SpaceX (SPCX.US) governance structure sparks market controversy! Jefferies strongly: Investors may miss out on potential long-term returns due to “correct ESG”

The Zhitong Finance App learned that Aniket Shah, the global head of sustainability and transformation strategies at investment bank Jefferies, said that investors shying away from investing in the commercial space giant due to Elon Musk's extraordinary control over SpaceX (SPCX.US) may be overriding potential long-term returns due to concerns about corporate governance.

For investors, the debate highlights a broader question in the field of environmental, social and governance (ESG) investing: Should companies with strong founders be automatically excluded from investment because of governance standards? Or should financial performance take more weight? Against the backdrop of SpaceX's stock price falling about 20% after its June listing, the importance of this issue has further increased.

SpaceX's corporate governance provisions are causing intense alarm on Wall Street and institutional investor circles. SpaceX uses a dual shareholding structure. Musk has the right to appoint a majority seat on the board of directors and cannot be removed from the position of CEO without his consent. What is more interesting is that the company has set the shareholding threshold for shareholders to file derivative lawsuits at 3% — based on the company's current market value of US$143 million, rights protection shareholders are required to hold positions of at least US$42.9 billion before filing lawsuits over the actions of the board of directors or executives. This extremely management-friendly control structure makes it almost impossible for Musk to be held to account.

Institutional investors from New York to Copenhagen have expressed strong concerns about SpaceX's governance structure. Critics point out that Musk holds more than 80% of the company's voting power and combines the CEO, chief technology officer, and chairman. This unprecedented control structure has been described by some pension funds as “disastrous,” and the company has even been blacklisted for investment. Institutional investors believe that this arrangement alone is sufficient reason to exclude the stock from their portfolios, as it weakens the board's ability to supervise and shareholder protection mechanisms. New York City Auditor General Mark Levine also said earlier that Musk's control of SpaceX represents a new level of disregard for the rights of ordinary shareholders.

SpaceX's governance arrangements also gained additional legal barriers through the choice of place of registration. The company is registered in Texas and has benefited from new local laws that are more friendly to company management — laws that make it much more difficult to reverse board decisions. Additionally, SpaceX has set up a unique “Legal Forum Choice” clause in company documents to direct disputes the company may face into specific, relatively favorable jurisdictions for the company.

Shah believes that many investors are too rigid in applying corporate governance rules. He said, “I highly question the idea that there is an 'acceptable form of good governance'. “Those trying to put governance standards into some kind of fixed framework think too simplistically; to be honest, they don't really pay attention to data.”

Regarding the recent drop in SpaceX's stock price, Shah denied that this proved that the market's concerns about the company's governance were correct. “I don't think SpaceX's share price performance over the past few weeks is related to governance issues,” he said. “Investors may be re-evaluating their views on the overall future of artificial intelligence (AI), but if stock prices fall, they think this is a 'problem explosion' due to governance issues. In my opinion, this is a very far-fetched link.”

Shah further pointed out that rigid governance standards have caused many investors to miss out on historic wealth opportunities. He used Meta Platforms (META.US) and Tesla (TSLA.US) as examples. Both companies were also highly controversial at the beginning of their listing due to their dual ownership structure and high concentration of founders, but since listing, their stock prices have risen by more than 1,300% and about 27,000%, respectively. He said investors who only rely on corporate governance checklists for investment decisions may miss out on companies that can generate significant long-term returns, especially those led by a founder and where decision-making power is concentrated in a single executive.

Short bets are soaring! The “double heist” of the first financial report and the lifting of the 100 billion ban is coming this week

It is worth mentioning that SpaceX will release its first quarterly earnings report since listing after the US stock market closes on Tuesday. Regarding this major financial report, the market will focus on the number of Starlink users, satellite internet revenue, rocket launch frequency, government contracts, and Starship project expenses. Given that SpaceX's stock price fluctuated greatly after listing, this first earnings report will help investors assess whether the company's business model, profitability, and cash flow can support its high valuation.

In addition to revenue and profits, management comments on Starlink's growth, Starship testing progress, space data centers, and AI-related businesses may also influence market sentiment. If the company can show stable cash flow and a clear path to commercialization, the stock price may be supported. However, if capital expenditure and R&D expenses continue to rise rapidly, the market may pay more attention to financing needs and potential pressure on stock supply.

Meanwhile, on the eve of SpaceX's upcoming earnings release, Wall Street bears are pouring into Musk's most high-profile listed company at an unprecedented rate. According to the latest data from S3 Partners, as of July 29, SpaceX short positions had soared to 219.3 million shares, accounting for about 34% of publicly traded shares, with a nominal value of 24.6 billion US dollars. This size has surpassed Tesla's short position, making SpaceX one of the most heavily shorted large companies in the US market.

SpaceX's short position surged nearly tenfold from 23.3 million shares at the beginning of the IPO in more than a month. What is behind this is a triple game surrounding financial data, the lifting of the flood peak, and the valuation bubble. Sam Pearson, head of S3 research, said bluntly: “The biggest bet right now is to lift the ban on restricted stocks — the market believes there will be no news in the financial report that will offset the influx of unbanned stocks into the market.”

The bears have deployed SpaceX so aggressively, that the core logic is simple and ruthless—they are betting on next week's impending supply shock. Two days after SpaceX announced its first earnings report since listing (that is, August 6), according to the company's phased lockdown schedule, up to 9115 million shares will meet the conditions for lifting the ban and may pour into the open market.

SpaceX currently has only about 640 million shares available for trading, accounting for about 5% of the total share capital. The lifting of the first batch of bans will more than double the proportion of tradable shares to about 12%. But this is just the beginning — prospectus shows that the total number of tradable shares may increase more than seven-fold from the current 639 million shares to 5.33 billion shares by the end of the year.

What is even more worrisome is that the 9115 million shares that were unbanned on August 6 are only the first batch. After that, an additional 7% of the shares will be unlocked on nodes such as August 20 and September 9. In addition, up to 455.8 million shares are subject to early lifting of the ban, but the previously set stock price threshold (which remained above $175.50 for 5 days out of 10 consecutive trading days) could no longer be triggered due to a sharp drop in stock prices. Morgan Stanley warned in its latest report that SpaceX is about to enter the “most dangerous moment” — stocks with a market value of around $100 billion could flow into the market in the next few weeks.

Pearson pointed out that for SpaceX, there are three key drivers worth paying attention to in the coming year. The first is the process of unblocking. This is the most pressing short-term risk. After the first batch of 9115 million shares was lifted, there will be multiple rounds of batch unlocking, which will continue to put supply pressure on stock prices.

The second is inclusion in the S&P 500 index. According to relevant regulations, IPOs must meet the “licensing rules” (usually requiring 6 to 12 months of listing and continuous profit), and SpaceX will not be included in the S&P 500 index until mid-2027 at the earliest. But the market has begun to set prices for this ahead of time.

The third is a potential Tesla merger. Pearson pointed out that if SpaceX and Tesla achieve some kind of business merger, it will “speed up this integration process.” Although this idea is currently still speculative, it is not entirely unimaginable in the context of Musk controlling both companies at the same time.