no relationships that would impede the exercise of independent judgment by Mr. Ellison.

With respect to Antonio Gracias, the following were among the relevant considerations:

 

Mr. Gracias is the Chief Executive Officer, director and majority owner of VMC. Certain VMC-advised funds are minority investors in SpaceX, and Mr. Gracias is a director of SpaceX. Tesla and certain Tesla directors have relationships with SpaceX as set forth in this section and below in “Certain Relationships and Related Party Transactions—Related Party Transactions—SpaceX.

 

VMC provided certain consulting services to Tesla relating to operational optimization in 2017 and costs of $34,347 were reimbursed to it as part of those services.

 

The Elon Musk Revocable Trust dated July 22, 2003, of which Elon Musk is the trustee, is a limited partner of Valor Equity Partners II, L.P., which is a fund advised by VMC.

 

Kimbal Musk is a limited partner of Valor Equity Partners II, L.P. and Valor Equity Partners III-A, L.P., which are funds advised by VMC.

 

Certain investment funds affiliated with Mr. Gracias are investors in the Kitchen Cafe, LLC, a business affiliated with Kimbal Musk.

The Board has concluded that given that (i) VMC funds’ interests in SpaceX are minority positions, (ii) Mr. Gracias has professional experience serving on the boards of and/or investing in multiple companies without conflict, (iii) VMC received only an immaterial amount of cost reimbursements in connection with the services that it provided in 2017 on an arm’s length basis to Tesla, (iv) investments in VMC funds by two other Tesla directors comprise small fractions of such funds, and (v) Mr. Gracias does not have a direct or indirect material interest in any pertinent transaction or relationship described below in “Certain Relationships and Related Party Transactions—Related Party Transactions,” there are no relationships that would impede the exercise of independent judgment by Mr. Gracias.

With respect to Stephen Jurvetson, the following were among the relevant considerations:

 

Mr. Jurvetson is a director of SpaceX, and participates in certain investment funds that are minority stockholders of SpaceX, including funds affiliated with Future Ventures, of which Mr. Jurvetson is a co-founder. Tesla and certain Tesla directors have relationships with SpaceX as set forth in this section and in “Certain Relationships and Related Party Transactions—Related Party Transactions—SpaceX” below.

 

Mr. Jurvetson is an investor in the Kitchen Cafe, LLC, a business affiliated with Kimbal Musk.

The Board has concluded that given that (i) the interests of the funds through which Mr. Jurvetson participates in investments in SpaceX are minority positions, (ii) Mr. Jurvetson has professional experience serving on the boards of and/or investing in multiple companies without conflict, and (iii) Mr. Jurvetson does not have a direct or indirect material interest in any pertinent transaction or relationship described below in “Certain Relationships and Related Party Transactions—Related Party Transactions,” there are no relationships that would impede the exercise of independent judgment by Mr. Jurvetson.

40

 


 

With respect to James Murdoch, the following was among the relevant considerations:

 

Mr. Murdoch is a minority investor in SpaceX. Tesla and certain Tesla directors have relationships with SpaceX as set forth in this section and below in “Certain Relationships and Related Party Transactions—Related Party Transactions—SpaceX.

 

In January 2019, Mr. Murdoch purchased a Tesla Energy product from us pursuant to an agreement that was fully negotiated through ordinary course contracting processes, as described below in “Certain Relationships and Related Party Transactions—Related Party Transactions—Other Transactions.”

The Board has concluded that given that (i) Mr. Murdoch’s interest in SpaceX is a minority position, (ii) the Tesla Energy purchase was negotiated and completed through ordinary course sales processes, and (iii) Mr. Murdoch does not have a direct or indirect material interest in any other pertinent transaction or relationship described below in “Certain Relationships and Related Party Transactions—Related Party Transactions,” there are no relationships that would impede the exercise of independent judgment by Mr. Murdoch.

Board Leadership Structure

Roles of Chair of the Board and Lead Independent Director

In November 2018, the Board, following careful deliberation, appointed Robyn Denholm to serve as the independent Chair of the Board, having considered her strong leadership, independent presence, and financial and business expertise on the Board for over four years. Together, Ms. Denholm and our Chief Executive Officer Elon Musk comprise our senior Board leadership, which the Board believes is appropriate at this time to provide the most effective leadership structure for Tesla in a highly competitive and rapidly changing technology industry. As Chair of the Board, Ms. Denholm has broad authority and oversight over the affairs of the Board, with Mr. Musk available to her as a resource in this regard. Moreover, as an independent Chair of the Board, Ms. Denholm has the authority to direct the actions of the other independent directors and regularly communicate with Mr. Musk as their representative, which are duties previously performed by Antonio Gracias in his former role as Lead Independent Director. After a brief transition period to assist Ms. Denholm, Mr. Gracias relinquished such role in April 2019, and the Board determined that a Lead Independent Director is not currently necessary. The Board recognizes and thanks Mr. Gracias for his service in this capacity since September 2010, in addition to his commitment and numerous other significant contributions to Tesla since its early stages.

As Chair of the Board, Ms. Denholm, among other things:

 

reviews the agenda and materials for meetings of the independent directors;

 

consults with our Chief Executive Officer regarding Board meeting agendas, schedules and materials;

 

communicates with our Chief Executive Officer;

 

acts as a liaison between our Chief Executive Officer and the independent directors when appropriate;

 

raises issues with management on behalf of the independent directors;

 

annually reviews, together with the Nominating and Corporate Governance Committee, the Board’s performance during the prior year; and

 

serves as the Board’s liaison for consultation and communication with stockholders as appropriate.

Tesla also has a mechanism for stockholders to communicate directly with non-management directors (see “Corporate Governance—Contacting the Board” below).

Committees of the Board

In addition, the Board has four standing committees—the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee, and the Disclosure Controls Committee—which are each further described below. Each of the Board committees is comprised solely of independent directors, and the Board may appoint a chair to each committee. Our independent directors regularly meet in executive session, and at such

41

 


 

other times as necessary or appropriate as determined by the independent directors. In addition, as part of our governance review and succession planning, the Board (led by the Nominating and Corporate Governance Committee) evaluates our leadership structure to ensure that it remains the optimal structure for Tesla, reviews the composition, size and performance of the Board and its committees, evaluates individual Board members, and identifies and evaluates candidates for election or re-election to the Board. For example, see “Proposal One—Tesla Proposal for Election of Directors” above and “Corporate Governance— Process and Considerations for Nominating Board Candidates” below for additional information.

Board Role in Risk Oversight

The Board is responsible for overseeing the major risks facing Tesla while management is responsible for assessing and mitigating Tesla’s risks on a day-to-day basis. In addition, the Board has delegated oversight of certain categories of risk to the Audit and Compensation Committees, which are comprised entirely of independent directors. The Audit and Compensation Committees report to the Board as appropriate on matters that involve specific areas of risk that each Committee oversees.

Financial, Compliance and Controls Risks

The Audit Committee has scheduled monthly and annual reviews and discussions with management regarding significant risk exposures and incident metrics, including those relating to financial, accounting and treasury matters, internal audit and controls, legal and regulatory compliance, and data privacy and cybersecurity. These discussions cover the steps management has taken to monitor, control and report such exposures, as well as Tesla’s policies with respect to risk assessment and risk management.

Employee Compensation Risks

The Compensation Committee oversees management of risks relating to Tesla’s compensation plans and programs. Tesla’s management and the Compensation Committee have assessed the risks associated with Tesla’s compensation policies and practices for all employees, including non-executive officers. These include risks relating to setting ambitious targets for our employees’ compensation or the vesting of their equity awards and the potential impact of such targets on the decision-making of our employees, particularly our senior management. Based on the results of this assessment, Tesla does not believe that its compensation policies and practices for all employees, including non-executive officers, create risks that are reasonably likely to have a material adverse effect on Tesla.

Board Meetings and Committees

During fiscal 2018, the Board held 21 meetings. Each director other than Stephen Jurvetson, who was on a leave of absence from the Board for the entirety of 2018 and therefore attended no meetings during the year, attended or participated in 75% or more of the aggregate of the total number of meetings of the Board and the total number of meetings of all Board committees on which such director served, in each case held during such director’s relevant period of service.

Audit Committee

The Audit Committee, which has been established in accordance with Section 3(a)(58) of the Exchange Act, currently consists of Brad Buss, Robyn Denholm, Stephen Jurvetson and James Murdoch, each of whom is “independent” as such term is defined for audit committee members by the listing standards of NASDAQ. Ms. Denholm is the chair of the Audit Committee. The Board has determined that each of Ms. Denholm and Mr. Buss is an “audit committee financial expert” as defined in the rules of the SEC.

The Audit Committee is responsible for, among other things:

 

reviewing and approving the selection of Tesla’s independent auditors, and approving the audit and non-audit services to be performed by Tesla’s independent auditors;

 

providing oversight and recommendations regarding significant financial matters and investment practices, including any material acquisitions and divestitures;

42

 


 

 

monitoring the integrity of Tesla’s financial statements and Tesla’s compliance with legal and regulatory requirements as they relate to financial statements or accounting matters;

 

reviewing the adequacy and effectiveness of Tesla’s internal control policies and procedures in addition to Tesla’s risk management, data privacy and data security;

 

discussing the scope and results of the audit with the independent auditors and reviewing with management and the independent auditors Tesla’s interim and year-end operating results; and

 

preparing the audit committee report that the SEC requires in Tesla’s annual proxy statement.

The Audit Committee held 10 meetings during fiscal 2018. The Audit Committee has adopted a written charter approved by the Board, which is available on Tesla’s website at: http://ir.tesla.com/corporate-governance/highlights.

The Audit Committee Report is included in this proxy statement on page 75.

Compensation Committee

The Compensation Committee is currently comprised of Robyn Denholm, Ira Ehrenpreis, Linda Johnson Rice and Kathleen Wilson-Thompson, each of whom qualifies as an independent director under the listing standards of NASDAQ. Mr. Ehrenpreis is the chair of the Compensation Committee.

The Compensation Committee is responsible for, among other things:

 

overseeing Tesla’s compensation policies, plans and benefit programs and making related recommendations to the Board, including by considering “say on pay” votes of Tesla’s stockholders;

 

reviewing and approving for Tesla’s executive officers: the annual base salary, equity compensation, employment agreements, severance arrangements and change in control arrangements, and any other compensation, benefits, or arrangements;

 

administering the compensation of members of the Board and Tesla’s equity compensation plans; and

 

preparing the compensation committee report that the SEC requires to be included in Tesla’s annual proxy statement.

The Compensation Committee held six meetings during fiscal 2018. The Compensation Committee has adopted a written charter approved by the Board, which is available on Tesla’s website at: http://ir.tesla.com/corporate-governance/highlights.

The Compensation Committee Report is included in this proxy statement on page 59.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee currently consists of Robyn Denholm, Ira Ehrenpreis, James Murdoch and Kathleen Wilson-Thompson, each of whom qualifies as an independent director under the listing standards of NASDAQ. Mr. Ehrenpreis is the chair of the Nominating and Corporate Governance Committee.

The Nominating and Corporate Governance Committee is responsible for, among other things:

 

assisting the Board in identifying prospective director nominees and recommending nominees for each annual meeting of stockholders to the Board;

 

reviewing developments in corporate governance practices and developing and recommending governance principles applicable to the Board;

 

considering questions of possible conflicts of interest of Tesla’s directors and officers;

43

 


 

 

reviewing the manner in and the process by which stockholders communicate with the Board and recommending Board responses;

 

reviewing the succession planning for Tesla’s executive officers;

 

overseeing the evaluation of Tesla’s Board and management; and

 

recommending members for each Board committee to the Board.

For example, the Nominating and Corporate Governance Committee led an extensive director search that culminated in the appointment of two new independent directors in late 2018, and conducted a Board evaluation in 2019 to optimize its membership and size. See “Corporate Governance— Process and Considerations for Nominating Board Candidates” below for additional information.

The Nominating and Corporate Governance Committee held five meetings during the last fiscal year. The Nominating and Corporate Governance Committee has adopted a written charter approved by the Board, which is available on Tesla’s website at: http://ir.tesla.com/corporate-governance/highlights.

Disclosure Controls Committee

The Disclosure Controls Committee currently consists of Brad Buss, Robyn Denholm, Stephen Jurvetson and James Murdoch, each of whom qualifies as an independent director under the listing standards of NASDAQ. Ms. Denholm is the chair of the Disclosure Controls Committee.

The Disclosure Controls Committee is responsible for, among other things:

 

overseeing the implementation of and compliance with the terms of Tesla’s consent agreement with the SEC dated September 29, 2018;

 

overseeing the controls and processes governing certain public disclosures by Tesla and its executive officers; and

 

reviewing and resolving certain conflicts of interest or other human resources issues involving any executive officer and ensuring appropriate disclosures, if applicable.

The Disclosure Controls Committee, which was established by the Board in December 2018, did not hold any meetings during 2018. The Disclosure Controls Committee has adopted a written charter approved by the Board, which is available on Tesla’s website at: http://ir.tesla.com/corporate-governance/highlights.

Compensation Committee Interlocks and Insider Participation

Brad Buss, Robyn Denholm, Ira Ehrenpreis, Antonio Gracias and Linda Johnson Rice served as members of the Compensation Committee during fiscal 2018. No member of the Compensation Committee is or was formerly an officer or an employee of Tesla. See “Corporate Governance—Director Independence” above and “Certain Relationships and Related Party Transactions—Related Party Transactions” below for certain transactions involving Tesla in which members of the Compensation Committee may be deemed to have an indirect interest.

No interlocking relationships existed between any member of Tesla’s Board or Compensation Committee and any member of the board of directors or compensation committee of any other company during the last fiscal year.

44

 


 

Process and Considerations for Nominating Board Candidates

The Nominating and Corporate Governance Committee is responsible for, among other things, determining the criteria for membership to the Board and recommending candidates for election to and changes to the composition of the Board. The Nominating and Corporate Governance Committee’s criteria and process for evaluating and identifying the candidates that it recommends to the full Board for selection as director nominees, including in the illustrative context of recently-determined changes at the Board level, are as follows:

 

The Nominating and Corporate Governance Committee regularly reviews the current composition and size of the Board. Likewise, it oversees an annual evaluation of the performance of the Board as a whole and evaluates the performance of individual members of the Board eligible for re-election at the annual meeting of stockholders. For example, in consultation with Robyn Denholm, the Chair of the Board, the Nominating and Corporate Governance Committee recently conducted a comprehensive top-down evaluation of the full Board, including its size and composition, to consider ways to optimize its membership.

 

Furthermore, when identifying, considering or recommending new candidates for the Board to fill vacancies or add additional directors other than at annual meetings of stockholders at which directors are elected, the Nominating and Corporate Governance Committee applies the same evaluation process and standards as it does to existing members of the Board, including a consideration of the composition and size of the Board as a whole. Therefore, in conducting its search for new independent directors in late 2018, the Nominating and Corporate Governance Committee reviewed not only the individual qualifications of director candidates but also their potential roles on the Board, as well as the appropriate number of new directors to be appointed, considering as many as three additions prior to ultimately recommending two.

 

In its evaluation of director candidates, including the members of the Board eligible for re-election, the Nominating and Corporate Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board and considers (1) the current size, composition and tenure of the Board and the needs of the Board and the respective committees of the Board, (2) such factors as issues of character, integrity, judgment, diversity, age, independence, skills, education, expertise, business acumen, business experience, length of service, understanding of Tesla’s business, potential conflicts of interest, other commitments and the like, as well as any personal references and an indication of the candidate’s willingness to serve, and (3) such other factors as the Nominating and Corporate Governance Committee may consider appropriate. Accordingly, the Nominating and Corporate Governance Committee comprehensively weighed these factors for each current member of the Board, including in particular the scope of his or her other professional and personal commitments, as well as the expected mix of perspectives, expertise and Tesla experience on the Board with and without him or her. As a result, the Nominating and Corporate Governance Committee recommended, and the Board approved, a transition plan to streamline the Board’s membership over the next year, including by relying increasingly on our new independent directors who have joined the Board since the second half of 2017, as described in more detail above in “Proposal One—Tesla Proposal for Election of Directors.”

 

While the Nominating and Corporate Governance Committee has not established specific minimum qualifications for director candidates, the Nominating and Corporate Governance Committee believes that candidates and nominees must reflect a Board that is comprised of directors who (1) are predominantly independent, (2) are of high integrity, (3) have broad, business-related knowledge and experience at the policy-making level in business or technology, including their understanding of Tesla’s business in particular, (4) have qualifications that will increase overall Board effectiveness and (5) meet other requirements as may be required by applicable rules, such as financial literacy or financial expertise with respect to Audit Committee members. In conducting its 2018 independent director search, the Nominating and Corporate Governance Committee emphasized these criteria, including in instructing Russell Reynolds Associates, a leading executive search services firm that the Nominating and Corporate Governance Committee retained to assist it in identifying, interviewing, evaluating and recommending potential candidates. Following an extensive two-month search in which numerous highly-qualified candidates from a variety of backgrounds were considered, the Nominating and Corporate Governance Committee recommended Lawrence J. Ellison and Kathleen Wilson-Thompson to the Board to further bolster the Board’s expertise in technological innovation and workforce management and relations.

45

 


 

 

As described above, in evaluating and identifying candidates, the Nominating and Corporate Governance Committee has the authority to retain and terminate any third party search firm that is used to identify director candidates and has the authority to approve the fees and retention terms of any search firm.

 

With regard to any candidates who are properly recommended by stockholders (as described in more detail below) or by other means, the Nominating and Corporate Governance Committee reviews the qualifications of any such candidate, which review may, in the Nominating and Corporate Governance Committee’s discretion, include interviewing references for the candidate, direct interviews with the candidate, or other actions that the Nominating and Corporate Governance Committee deems necessary or proper.

 

After completing its review and evaluation of director candidates, the Nominating and Corporate Governance Committee recommends to the full Board the director nominees.

It is the policy of the Nominating and Corporate Governance Committee to consider properly submitted recommendations for candidates to the Board from stockholders. Stockholder recommendations for candidates to the Board must be directed in writing to Tesla, Inc., 3500 Deer Creek Road, Palo Alto, California 94304, Attention: General Counsel/Legal, and must include the candidate’s name, home and business contact information, detailed biographical data and qualifications, information regarding any relationships between the candidate and Tesla within the last three years and evidence of the nominating person’s ownership of Tesla stock. Such recommendations must also include a statement from the recommending stockholder in support of the candidate, particularly within the context of the criteria for Board membership, including issues of character, integrity, judgment, diversity, age, independence, skills, education, expertise, business acumen, business experience, length of service, understanding of Tesla’s business, other commitments and the like, as well as any personal references and an indication of the candidate’s willingness to serve.

Attendance at Annual Meetings of Stockholders by the Board

Although Tesla does not have a formal policy regarding attendance by members of the Board at Tesla’s annual meetings of stockholders, Tesla encourages, but does not require, directors to attend. All of our directors who served at the time of the prior year’s annual meeting of stockholders attended such meeting other than Stephen Jurvetson, who was on a leave of absence from the Board.

Stock Transactions

Insider Trading Policy, Share Pledging and Rule 10b5-1 Trading Plans

Tesla has an insider trading policy that prohibits all of our directors, officers and employees from, among other things, engaging in short sales, hedging of stock ownership positions, and transactions involving derivative securities relating to Tesla’s common stock.

The Board has a policy that limits pledging of Company stock by our directors and executive officers. Pursuant to this policy, directors and executive officers may pledge their Company stock (exclusive of options, warrants, restricted stock units or other rights to purchase stock) as collateral for loans and investments, provided that the maximum aggregate loan or investment amount collateralized by such pledged stock does not exceed twenty-five percent (25%) of the total value of the pledged stock. Tesla management monitors compliance with this policy by reviewing and, if necessary, reporting to the Board or its committees the extent to which any officer or director has pledged shares of Company stock. The Board believes this share pledging policy to be in the best interests of Tesla and our stockholders by providing directors and executive officers flexibility in financial planning without having to rely on large cash compensation or the sale of Company shares, thus keeping their interests well aligned with those of our stockholders, while also mitigating risk exposure to Tesla.

In addition, two of Tesla’s current executive officers and three directors have entered into currently effective Rule 10b5-1 trading plans.

46

 


 

Stock Ownership by Board and Management

To align the interests at the highest level of our management with those of our stockholders, the Board has instituted the following requirements relating to stock ownership under our Corporate Governance Guidelines.

Each member of the Board and our Chief Executive Officer is subject to the following minimum stock ownership requirements: (i) each director shall own shares of Tesla stock equal in value to at least five times the annual cash retainer for directors (exclusive of retainer amounts for service as Lead Independent Director or as a member or chair of a Board committee), and (ii) our Chief Executive Officer shall own shares of Tesla stock equal in value to at least six times his/her base salary. Each individual shall have five years from the later of March 3, 2015 and the date such person assumed his or her relevant role at Tesla to come into compliance with these ownership requirements. Each person’s compliance with the minimum stock ownership level will be determined on the date when this compliance grace period expires, and then annually on each December 31, by multiplying the number of shares held by such person and the average closing price of those shares during the preceding month. Our Chief Executive Officer and each of our directors are currently in the applicable period to come into compliance with these requirements.

Our Corporate Governance Guidelines also provide that no equity award as to which vesting or the lapse of a period of restriction occurs based solely on the passage of time that is granted to a named executive officer may vest, or have a period of restriction that lapses, earlier than six months from the date on which such vesting or lapse commences. Furthermore, our Corporate Governance Guidelines provide that no named executive officer may sell, transfer, pledge, assign, or otherwise dispose of any shares of Tesla stock acquired pursuant to any stock option, restricted stock unit or other equity award granted by Tesla earlier than the date that is six months after the date on which such award vests or the period of restriction with respect to such award lapses, as applicable.

Prohibition of Equity Award Repricing

Tesla views equity-based compensation to be a key factor in incentivizing the future performance of our personnel. Consequently, the 2010 Plan, as well as the 2019 Plan that our stockholders will be asked to approve at the 2019 Annual Meeting, provide that stock options and other equity awards issued under these plans that derive their value from the appreciation of the value of Tesla’s stock may not be exchanged for other awards, repurchased for cash, or otherwise be made the subject of transactions that have the purpose or effect of repricing such awards.

In addition, applicable NASDAQ rules prohibit any repricing with respect to the 2018 CEO Performance Award.

Contacting the Board

Any stockholder who desires to contact our non-employee directors regarding appropriate Tesla business-related comments may do so electronically at the following website: http://ir.tesla.com/corporate-governance/contact-the-board. Such stockholders who desire to contact our non-employee directors by mail may do so by writing Tesla’s Corporate Secretary at Tesla, Inc., 3500 Deer Creek Road, Palo Alto, CA 94304. Our General Counsel, or someone acting in his place, receives these communications unfiltered by Tesla, forwards communications to the appropriate committee of the Board or non-employee director, and facilitates an appropriate response. Please note that requests for investor relations materials should be sent to ir@tesla.com.

47

 


 

EXECUTIVE OFFICERS

The names of Tesla’s executive officers, their ages, their positions with Tesla and other biographical information as of April 19, 2019, are set forth below. Except for Messrs. Elon Musk and Kimbal Musk who are brothers, there are no other family relationships among any of our directors or executive officers.

 

Name

 

Age

 

Position

Elon Musk

 

47

 

Chief Executive Officer

Zachary Kirkhorn

 

34

 

Chief Financial Officer

Jeffrey B. Straubel

 

43

 

Chief Technology Officer

Jerome Guillen

 

46

 

President, Automotive

 

Elon Musk. For a brief biography of Mr. Musk, please see “Proposal One—Election of Directors— Information Regarding the Board and Director Nominees” above.

Zachary Kirkhorn has served as our Chief Financial Officer since March 2019. Previously, Mr. Kirkhorn served in various finance positions continuously since joining Tesla in March 2010, other than between August 2011 and June 2013 during which he attended business school, including most recently as Vice President, Finance, Financial Planning and Business Operations from December 2018 to March 2019. Mr. Kirkhorn holds dual B.S.E. degrees in economics and mechanical engineering and applied mechanics from the University of Pennsylvania and an M.B.A. from Harvard University.

Jeffrey B. Straubel has served as our Chief Technology Officer since May 2005 and previously served as our Principal Engineer, Drive Systems from March 2004 to May 2005. Prior to joining us, Mr. Straubel was the Chief Technical Officer and co-founder of Volacom Inc., an aerospace firm which designed a specialized high-altitude electric aircraft platform, from 2002 to 2004. Mr. Straubel holds a B.S. in energy systems engineering from Stanford University and a M.S. in engineering, with an emphasis on power electronics, microprocessor control and energy conversion, from Stanford University.

Jerome Guillen has served as our President of Automotive since September 2018 and previously served as our Vice President, Trucks and Other Programs from January 2016 to September 2018, our Vice President, Worldwide Sales & Service from April 2013 to August 2015 and our Model S Program Director from November 2010 to April 2013. Prior to joining us, Mr. Guillen served as Director, Business Innovation at Daimler AG, an automobile manufacturer, from September 2007 to November 2010. Mr. Guillen also served as Director, New Product Development at Freightliner LLC, a manufacturer of trucks and heavy duty vehicles, from September 2002 to September 2007. Mr. Guillen holds a PhD in mechanical engineering from the University of Michigan, in addition to a dual degree in energy technologies from Escuela Tecnica Superior de Ingenieros Industriales in Madrid and in mechanical engineering from Ecole Nationale Superieure de Techniques Avancees in Paris.

48

 


 

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

The following discussion and analysis of compensation arrangements of our named executive officers for 2018 should be read together with the compensation tables and related disclosures set forth below. This discussion contains forward-looking statements that are based on our current considerations, expectations, and determinations regarding future compensation programs. The actual amount and form of compensation and the compensation programs that we adopt may differ materially from current or planned programs as summarized in this discussion.

The following discussion and analysis relates to the compensation arrangements for 2018 of (i) our principal executive officer, (ii) our former principal financial officer who served in such capacity during the entirety of 2018, and (iii) the two most highly compensated persons, other than our principal executive officer and former principal financial officer, who were serving as executive officers at the end of our fiscal year ended December 31, 2018 (our “named executive officers”). We had no other executive officers serving at the end of our fiscal year ended December 31, 2018. Our named executive officers for fiscal year 2018 were:

 

 

 

 

Name

 

Position

Elon Musk

  

Chief Executive Officer

Jeffrey B. Straubel

  

Chief Technology Officer

Jerome Guillen

 

President, Automotive

Deepak Ahuja

  

Former Chief Financial Officer

 

Zachary Kirkhorn is not a named executive officer for fiscal year 2018, as he began his service as our principal financial officer in March 2019 and did not serve in such capacity during 2018.

Compensation Philosophy—Introduction

As the world’s first vertically integrated sustainable energy company, our mission is to accelerate the world’s transition to sustainable energy. We design, develop, manufacture and sell high-performance, fully electric vehicles and energy generation and storage systems, and also install and maintain such energy systems and sell solar electricity. To achieve our goals, we have designed, and intend to modify as necessary, our compensation and benefits program and philosophy, to attract, retain and incentivize talented, deeply qualified and committed executive officers who share our philosophy and desire to work toward these goals. We believe compensation incentives for such executive officers should promote the success of our company and motivate them to pursue corporate objectives, and there should be an emphasis on structuring them so as to reward clear, easily measured performance goals that closely align their incentives with the long-term interests of our stockholders. Further, we have sought to harmonize the compensation structures of our other employees to conform to our overall compensation philosophy.

Our current compensation programs reflect our startup origins in that they consist primarily of salary and equity awards. Consistent with our historical compensation philosophy, we do not currently provide our senior executive officers with any form of an annual cash bonus program or any severance provisions providing for continued cash payments or other benefits upon termination of an executive officer’s employment with us.

Additionally, as our needs evolve, we intend to continue to evaluate our philosophy and compensation programs as circumstances require, and, at a minimum, the Compensation Committee will review executive compensation annually. We may from time to time make new equity awards and adjustments to the components of our executive compensation program in connection with our periodic compensation review.

49

 


 

Fiscal Year 2018 Company Highlights and Compensation Overview

Our financial and business highlights for fiscal year 2018 include the following:

 

We achieved total production of 254,530 vehicles and delivered 245,506 vehicles, representing year-over-year increases of approximately 152% and 138%, respectively.

 

Model 3 was the best-selling premium vehicle in the United States in 2018.

 

We deployed 1.04 gigawatt hours of energy storage products, nearly tripling our 358 megawatt hours of energy storage deployments in 2017.

 

We deployed 326 megawatts of solar energy generation.

 

Our product deliveries and deployments contributed to total revenues of $21.5 billion, a year-over-year increase of approximately 83%.

 

We achieved consecutive profitable quarters for the first time during the third and fourth quarters of 2018, with net income of approximately $311.5 million and $139.5 million, respectively.

 

We reached another milestone in the maturity of our automotive operations, as we completed our inaugural issuances of automotive lease asset-backed notes.

As described in more detail below and in the compensation tables that follow this Compensation Discussion and Analysis, our compensation structure applicable to our named executive officers did not change significantly during 2018:

 

The base salary for Elon Musk, our Chief Executive Officer, continues to reflect the current minimum wage requirements under applicable California law, and Mr. Musk still does not accept this salary.

 

The base salary rates of our other named executive officers did not increase during 2018.

 

We have no annual cash bonus program for any of our named executive officers.

 

Our compensation opportunities for our named executive officers are still predominantly delivered in the form of equity awards, including performance-based awards, which are designed to promote incentives that are aligned with long-term stockholder interests.

 

None of our named executive officers has a compensation package that currently includes the right to payment or acceleration of any benefits upon a termination of employment or a change in control of Tesla, other than the vesting of the 2018 CEO Performance Award based solely upon the achievement of market capitalization milestones as measured at the time of a change in control of Tesla. See “Executive Compensation—Compensation Discussion and Analysis—Chief Executive Officer Compensation—2018 CEO Performance Award” below for more details on the 2018 CEO Performance Award.

Role of the Compensation Committee in Setting Executive Compensation

The Compensation Committee has overall responsibility for recommending to the Board the compensation of our Chief Executive Officer and determining the compensation of our other executive officers. Members of the Compensation Committee are appointed by the Board. Currently, the Compensation Committee consists of four members of the Board: Ira Ehrenpreis (Chair), Robyn Denholm, Linda Johnson Rice and Kathleen Wilson-Thompson, none of whom is an executive officer of Tesla, and each of whom qualifies as an “independent director” under the NASDAQ Stock Market Rules. See “Corporate Governance—Board Meetings and Committees—Compensation Committee” above.

50

 


 

Role of Compensation Consultant

The Compensation Committee has the authority to engage the services of outside consultants to assist in making decisions regarding the establishment of Tesla’s compensation programs and philosophy. For example, the Compensation Committee retained Compensia as its compensation consultant in 2017 to advise the Compensation Committee with respect to the 2018 CEO Performance Award.

Role of Executive Officers in Compensation Decisions

Historically, for executive officers other than our Chief Executive Officer, the Compensation Committee has sought and considered input from our Chief Executive Officer regarding such executive officers’ responsibilities, performance and compensation. Specifically, our Chief Executive Officer recommends base salary increases and equity award levels for our senior personnel, and advises the Compensation Committee regarding the compensation program’s ability to attract, retain and motivate executive talent. These recommendations reflect compensation levels that our Chief Executive Officer believes are qualitatively commensurate with an executive officer’s individual qualifications, experience, responsibility level, functional role, knowledge, skills, and individual performance, as well as Tesla’s performance. The Compensation Committee considers our Chief Executive Officer’s recommendations, but ultimately determines compensation in its judgment, and approves the specific compensation for all of our executive officers (other than for our Chief Executive Officer, which is approved by the Board). All such compensation determinations by our Compensation Committee are largely discretionary.

The Compensation Committee meets regularly in executive session. Our Chief Executive Officer is not present during Compensation Committee deliberations or votes on his compensation and also recuses himself from sessions of the Board where the Board acts on the Compensation Committee’s recommendations regarding his compensation. For example, this was the case with respect to the 2018 CEO Performance Award.

In addition, in December 2017, the Board established a management committee under the 2010 Plan (the “Equity Award Committee”) to grant and administer equity awards, subject to certain maximum limits on the seniority of personnel to whom the Equity Award Committee may grant awards and the value of any individual award. For example, the Equity Award Committee is not authorized to grant awards to executive officer-level employees. Moreover, pursuant to applicable law, the Equity Award Committee may not grant awards to its members, and the number of shares of our common stock underlying awards granted by it may not exceed amounts determined by the Board from time to time. The Board has delegated to the Compensation Committee oversight authority over the Equity Award Committee.

The Role of Stockholder Say-on-Pay Votes

At the 2011, 2014 and 2017 annual meetings of our stockholders, we held triennial stockholder advisory (“say-on-pay”) votes on the compensation of our named executive officers for the 2010, 2013 and 2016 fiscal years, respectively. Each time, our stockholders overwhelmingly approved the compensation of our named executive officers, with over 94% of our stockholder votes cast in favor of our compensation policies for our named executive officers. Given these results, and following consideration of them, the Compensation Committee decided to retain our overall approach to executive compensation. Moreover, we are required to hold a vote at least every six years regarding how often to hold a stockholder advisory vote on the compensation of our named executive officers. We held our most recent such vote at the 2017 annual meeting of stockholders, at which our stockholders indicated a preference for a triennial vote. Consequently, the Board determined that we will hold a triennial stockholder advisory vote on the compensation of our named executive officers until they consider the results of our next say-on-pay frequency vote, which will be held at the 2023 annual meeting of stockholders. In addition, in accordance with this triennial frequency, we will again hold a say-on-pay advisory vote at the 2020 annual meeting of stockholders.

Clawback Policy

Our Corporate Governance Guidelines sets forth a compensation recovery (“clawback”) policy with respect to any annual incentive payment or long-term incentive payment that may be received by an executive officer, where such payment would be predicated upon achieving certain financial results that were subsequently the subject of a restatement of our financial statements, and a lower payment would have been made to the executive based upon the restated financial results. In such case, the Board has the authority to seek to recover from the executive officer the amount by which such officer’s incentive payments for the relevant period exceeded the lower payment that would have been made based on the restated financial results.

51

 


 

Moreover, the terms of the 2018 CEO Performance Award include a clawback provision in the event of a restatement of our financial statements previously filed with the SEC, as described in more detail below.

Chief Executive Officer Compensation

Overview

Historically, in developing compensation recommendations for our Chief Executive Officer, the Compensation Committee has sought both to appropriately reward our Chief Executive Officer’s previous and current contributions and to create incentives for our Chief Executive Officer to continue to contribute significantly to successful results in the future. Each of the 2012 CEO Performance Award (as defined below) and the 2018 CEO Performance Award is focused on this latter objective, as it solely rewards future performance.

In addition to serving as our Chief Executive Officer since October 2008, Elon Musk has contributed significantly and actively to us since our earliest days in April 2004 by recruiting executives and engineers, contributing to vehicle engineering and design, raising capital for us and bringing investors to us, and raising public awareness of Tesla.

Cash Compensation

Mr. Musk’s base salary reflects the current applicable minimum wage requirements under applicable California law, and he is subject to income taxes based on such base salary. Mr. Musk, however, has never accepted and currently does not accept his salary.

Historical Equity Compensation

Prior to option grant awards made in December 2009, Mr. Musk did not receive any equity compensation for his services for a period of five years.

In 2010 and 2011, Mr. Musk did not receive any equity grants, because the Compensation Committee believed his existing grants made in December 2009 already provided sufficient motivation for Mr. Musk to perform his duties as Chief Executive Officer.

In August 2012, to create incentives for continued long-term success from the then-recently launched Model S program as well as from Tesla’s then-planned Model X and Model 3 programs, and to further align executive compensation with increases in stockholder value, the Board granted to Mr. Musk a stock option award to purchase 5,274,901 shares of Tesla’s common stock (the “2012 CEO Performance Award”), representing 5% of Tesla’s total issued and outstanding shares at the time of grant. The 2012 CEO Performance Award consists of 10 equal vesting tranches, each requiring that Tesla meet a combination of (i) the achievement of a specified operational milestone relating to development of Model X or Model 3, aggregate vehicle production, or a gross margin target, and (ii) a sustained incremental $4 billion increase in Tesla’s market capitalization from $3.2 billion, Tesla’s market capitalization at the time of grant. The market capitalization conditions for all of the 10 vesting tranches and 9 of the 10 operational milestones have been achieved, and therefore 9 of 10 tranches under the 2012 CEO Performance Award have vested. As of the date of this proxy statement, only one operational milestone, requiring gross margin of 30% or more for four consecutive quarters, has not been achieved and remains outstanding.

Prior to 2018, the only additional equity awards received by Mr. Musk related to certain immaterial awards granted during 2013 pursuant to a patent incentive program that was available to our employees generally.

2018 CEO Performance Award

Early in 2017, with the 2012 CEO Performance Award heading to substantial completion after having helped Tesla grow its market capitalization to over $55 billion in just over five years, the independent members of the Board began preliminary discussions about how to continue to incentivize Mr. Musk to lead Tesla through the next phase of its development. In January 2018, following more than six months of careful analysis and development led by the Compensation Committee, with participation by every independent Board member, the help of Compensia,

52

 


 

and engagement with and feedback from our largest institutional stockholders, the Board granted the 2018 CEO Performance Award to Mr. Musk, subject to approval by a majority of the total votes of Tesla common stock not owned by Mr. Musk or Kimbal Musk cast at a meeting of the stockholders to approve the 2018 CEO Performance Award. On March 21, 2018, such approval was obtained, with approximately 73% of the votes cast by such disinterested shares voting in favor of the 2018 CEO Performance Award.

The 2018 CEO Performance Award is comprised of a 10-year maximum term stock option to purchase 20,264,042 shares of Tesla’s common stock, divided equally among 12 separate tranches that are each equivalent to 1% of the issued and outstanding shares of Tesla’s common stock at the time of grant, at an exercise price of $350.02 per share. Each of the 12 vesting tranches of the 2018 CEO Performance Award will vest upon certification by the Board that both (i) the market capitalization milestone for such tranche, which begins at $100 billion for the first tranche and increases by increments of $50 billion thereafter, and (ii) any one of the following 8 operational milestones focused on revenue or 8 operational milestones focused on profitability, have been met:

 

Total Revenue*

(in billions)

Adjusted EBITDA**

(in billions)

$20.0

$1.5

$35.0

$3.0

$55.0

$4.5

$75.0

$6.0

$100.0

$8.0

$125.0

$10.0

$150.0

$12.0

$175.0

$14.0

 

*

“Revenue” means total revenues as reported in Tesla’s financial statements on Forms 10-Q or 10-K filed with the SEC for the previous four consecutive fiscal quarters.

**

“Adjusted EBITDA” means (i) net income (loss) attributable to common stockholders before (ii) interest expense, (iii) (benefit) provision for income taxes, (iv) depreciation and amortization, and (v) stock-based compensation, as each such item is reported in Tesla’s financial statements on Forms 10-Q or 10-K filed with the SEC for the previous four consecutive fiscal quarters.

Any single operational milestone may only satisfy the vesting requirement of one tranche, together with the corresponding market capitalization milestone. Subject to any applicable clawback provisions, policies or other forfeiture terms, once a milestone is achieved, it is forever deemed achieved for determining the vesting of a tranche. Meeting more than 12 of the 16 operational milestones will not result in any additional vesting or other compensation to Mr. Musk under the 2018 CEO Performance Award. Except in a change in control situation, measurement of the market capitalization milestones will be based on both (i) a six calendar month trailing average of Tesla’s stock price as well as (ii) a 30 calendar day trailing average of Tesla’s stock price, in each case based on trading days only. Upon the consummation of certain acquisitions or split-up, spin-off or divestiture transactions, each then-unachieved market capitalization milestone and/or operational milestone will be adjusted to offset the impact of such transactions to the extent they could be considered material to the achievement of those milestones.

In establishing the Revenue and Adjusted EBITDA milestones, the Board carefully considered a variety of factors, including Tesla’s growth trajectory and internal growth plans and the historical performance of other high-growth and high-multiples companies in the technology space that have invested in new businesses and tangible assets. These benchmarks provided revenue/EBITDA to market capitalization multiples, which were then used to inform the specific operational targets that aligned with Tesla’s plans for future growth. Nevertheless, the Board considers each of the market capitalization and operational milestones to be challenging hurdles. For example, in order to meet all 12 market capitalization milestones, Tesla will have to add approximately $600 billion to its market capitalization at the time of the grant of the 2018 CEO Performance Award, and in order to satisfy all eight revenue-based operational milestones, Tesla would have to increase revenue by more than $163 billion from its annual revenue of approximately $11.8 billion in 2017, the last fiscal year completed prior to the grant of the 2018 CEO Performance Award.

In addition, Mr. Musk must continue to lead Tesla as our Chief Executive Officer or, alternatively, as our Chief Product Officer and Executive Chairman (with any other Chief Executive Officer reporting directly to him), at the time each milestone is met in order for the corresponding tranche to vest. With limited exceptions, Mr. Musk must hold any shares that he acquires upon exercise of the 2018 CEO Performance Award for at least five years

53

 


 

post-exercise. There will be no acceleration of vesting of the 2018 CEO Performance award upon Mr. Musk’s termination, death or disability, or a change in control of Tesla. However, in a change in control situation, the achievement of the milestones will be based solely on the market capitalization milestones, with the measurement of Tesla’s market capitalization determined by the product of the total number of outstanding shares of Tesla common stock immediately before the change in control multiplied by the greater of the last closing price of a share of Tesla common stock before the effective time of the change in control or the per share price (plus the per share value of any other consideration) received by Tesla’s stockholders in the change in control.

In the event of a restatement of Tesla’s financial statements previously filed with the SEC, if a lesser portion of the 2018 CEO Performance Award would have vested based on the restated financial results, then Tesla will require forfeiture (or repayment, as applicable) of the portion of the 2018 CEO Performance Award that would not have vested based on the restated financial results (less any amounts Mr. Musk may have paid to Tesla in exercising any forfeited awards). The 2018 CEO Performance Award also will be subject, if more stringent than the foregoing, to any current or future Tesla clawback policy applicable to equity awards, provided that the policy does not discriminate solely against Mr. Musk except as required by applicable law.

As of the date of this filing, two operational milestones—relating to (i) $20.0 billion total revenue and (ii) $1.5 billion Adjusted EBITDA—have been achieved, subject to formal certification by the Board, and no market capitalization milestone has been achieved. Consequently, no shares subject to the 2018 CEO Performance Award have vested as of the date of this filing.

Realized Compensation

For purposes of the table in “Executive Compensation—Summary Compensation Table” below, we are required to report pursuant to applicable SEC rules any stock option grants to Mr. Musk at values determined as of their respective grant dates and which are driven by certain assumptions prescribed by Financial Accounting Board Accounting Standards Codification Topic 718, “Compensation–Stock Compensation” (“ASC Topic 718”). Moreover, we are required to report in “Executive Compensation—Pay Ratio Disclosure” below (i) Mr. Musk’s annual total compensation, (ii) the median of the annual total compensation of all Tesla employees, other than Mr. Musk, in each case calculated pursuant to the methodology used for the table in “Executive Compensation—Summary Compensation Table,” and (iii) the ratio of the former to the latter.

In addition, we are required to report in “Executive Compensation—2018 Option Exercises and Stock Vested” below an amount for the “value realized” upon: (i) any exercise by Mr. Musk of a stock option, which is based on the difference between the market price of the underlying shares at the time of exercise and the exercise price of the stock option, and (ii) any vesting of a restricted stock unit award, based on the market price of the award at the time of vesting. Such amount is required to be reported even if Mr. Musk does not actually receive any cash from such exercise or vesting, either because he does not also sell any shares or because he sells only a number of shares sufficient to cover the related tax liabilities resulting from the exercise or vesting.

As a result, there may be a significant disconnect between what is reported as compensation for Mr. Musk in a given year in such sections and the value actually realized as compensation in that year or over a period of time. Moreover, the vast majority of compensation in respect of past stock option grants to Mr. Musk, including the 2012 CEO Performance Award and the 2018 CEO Performance Award, were incentives for future performance and their value is realizable only if Tesla’s stock price appreciates compared to the dates of the grants, and the Company achieves applicable vesting requirements.

To supplement the disclosures in “Executive Compensation—Summary Compensation Table,” “Executive Compensation—Pay Ratio Disclosure” and “Executive Compensation—2018 Option Exercises and Stock Vested” below, we have included the following table, which shows the total realized compensation of Mr. Musk for the periods presented in “Executive Compensation—Summary Compensation Table,” as well as the ratio of Mr. Musk’s realized compensation to the median of the annual total compensation of all other Tesla employees as reported in “Executive Compensation—Pay Ratio Disclosure.” Realized compensation is not a substitute for reported compensation in evaluating our compensation structure, but we believe that realized compensation is an important factor in understanding that the value of compensation that Mr. Musk ultimately realizes is dependent on a number of additional factors, including: (i) the vesting of certain of his option awards only upon the successful achievement

54

 


 

of a number of market capitalization increase and operational milestone targets, including milestones that have not yet been achieved under each of the 2012 CEO Performance Award and the 2018 CEO Performance Award; (ii) the fact that Mr. Musk does not receive any cash if he does not actually sell shares and thereby reduce his investment in us, and does not receive any cash to the extent that he sells only shares sufficient to cover income taxes with respect to his awards (including stock options exercised solely to avoid their expiration in accordance with their terms); and (iii) the then-current market value of our common stock at the times at which Mr. Musk may elect to actually sell his shares.

 

Year

  

“Total Compensation” of

CEO,

as Reported in Summary

Compensation Table

Below

($)

 

  

“Value Realized on Exercise

or Vesting of Awards” of

CEO, as

Reported in Option Exercises

and Stock Vested Table

Below

($)

 

 

Median Annual Total

Compensation of all

Non-CEO Employees,

as reported in Pay

Ratio Disclosure

Section Below

($)

 

Total CEO Realized

Compensation

($)(1)(2)

 

Ratio of Total CEO

Realized

Compensation to

Median Annual

Total

Compensation of

all Non-CEO

Employees

2018

 

2,284,044,884

(3)

 

 

 

56,163

 

56,380

 

1.00:1

2017

 

49,920

 

 

 

 

54,816

 

49,920

 

0.91:1

2016

 

45,936

 

 

1,340,103,920

 (4)

 

 (5)

45,999

 

(5)

 

(1)

Total CEO realized compensation” for a given year is defined as (i) the amounts reported for Mr. Musk in “Executive Compensation—Summary Compensation Table” below under the columns “Salary,” “Bonus,” “Non‑Equity Incentive Plan Compensation” and “All Other Compensation,” plus (ii) with respect to any stock option exercised by Mr. Musk in such year in connection with which shares of stock were also sold other than to satisfy the resulting tax liability, if any, the difference between the market price of Tesla common stock at the time of exercise on the exercise date and the exercise price of the option, plus (iii) with respect to any restricted stock unit vested by Mr. Musk in such year in connection with which shares of stock were also sold other than automatic sales to satisfy Tesla’s withholding obligations related to the vesting of such restricted stock unit, if any, the market price of Tesla common stock at the time of vesting, plus (iv) any cash actually received by Mr. Musk in respect of any shares sold to cover tax liabilities as described in (ii) and (iii) above, following the payment of such amounts.

(2)

Of the amounts noted, Mr. Musk has not accepted his salary in the amounts of $56,380, $49,920 and $45,936 for 2018, 2017 and 2016, respectively.

(3)

Includes $2,283,988,504 attributed to the 2018 CEO Performance Award, which is intended to compensate Mr. Musk over its 10-year maximum term and will become vested as to all shares subject to it only if our market capitalization increases to $650.0 billion and 12 of 16 total operational milestones are achieved during such 10-year period. Each tranche of 1/12th of the total number of shares subject to the option will become vested and exercisable each time: (i) our market capitalization increases initially to $100.0 billion for the first tranche, and by an additional $50.0 billion for each tranche thereafter; and (ii) one of 16 specified operational milestones relating to total revenue or adjusted EBITDA (other than an operating milestone that previously counted towards the vesting of another tranche) is attained, subject to Mr. Musk’s continued service to us as either CEO or as both Executive Chairman and Chief Product Officer, with the CEO reporting to him, at each such vesting event. This award was designed to be entirely an incentive for future performance that would take many years, if at all, to be achieved. Further, each of the requirements underlying the performance milestones was selected to be very difficult to achieve. If any options have not vested by the end of the term of the option award, they will be forfeited and Mr. Musk will not realize the value of such options. As of the date of this filing, zero market capitalization milestones have been achieved and two operational milestones have been achieved (subject to Board certification) and consequently, no shares have vested under the 2018 CEO Performance Award. Following vesting, the actual receipt of any shares by Mr. Musk will further be subject to his payment of the exercise price of $350.02 per share. See “Executive Compensation—Compensation Discussion and Analysis—Chief Executive Officer Compensation—2018 CEO Performance Award” above.

(4)

Reflects the exercise of stock options with respect to an aggregate 6,711,972 shares, which were scheduled to expire in 2016. Of these, (i) the exercise with respect to an aggregate 1,208,000 shares were not accompanied by a related sales of shares, and (ii) the exercise with respect to an aggregate 5,503,972 shares was accompanied by a related sale of 2,782,670 shares solely in order to pay $593 million in income taxes related to such exercise. Accordingly, this reported amount was not actually received in cash upon these exercises, nor has Mr. Musk subsequently sold any of the remaining shares received.

(5)

Median annual total compensation values for non-CEO employees and the corresponding ratios based on them are provided only for periods for which we have reported “Pay Ratio Disclosure” information.

55

 


 

Elements of Executive Compensation

In addition to specific elements of our Chief Executive Officer’s compensation discussed above, our current executive compensation program, which was developed and approved by the Compensation Committee, generally consists of the following components:

 

base salary;

 

equity-based incentives; and

 

other benefits.

We combine these elements in order to formulate compensation packages that provide competitive pay, reward achievement of financial, operational and strategic objectives and align the interests of our named executive officers with those of our stockholders.

Base Salary

The Compensation Committee is responsible for reviewing our Chief Executive Officer’s and other executive officers’ base salaries. The base salaries of all executive officers are reviewed annually and adjusted when necessary to reflect individual roles, performance and the competitive market. The completion of key projects or technical milestones is also a factor in base salary determinations. Because we typically do not provide cash bonuses to our executive officers, we also view salary as a key motivation and reward for our executive officers’ overall performance. As of the date of this filing, the Compensation Committee has not increased the base salaries of our named executive officers in 2019, other than an increase to our Chief Executive Officer’s salary as required by applicable California minimum wage requirements, which he continues to decline to accept. Moreover, effective as of January 1, 2019, Jeffrey B. Straubel, our Chief Technical Officer, has requested that his base salary be reduced to reflect the applicable California minimum wage requirements.

We provide base salary to our named executive officers to compensate them for services rendered on a day-to-day basis during the fiscal year. The following table sets forth information regarding the annualized base salary amounts for fiscal 2019 and 2018 for our named executive officers, as well as the annualized base salary amount for fiscal 2019 for Zachary Kirkhorn, our current Chief Financial Officer:

 

 

 

 

 

 

 

 

 

 

Named Executive Officer

  

Fiscal 2018

Base Salary ($)(1)

 

  

Fiscal 2019

Base Salary ($)(1)

Elon Musk

  

 

56,160

 

  

 

62,400

 

Jeffrey B. Straubel

  

 

249,600

 

  

 

62,400

 

Jerome Guillen

 

 

300,000

 

 

 

300,000

 

Deepak Ahuja

  

 

500,000

 

  

 

(2)

Zachary Kirkhorn

 

 

(3)

 

 

275,000

 

 

(1)

Reflects an annualized rate assuming 52 weeks each comprised of five work days.

(2)

Mr. Ahuja transitioned from his role as Chief Financial Officer effective March 2019.

(3)

Mr. Kirkhorn commenced his service as our Chief Financial Officer in March 2019.

Equity-based incentives—Overview

Our equity award program is the primary vehicle for offering long-term incentives to our named executive officers. Our equity-based incentives have historically been granted in the form of options to purchase shares of our common stock and restricted stock unit awards that are settled in shares of our common stock upon vesting, and we have granted to our named executive officers both awards that vest over a long-term period and awards that vest only upon the achievement of specified Tesla performance milestones, in each case, subject to continued service. We believe that equity awards more closely align the interests of our named executive officers with our stockholders, provide our named executive officers with incentives linked to long-term performance and create an ownership culture. In addition, the vesting features of our equity awards contributes to executive retention because this feature provides an incentive to our named executive officers to remain in our employ during the scheduled vesting period or until the achievement of the applicable performance milestones, which are expected to be achieved

56

 


 

over the medium- to long-term. To date, we have not had an established set of criteria for granting equity awards; instead the Compensation Committee exercises its judgment and discretion, in consultation with our Chief Executive Officer and from time to time, a compensation consultant, and considers, among other things, the role and responsibility of the named executive officer, competitive factors, the amount of stock-based equity compensation already held by the named executive officer, and the cash-based compensation received by the named executive officer, to determine the level of equity awards that it approves. The Compensation Committee also considers such factors, among other things, in allocating among the types of equity awards to our executives from time to time. Accordingly, in 2018, the Compensation Committee decided to grant exclusively stock option awards to our named executive officers.

We do not have, nor do we plan to establish, any program, plan, or practice to time equity award grants in coordination with releasing material non-public information. The Compensation Committee meets periodically, including to approve equity award grants to our executives from time to time.

Equity award grants

We generally grant one-time new hire equity awards to our employees upon their commencement of employment with us, or upon their promotion to new positions. For example, we granted a promotion award to each of Jerome Guillen and Zachary Kirkhorn in connection with their promotion to President, Automotive and Chief Financial Officer, respectively.

Additionally, as part of our ongoing executive compensation review and alignment process, we periodically grant equity awards to our executives. In February 2018, we granted equity awards pursuant to our executive compensation review and alignment process to certain of our named executive officers. For details on such grants, see “Executive Compensation—Grants of Plan-Based Awards in 2018” below.

Severance and Change in Control Benefits

No named executive officer has a severance or change in control arrangement with Tesla, other than the vesting of the 2018 CEO Performance Award based solely upon the achievement of market capitalization milestones as measured at the time of a change in control of Tesla. See “Executive Compensation—Potential Payments Upon Termination or Change in Control” below and “Executive Compensation—Compensation Discussion and Analysis—Chief Executive Officer Compensation—2018 CEO Performance Award” above.

Bonus

We do not currently have or have planned, and we typically have not historically entered into, any specific arrangements with our named executive officers providing for cash-based bonus awards.

Non-Equity Incentive Plan Compensation

We did not provide any non-equity incentive plan compensation to any of our named executive officers in 2018, and we do not currently have or have planned any specific arrangements with our named executive officers providing for non-equity incentive plan compensation.

Perquisites

Generally, we do not provide any perquisites or other personal benefits to our named executive officers except in certain limited circumstances.

Health and Welfare Benefits

We provide the following benefits to our named executive officers on the same basis provided to all of our employees:

 

health, dental and vision insurance;

 

life insurance and accidental death and dismemberment insurance;

57

 


 

 

a Section 401(k) plan for which no match by Tesla is provided;

 

an employee stock purchase plan;

 

short-and long-term disability insurance;

 

medical and dependent care flexible spending account; and

 

a health savings account.

Tax and Accounting Considerations

Sections 280G and 409A. We have not provided or committed to provide any executive officer or director with a gross-up or other reimbursement for tax amounts the executive might pay pursuant to Section 280G or Section 409A of the Code. Section 280G and related Code sections provide that executive officers, directors who hold significant stockholder interests and certain other service providers could be subject to significant additional taxes if they receive payments or benefits in connection with a change in control of Tesla that exceeds certain limits, and that we or our successor could lose a deduction on the amounts subject to the additional tax. Section 409A also imposes additional significant taxes on the individual in the event that an executive officer, director or service provider of certain types receives “deferred compensation” that does not meet the requirements of Section 409A.

Tax Deduction Limit. Section 162(m) of the Code generally disallows a tax deduction to public corporations for compensation greater than $1,000,000 paid in any fiscal year to certain executive officers. However, prior to the enactment of U.S. tax legislation in December 2017 (the “Tax Act”), certain types of performance-based compensation were excluded from the $1,000,000 deduction limit if specific requirements were met. Under the Tax Act, this exclusion for performance-based compensation is not available with respect to taxable years beginning after December 31, 2017, unless the compensation is pursuant to a written binding contract which was in effect on or before November 2, 2017, and which is not modified in any material respect on or after such date. Pursuant to the Tax Act, for taxable years beginning after December 31, 2017, Section 162(m) of the Code was expanded to cover additional executive officers and other employees, including the chief financial officer, so that the compensation of the chief executive officer and chief financial officer (at any time during the fiscal year), the three next most highly compensated executive officers during the taxable year and any other individual who was considered a “covered employee” for any prior taxable year that begins after 2016, will be subject to the $1,000,000 deductibility limit under Section 162(m) of the Code. Commencing with our 2018 fiscal year, to the extent that the aggregate amount of any covered officer’s salary, bonus, any amount realized from certain option exercises and vesting of restricted stock units or other equity awards, and certain other compensation amounts that are recognized as taxable income by the officer exceeds $1,000,000, we will not be entitled to a U.S. federal income tax deduction for the amount over $1,000,000 in that year, unless the compensation qualifies for the transition relief applicable to certain written binding contracts in effect on or before November 2, 2017. The Compensation Committee has not adopted a formal policy regarding tax deductibility of compensation paid to our executive officers.

Accounting Implications. We follow ASC Topic 718 for our stock-based compensation awards. ASC Topic 718 requires companies to measure the compensation expense for all stock-based compensation awards made to employees and directors based on the grant date “fair value” of these awards. This calculation is performed for accounting purposes and reported in the compensation tables below, even though our named executive officers may never realize any value from their awards. ASC Topic 718 also requires companies to recognize the compensation cost of their stock-based compensation awards in their income statements over the period that an executive officer is required to render service in exchange for the option or other award.

58

 


 

Compensation Committee Report

The Compensation Committee oversees Tesla’s compensation programs, policies and practices. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on such review and discussions, the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.

Respectfully submitted by the members of the Compensation Committee of the Board

 

Ira Ehrenpreis (Chair)

Robyn Denholm

Linda Johnson Rice

Kathleen Wilson-Thompson

 

59

 


 

Summary Compensation Table

The following table presents information concerning the total compensation of our named executive officers for each of the last three fiscal years. No disclosure is provided for fiscal years for which those persons were not named executive officers.

 

Name and Principal Position

 

Year

 

Salary

($)

 

Bonus

($)

 

Stock Awards

($)(1)

 

Option

Awards

($)(2)

 

Non-Equity

Incentive Plan

Compensation

($)

 

All Other

Compensation

($)

 

Total

($)

Elon Musk

 

2018

 

56,380

 

 

 

2,283,988,504

(3)

 

 

2,284,044,884

Chief Executive Officer 

 

2017

 

49,920

 

 

 

 

 

 

49,920

 

2016

 

45,936

 

 

 

 

 

 

45,936

Jeffrey B. Straubel

 

2018

 

250,560

 

 

 

11,416,860

 

 

 

11,667,420

Chief Technology Officer

 

2017

 

249,600

 

 

 

 

 

 

249,600

 

2016

 

250,560

 

 

 

7,677,023

 

 

 

7,927,583

Jerome Guillen

 

2018

 

301,154

 

 

 

17,450,897

 

 

 

17,752,051

President, Automotive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deepak Ahuja

 

2018

 

501,923

 

 

 

5,708,430

 

 

 

6,210,353

Former Chief Financial Officer

 

2017

 

428,846

 

 

10,501,859

 

4,567,304

 

 

 

15,498,009

 

(1)

This column reflects the grant date fair value computed in accordance with ASC Topic 718 of the restricted stock unit awards granted to the named executive officers, which is measured on the grant date based on the closing fair market value of our common stock. These amounts do not necessarily correspond to the actual value that may be recognized by the named executive officers, which depends, among other things, on the market value of our common stock.

(2)

This column reflects the aggregate grant date fair value computed in accordance with ASC Topic 718 of the options to purchase shares of our common stock granted to the named executive officers. The assumptions used in the valuation of these awards are set forth in the notes to our consolidated financial statements, which are included in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 19, 2019. These amounts do not necessarily correspond to the actual value that may be recognized by the named executive officers, which depends, among other things, on the market value of our common stock appreciating from that on the grant date(s) of the option(s).

(3)

Reflects the 2018 CEO Performance Award, which is intended to compensate Mr. Musk over its 10-year maximum term and will become vested as to all shares subject to it only if our market capitalization increases to $650.0 billion and 12 of 16 total operational milestones are achieved during such 10-year period. Each tranche of 1/12th of the total number of shares subject to the option will become vested and exercisable each time: (i) our market capitalization increases initially to $100.0 billion for the first tranche, and by an additional $50.0 billion for each tranche thereafter; and (ii) one of 16 specified operational milestones relating to total revenue or adjusted EBITDA (other than an operating milestone that previously counted towards the vesting of another tranche) is attained, subject to Mr. Musk’s continued service to us as either CEO or as both Executive Chairman and Chief Product Officer, with the CEO reporting to him, at each such vesting event. This award was designed to be entirely an incentive for future performance that would take many years, if at all, to be achieved. Further, each of the requirements underlying the performance milestones was selected to be very difficult to achieve. If any options have not vested by the end of the term of the option award, they will be forfeited and Mr. Musk will not realize the value of such options. As of the date of this filing, zero market capitalization milestones have been achieved and two operational milestones have been achieved (subject to Board certification) and consequently, no shares have vested under the 2018 CEO Performance Award. Following vesting, the actual receipt of any shares by Mr. Musk will further be subject to his payment of the exercise price of $350.02 per share. See “Executive Compensation—Compensation Discussion and Analysis—Chief Executive Officer Compensation—2018 CEO Performance Award” and “Executive Compensation—Compensation Discussion and Analysis—Chief Executive Officer Compensation—Realized Compensation” above.

 

60

 


 

Pay Ratio Disclosure

Tesla is committed to fair and competitive compensation for its employees. Moreover, Elon Musk, our Chief Executive Officer, has agreed to a compensation arrangement in the 2018 CEO Performance Award that is substantially tied to the appreciation of our market capitalization. Because all Tesla employees are provided equity awards, this also means that Mr. Musk’s compensation is tied to the success of all Tesla employees. We are providing a ratio of (i) Mr. Musk’s 2018 annual total compensation to (ii) the median of the 2018 annual total compensation of all Tesla employees, other than Mr. Musk, as if all of our employees were named executive officers, in each case calculated pursuant to the disclosure requirements of “Executive Compensation—Summary Compensation Table” above. However, these amounts rely on assumptions and projections made pursuant to accounting rules and which are not necessarily indicative of the actual value that was or may be realized. In particular, the vast majority of the 2018 annual total compensation for Mr. Musk reflects an accounting-driven valuation for the 2018 CEO Performance Award, as to which no shares have vested as of the date of this filing, and which is further subject to the payment of an exercise price of $350.02 per share following vesting. Please refer to “Executive Compensation—Compensation Discussion and Analysis—Chief Executive Officer Compensation—Realized Compensation” above for additional supplemental information.

Mr. Musk’s 2018 annual total compensation, as reported in “Executive Compensation—Summary Compensation Table,” was $2,284,044,884, and the median 2018 annual total compensation of all other employees, as determined pursuant to the methodology set forth below, was $56,163. Consequently, the applicable ratio of such amounts for 2018 was 40,668.14:1. However, using the “Total CEO realized compensation” for 2018 of $56,380 as described in “Executive Compensation—Compensation Discussion and Analysis—Chief Executive Officer Compensation—Realized Compensation” above, such ratio was 1.00:1.

Our methodology for identifying the median of the 2018 annual total compensation for each of our employees other than Mr. Musk was as follows:

 

We determined that as of December 31, 2018, Tesla and all of our subsidiaries had 42,992 qualifying individuals (full-time, part-time and temporary employees other than Mr. Musk), of which approximately 17% were based outside of the U.S. and approximately 32% were production line employees.

 

We did not include in the population of qualifying individuals any employees of staffing agencies whose compensation is determined by such agencies.

 

We applied the requirements and assumptions required for the table in “Executive Compensation—Summary Compensation Table” for each of such individuals as if he or she was a named executive officer to calculate the total annual compensation, including base salary or wages, performance-based commission payments, and equity awards based on their grant date fair values.

 

We converted any payment earned or paid in a foreign currency to U.S. dollar using the average of the prevailing conversion rates for the month of December 2018.

 

We selected the median of all total annual compensation amounts calculated in accordance with the foregoing.

61

 


 

Grants of Plan-Based Awards in 2018

The following table presents information concerning each grant of an award made to a named executive officer in fiscal 2018 under any plan.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All Other

Stock

 

 

All Other

Option

 

 

Exercise

or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Awards:

 

 

Awards:

 

 

Base

 

 

 

 

 

 

 

 

 

 

Estimated Future Payouts Under

 

 

Number of

 

 

Number of

 

 

Price of

 

Grant Date Fair

 

 

 

 

 

Board

 

Non-Equity Incentive Plan Awards

 

 

Shares of

 

 

Securities

 

 

Option

 

Value of Stock

 

Name

 

Grant

Date(1)

 

Approval

Date

 

Threshold

($)

 

 

Target

($)

 

 

Maximum

($)

 

 

Stocks or

Units (#)

 

 

Underlying

Options(#)

 

 

Awards

($/Sh)

 

and Option

Awards ($)

 

Elon Musk

 

3/21/2018

(2)(3)

1/21/2018

(3)

 

 

 

 

 

 

 

 

 

20,264,042

 

 

350.02

 

2,283,988,504

 

Jeffrey B. Straubel

 

2/12/2018

(4)

 

 

 

 

 

 

 

 

 

90,000

 

 

315.73

 

11,416,860

 

Jerome Guillen

 

2/12/2018

(4)

 

 

 

 

 

 

 

 

 

45,000

 

 

315.73

 

5,708,430

 

 

 

10/16/2018

(5)

 

 

 

 

 

 

 

 

 

103,395

 

 

276.59

 

11,742,467

 

Deepak Ahuja

 

2/12/2018

(4)

 

 

 

 

 

 

 

 

 

45,000

 

 

315.73

 

5,708,430

 

 

(1)

The vesting schedule applicable to each outstanding award is set forth in “Executive Compensation— Outstanding Equity Awards at 2018 Fiscal Year-End” below.

(2)

Reflects the 2018 CEO Performance Award, which is intended to compensate Mr. Musk over its 10-year maximum term and will become vested as to all shares subject to it only if our market capitalization increases to $650.0 billion and 12 of 16 total operational milestones are achieved during such 10-year period. Each tranche of 1/12th of the total number of shares subject to the option will become vested and exercisable each time: (i) our market capitalization increases initially to $100.0 billion for the first tranche, and by an additional $50.0 billion for each tranche thereafter; and (ii) one of 16 specified operational milestones relating to total revenue or adjusted EBITDA (other than an operating milestone that previously counted towards the vesting of another tranche) is attained, subject to Mr. Musk’s continued service to us as either CEO or as both Executive Chairman and Chief Product Officer, with the CEO reporting to him, at each such vesting event. This award was designed to be entirely an incentive for future performance that would take many years, if at all, to be achieved. Further, each of the requirements underlying the performance milestones was selected to be very difficult to achieve. If any options have not vested by the end of the term of the option award, they will be forfeited and Mr. Musk will not realize the value of such options. As of the date of this filing, zero market capitalization milestones have been achieved and two operational milestones have been achieved (subject to Board certification) and consequently, no shares have vested under the 2018 CEO Performance Award. Following vesting, the actual receipt of any shares by Mr. Musk will further be subject to his payment of the exercise price of $350.02 per share. See “Executive Compensation—Compensation Discussion and Analysis—Chief Executive Officer Compensation—2018 CEO Performance Award” and “Executive Compensation—Compensation Discussion and Analysis—Chief Executive Officer Compensation—Realized Compensation” above.

(3)

The grant of the 2018 CEO Performance Award was approved by the Board on January 21, 2018 and subsequently approved by Tesla’s stockholders on March 21, 2018, on which date it is deemed granted.

(4)

This award was granted as part of the 2018 executive compensation review and alignment process.

(5)

This award was granted in connection with Mr. Guillen’s promotion to President, Automotive.

62

 


 

 

Outstanding Equity Awards at 2018 Fiscal Year-End

The following table presents information concerning unexercised options and unvested restricted stock unit awards for each named executive officer outstanding as of the end of fiscal 2018.

 

 

 

Option Awards

 

 

Stock Awards

 

Name

 

Grant Date

 

 

Number of

Securities

Underlying

Unexercised

Options (#)

Exercisable

 

 

Number of

Securities

Underlying

Unexercised

Options (#)

Unexercisable

 

 

Equity

Incentive

Plan

Awards:

Number of

Securities

Underlying

Unexercised

Unearned

Options (#)

 

 

Option

Exercise

Price ($)

 

 

Option

Expiration

Date

 

 

Number of

Shares or

Units of

Stock That

Have Not