Tesla Turns Back Rare Challenge From Shareholders

Tesla Inc. and its chief executive, Elon Musk, have become accustomed to adoration from customers and shareholders alike. But at this year’s annual meeting came a rare challenge from investors who sought to shake up the board and force Musk to give up one of his two top positions.

One proposal at the meeting Tuesday in Mountain View, California, called for the splitting of the posts of chairman and chief executive, both of which are held by Musk. Others sought to deny re-election to board members including Musk’s brother.

Tesla announced that the proposals had been rejected by “a wide margin.” And Tesla has a supermajority voting structure that requires a two-thirds majority for major changes — a high hurdle given that Musk himself holds about one-fifth of the shares.

At the meeting, Musk painted a picture of a company making rapid progress on many fronts. Tesla has been struggling to ramp up production of the Model 3 compact car, which the company is counting on to generate the profits and cash it needs to develop new vehicles, solar energy systems and advanced batteries.

Musk said Tesla is now capable of producing 3,500 Model 3s a week — up from about 2,000 a week in May — and called it “quite likely” that the company could exceed 5,000 by the end of June. “It’s been the most excruciating, hellish months I’ve maybe ever had, but I think we’re getting there,” he said.

In May, the Model 3 outsold all other luxury midsize cars, such as the BMW 3 Series and the Mercedes-Benz C-Class, Musk said.

Musk has said Tesla can become profitable if it makes about 5,000 Model 3s a week. He told shareholders that he expected the company to have positive net income in the next quarter, as well as positive net cash flow in the third and fourth quarters.

He added that he did not expect Tesla to have to raise additional capital later this year, as some analysts have suspected.

The company also said it would soon be announcing details of its plans to build a battery factory in China, something that it has been in talks to do for the past year.

As the company has used up cash, analysts warned that it may have to turn to investors for additional capital. And earlier this year, Moody’s Investors Service downgraded Tesla’s credit ratings, citing the Model 3 and the company’s high expenses. But there have also been difficulties beyond the balance sheet: Federal safety regulators are investigating its Autopilot technology after a series of crashes, including a fatal accident in March in California, that occurred while the driver-assistance system was engaged.

Still, many investors remain wildly supportive of Musk and Tesla — the company’s stock has rallied in recent weeks after tumbling sharply in late March and early April after news of the California accident, and was up about 1 percent in aftermarket trading Tuesday. And the shareholder challenges were quickly disposed of at the start of the meeting, but not before dissident voices were heard.

“Usually it’s like a cult meeting because of the way so many shareholders are such fans of Elon,” said David Whiston, an analyst at Morningstar.

CtW Investment Group, which advises pension funds controlled by labor unions, opposed the re-election of the three directors. The United Auto Workers union is trying to organize workers at the company’s car factory in Fremont, California. Tesla workers who support the UAW have spoken out recently about safety concerns at the plant. Musk has fired back at the union, including suggesting that the UAW provides little benefit for workers.

The investment group wanted to remove directors Kimbal Musk, who is Musk’s brother and a food entrepreneur; James Murdoch, chief executive of 21st Century Fox; and Antonio Gracias, a venture capital investor who is Tesla’s lead outside director.

CtW said Kimbal Musk and Gracias were too close to Elon Musk to be independent voices on the board, and asserted that Murdoch did not have any business experience relevant to the auto industry.

The proposed measure to split the chairman and chief executive positions came from an individual investor. Some shareholder advisory firms supported splitting the two posts as a general principle.

Whiston, however, said doing so would have had little effect at Tesla because the company is so dominated by Musk.

“If Elon is not chairman, that’s not going to speed up Model 3 production,” he said.