Could Elon Musk's alliance with Donald Trump hurt Tesla's business? Not according to the company's list of “risk factors”

Elon Musk went where no CEO has gone before, campaigning alongside Donald Trump, jumping for joy on stage with the presidential candidate, echoing inflammatory political rhetoric on social media and even handing out million-dollar daily prizes to registered voters. States.

Given Trump's polarizing personality, you might wonder whether the Tesla CEO's high-profile political partisanship might turn off some potential car buyers. According to Tesla's lawyers, the answer is none at all.

In the company's latest 10-Q filing with the SEC, Tesla makes no mention of Trump or Musk's political activities in the risk factors section, which has not been updated since the annual report of Tesla in January. The annual report's long list of potential risks indicates that the company is heavily dependent on Musk's services (the Technoking) and that employees may leave or look elsewhere due to various factors which may include any negative publicity about us.

But when it comes to Tesla Technokings' high-profile move linking its personal brand to MAGA politics, a phenomenon that has increased significantly since July, when Musk publicly supported Trump and announced a Super Pac, the company apparently sees no risk specific commercial.

Some Tesla investors are not so calm. Dozens of shareholders recently asked Tesla to release data on the extent to which Elon Musk's policies have affected hiring and sales. Some said Musk should either stop campaigning or resign as CEO.

As with many things Musk does, his headfirst dive into politics challenges established norms, including in the meticulous language of regulatory filings. Political activism is not something that typically shows up in reports submitted to the Securities and Exchange Commission, experts in corporate leadership and securities say. But there is little precedent for Musk, the face and head of a publicly traded company and one of the world's richest people, showing such deep and committed dedication to one of the world's most influential political figures. most controversial in the world.

It would be odd, to say the least, to cite an individual CEO as a risk factor, said Hillary Sale, director of Cboe US Securities Exchanges, Cboe Futures Exchange and professor at Cboe SEF and Georgetown University. If a director felt this way about the CEO, he or she would have a fiduciary duty to reconsider the CEO.

The SEC requires companies to disclose all kinds of information, and companies can propose additional risks, as long as those risks are material, meaning they would significantly change business operations or regulations. Companies are often open about their executives' extracurricular activities (see Meta on Mark Zuckerberg's affinity for extreme sports, or Tesla's own comments on Musk's attention to other companies). But some problems did not arise. In 2008, Apple questioned whether it had a duty to disclose Steve Jobs' declining health.

The U.S. Supreme Court ruled earlier this year that investors cannot sue over omissions in an SEC filing. The SEC itself could theoretically sue, but the agency does not require disclosure of political activities, and that would likely be criticized as an affront to free speech. (Or in Apple's case, an invasion of privacy).

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And because Elon Musk's political activities are far from secret, investors aren't completely in the dark, notes Allan Horwich, a former securities lawyer who is now a professor emeritus at Northwestern University. The question is whether Tesla knows anything about how Musk's political spectacle is affecting stock values ​​and failing to answer lingering shareholder questions.

We know what he's doing, but do they know what the risks are if he does this to the company? » said Horwich. His advice to former clients when questions about disclosure have arisen: If there is an internal debate about whether a risk is material or not, why not disclose it?

At a special forum for Tesla shareholders held by the company before releasing quarterly results earlier this week, an investor asked whether the board had made any effort to ensure that Tesla's policy commitment Musk does not undermine Tesla's core mission and protects shareholder value and brand integrity. The post garnered 533 upvotes from investors, who own more than 397,000 Tesla shares in total, according to the company's count.

Tesla did not respond to Fortune's request for comment.

Investors are used to Musk's antics

Musk has more leeway to run the company the way he wants than most other publicly traded company CEOs, thanks to investors voting on a pay package that gives him about 20% control of Tesla, Adam adds. Wowak, professor of management at the University of Notre Dame. . The voting share, combined with his deep ties to the brand, gives him more power over the board than his peers, who might have to manage things like big political donations or board member support. 'administration.

It's also not unusual for Musk to be involved in matters that could cause problems for CEOs of other public companies; some would say it's part of his brand. He smoked a joint on the Joe Rogan podcast in 2018. And he has a history of clashes with government agencies that oversee his various businesses, including space exploration company SpaceX, tunneling company Boring Co, Neuralink human implants and AI developer. X.AI, to name a few.

When the Federal Aviation Administration went after SpaceX over rocket launches, Musk threatened to sue for regulatory overreach. He said Democrats found his Social Network X so threatening that a Harris administration would imprison and prosecute Musk personally and shut it down by any means possible. He denounced the militarization of government agencies in response to a privacy investigation by the Federal Trade Commission.

Elon Musk's alliance with Trump raises the stakes. A Trump victory could be a boon for Tesla given that Trump has mentioned appointing Musk as cost-cutting secretary.

But whatever the outcome of the election, Elon Musk's whole-hearted support for Trump clearly puts Tesla in the spotlight, far brighter than that faced by CEOs who donate to or support a political candidate or cause.

In general, CEOs tend to exercise some caution before engaging deeply in politics because not all shareholders are on board, notes Sales, the Georgetown professor.

Without speculating on whether such entrenched political ties should be reported to the SEC, there is certainly reason to believe that this type of repeated behavior by a public company CEO could pose a risk seriously for the value of a company, said Chris Poliquin, professor. in Management at the UCLA Anderson School of Management.

As investors awaited Tesla's quarterly results this week, the company's shares were down 14% since Trump's endorsement of Musk in mid-July. The S&P 500, on the other hand, gained 3% over the same period.

Tesla later reported modest 2% growth in car sales, but beat Wall Street profit targets thanks to the sale of regulatory credits to other automakers and the strength of its energy business. Musk said his best guess was that vehicle growth in the coming year would increase between 20 and 30 percent.

Tesla shares are now up 7% since Trump's endorsement of Musk.

Recommended Newsletter Fact Sheet: Stay on top of tech news with in-depth analysis from the biggest names in the industry. Register here.

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