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Tesla shareholders will vote on using paid advertising, board fights to kill proposal

Tesla shareholders are going to vote on whether or not the automaker should use paid advertising, something that Tesla has been staying away from, and the company’s board is fighting against the proposal.

Tesla shareholder meeting

Today, Tesla announced today the date of its annual shareholder meeting, which is going to be a little later than usual:

We are pleased to inform you that our 2020 Annual Meeting of Stockholders (the ‘2020 Annual Meeting’) will be held on Tuesday, July 7, 2020, at 2:30 p.m. Pacific Time, at the Computer History Museum located at 1401 N. Shoreline Blvd., Mountain View, CA.

The items on the agenda are fairly standards. Tesla is asking to re-elect a few directors, including Elon Musk himself, ratify its accounting firm, and votes on a few shareholder proposals.

We have seen those proposals or similar ones in previous Tesla’s shareholder’s meeting, like the one on majority voting provisions, except for a new one on paid advertising.

Tesla and advertising

Over the last few years, Tesla CEO Elon Musk has made it clear that he despises advertising.

He said that Tesla doesn’t pay celebrities to drive its cars or even discount them, and that the automaker doesn’t pay to advertise.

Instead, Musk says that Tesla uses what other automakers spend on advertising to improve their products:

Tesla does not advertise or pay for endorsements. Instead, we use that money to make the product great.

The CEO went as far as claiming that the mainstream media doesn’t like him or Tesla because they don’t buy advertising from them:

While Tesla has stayed true to those statements for the most part, the automaker has stranded away from that strategy on occasions.

For example, Tesla used a paid influencer on a massive livestream shopping service in China.

Tesla shareholders pushing for paid advertising

San Diego-based Tesla shareholder James M. Danforth is forcing a vote on a proposal for Tesla to start doing a little paid advertising:

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

Danforth explained the reasoning behind his proposal:

Advertising became necessary the moment Tesla announced in Q1 19 that it would shut down retail stores and start focusing solely on website based sales instead. Tesla is in the enviable position of being able to generate advertising ROI from 4 sources, which are:

  • First, its [sic] self-evident that advertising can increase brand value, product awareness and interest. Second, Tesla ads can help mitigate and dilute substantial FUD (‘Fear, Uncertainty, Doubt’) and misinformation campaigns sponsored by competitors and detractors worldwide and steer the narrative more favorably. Third, impacts caused by less public visibility, due to retail store closings announced in Q1 19, can be explained and softened by ads.
  • Finally, Tesla ads will, by their very nature, increase knowledge and support for climate damage avoidance worldwide. This is a core desire of Tesla and a key driver of better company results, too.

Tesla’s call to action via advertisements will ring loudly and credibly with billions of consumers, many of whom who don’t know who Tesla is at all. This call to action has never been more necessary or important than right now.

Tesla’s board of director is recommending that shareholders vote against the proposal and they wrote a strong statement opposing it:

The Board has considered this proposal and has determined that it would not serve the best interests of Tesla or our stockholders. While we welcome stockholder feedback, we also believe we have an experienced management team that is best situated to determine Tesla’s day-to-day business operations, including our sales and marketing practices and expenditures. Moreover, the proponent’s key premise is based on an apparent misunderstanding of Tesla’s retail operations. Specifically, Tesla has made clear in statements since the first quarter of 2019 that we frequently optimize our retail operations, which means both closing or downsizing locations with underperforming foot traffic or sales throughput, as well as adding locations in our target markets with high foot traffic. As a result, our net store count remained stable across 2019.

Moreover, Tesla does not focus solely on online sales as the proponent asserts. Rather, whether a customer places an order from his or her home or at a Tesla store, it is transacted by accessing Tesla’s website.

The proponent also presents no evidence that Tesla has insufficient visibility with prospective customers or that paid advertising, whether at the arbitrary amount suggested by the proponent or at all, would increase such visibility in a manner favorable to the Company or its stockholders. On the contrary, among the milestones achieved in 2019 without traditional advertising and at relatively low marketing costs, Tesla delivered a record 367,656 vehicles, or a 50% increase from the prior year, and Model 3 outsold the BMW 3-Series, Mercedes C-class, Audi A4, and Lexus IS combined in the United States. The distinctions that Tesla has achieved in the past year include Model 3 being included in Consumer Reports’ 2020 ‘Top Picks’ List and being named the UK Car of the Year 2020 and the Midsize Car of the Year at the AUTO BILD Golden Steering Wheel Awards in Germany, and Model S being named Motor Trend’s Ultimate Car of the Year. Finally, Tesla continues to expand globally with our servicing and charging infrastructure, as well as through international manufacturing at Gigafactory Shanghai, which commenced vehicle production in 2019, and our Gigafactory Berlin, which is undergoing site preparations.

Whereas the proponent’s assertions are based in speculation, objective factors demonstrate the existing and growing public visibility and interest in Tesla and our products without the need for paid advertising. Accordingly, at this time our management believes that our customers and stockholders would be better served by forgoing such costs.

Tesla shareholders can vote now by proxy on the proposal and the final vote will happen on July 7.

Electrek’s Take

These shareholder proposals almost never go through if the board doesn’t recommend them.

While Tesla has a strong base of individual shareholders, the board can lobby institutional shareholders to vote against the proposal — shutting them down pretty quickly.

In my opinion, it’s inevitable that Tesla is going to start advertising (in a more traditional way) soon, or it will have to bring back a referral program that incentivizes more promotion from its base.

Electric cars are becoming mainstream and the competition is finally coming.

Right now, EV advertising is still low as automakers focus on markets where they need to comply to emission standards, but that’s going to change in the next few years as new car buyers are going to only see EVs as viable options as gasoline cars are going to increasingly look like old tech.

At that point, other automakers won’t be shy about advertising their electric vehicles.

Of course I am biased, since this website’s income is based on advertising, but I am trying to call it as I see it. Just take my bias in consideration.

$50 per car is really low, but it would be a good starting point for Tesla.

At 100,000 cars per quarter, it would be a $5 million budget. Tesla could find some efficient ways to advertise with that budget.

It would especially help with its end-of-quarter pushes. Tesla could use targeted advertising in markets where it has inventory available to deliver by the end of the quarter.

What do you think? Let us know in the comment section below.

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