In a Substack post, legal expert Lawrence Fossi weighed in on the ongoing debate surrounding Tesla's attempt to reinstate CEO Elon Musk's 2018 compensation plan, which had been voided by a Delaware court due to insufficient information provided to shareholders.

Fossi delved into the reasons why Tesla's board opted to seek a shareholder vote on ratifying the old pay package instead of starting fresh with a new grant. According to Fossi, awarding a new compensation plan to Musk, similar to the 2018 one, would result in massive losses for Tesla in the coming years. Furthermore, such a package would set unattainable targets for Musk himself.

The 2018 compensation award, which originally had a potential value of $55.8 billion, was reduced to $2.6 billion as a compensation expense after several discounts were applied. However, Fossi pointed out that granting Musk a new stock-based compensation expense is no longer feasible, as Tesla's current share price is significantly higher than it was at the time of the 2018 grant. The expense, even with the help of compensation consultants, would not only eliminate earnings for years to come but also plunge the company's income statement into a deep deficit.

Fossi also speculated that Musk may not be enthusiastic about a new plan, noting that replicating the stock price gains that justified the 2018 award is unlikely since Tesla's growth story has now transformed into a shrinkage narrative. Additionally, Fossi raised concerns about the possibility of Musk engaging in income tax avoidance through the reinstatement of the 2018 package, given the nature of his stock option plan.

It's worth mentioning that Fossi, known as "Montana Skeptic," has been a vocal critic of Tesla and Musk since 2016. He has claimed that Musk once called Fossi's former workplace requesting his termination and even threatened legal action against him for his critical commentary. Musk has not publicly responded to these allegations.

Although Tesla's stock value has declined from its all-time high, the company remains the most valuable automaker with a market capitalization of $556 billion as of the market close on Thursday. Musk's original 2018 package was initially valued at $56 billion but has been impacted by the recent stock price drop, resulting from underwhelming revenues and margins. Currently, its potential value stands at approximately $47 billion.

Tesla's board is making efforts to convince retail investors to vote for the reinstatement of Musk's 2018 award ahead of the June 13 annual shareholder meeting. However, it's important to note that the vote is advisory and does not legally bind the board to take any specific action.

Tesla's shares closed Thursday's session at $174.84, with a slight increase of 0.49%, according to data from Benzinga Pro.

In conclusion, Tesla faces several obstacles in granting Elon Musk a new pay package, as outlined by legal expert Lawrence Fossi. From potential financial losses for the company to unrealistic targets for Musk, the reinstatement of the 2018 compensation plan raises significant challenges. The outcome of the forthcoming shareholder vote will determine the course of action for Tesla's board.