Judge once again rejects Texas-based Tesla's multi-billion-dollar pay package for Elon Musk — now what?

hard no

Lawyers for a Tesla shareholder who sued to block the pay package contended that shareholders who had voted for the 10-year plan in 2018 had been given misleading and incomplete information. Photo via cdn.britannica.com

For a second time, a Delaware judge has nullified a pay package that Tesla had awarded its CEO, Elon Musk, that once was valued at $56 billion.

Last week, Chancellor Kathaleen St. Jude McCormick turned aside a request from Musk's lawyers to reverse a ruling she announced in January that had thrown out the compensation plan. The judge ruled then that Musk effectively controlled Tesla's board and had engineered the outsize pay package during sham negotiations.

Lawyers for a Tesla shareholder who sued to block the pay package contended that shareholders who had voted for the 10-year plan in 2018 had been given misleading and incomplete information.

In their defense, Tesla's board members asserted that the shareholders who ratified the pay plan a second time in June had done so after receiving full disclosures, thereby curing all the problems the judge had cited in her January ruling. As a result, they argued, Musk deserved the pay package for having raised Tesla's market value by billions of dollars.

McCormick rejected that argument. In her 103-page opinion, she ruled that under Delaware law, Tesla's lawyers had no grounds to reverse her January ruling “based on evidence they created after trial.”

What will Musk and Tesla do now?

On Monday night, Tesla posted on X, the social media platform owned by Musk, that the company will appeal. The appeal would be filed with the Delaware Supreme Court, the only state appellate court Tesla can pursue. Experts say a ruling would likely come in less than a year.

“The ruling, if not overturned, means that judges and plaintiffs' lawyers run Delaware companies rather than their rightful owners — the shareholders,” Tesla argued.

Later, on X, Musk unleashed a blistering attack on the judge, asserting that McCormick is “a radical far left activist cosplaying as a judge.”

What do experts say about the case?

Legal authorities generally suggest that McCormick’s ruling was sound and followed the law. Charles Elson, founding director of the Weinberg Center for Corporate Governance at the University of Delaware, said that in his view, McCormick was right to rule that after Tesla lost its case in the original trial, it created improper new evidence by asking shareholders to ratify the pay package a second time.

Had she allowed such a claim, he said, it would cause a major shift in Delaware’s laws against conflicts of interest given the unusually close relationship between Musk and Tesla’s board.

“Delaware protects investors — that’s what she did,” said Elson, who has followed the court for more than three decades. “Just because you’re a ‘superstar CEO’ doesn’t put you in a separate category.”

Elson said he thinks investors would be reluctant to put money into Delaware companies if there were exceptions to the law for “special people.”

What will the Delaware Supreme Court do?

Elson said that in his opinion, the court is likely to uphold McCormick's ruling.

Can Tesla appeal to federal courts?

Experts say no. Rulings on state laws are normally left to state courts. Brian Dunn, program director for the Institute of Compensation Studies at Cornell University, said it's been his experience that Tesla has no choice but to stay in the Delaware courts for this compensation package.

Tesla has moved its legal headquarters to Texas. Does that matter?

The company could try to reconstitute the pay package and seek approval in Texas, where it may expect more friendlier judges. But Dunn, who has spent 40 years as an executive compensation consultant, said it's likely that some other shareholder would challenge the award in Texas because it's excessive compared with other CEOs' pay plans.

“If they just want to turn around and deliver him $56 billion, I can't believe somebody wouldn't want to litigate it,” Dunn said. “It's an unconscionable amount of money.”

Would a new pay package be even larger?

Almost certainly. Tesla stock is trading at 15 times the exercise price of stock options in the current package in Delaware, Morgan Stanley analyst Adam Jonas wrote in a note to investors. Tesla's share price has doubled in the past six months, Jonas wrote. At Monday’s closing stock price, the Musk package is now worth $101.4 billion, according to Equilar, an executive data firm.

And Musk has asked for a subsequent pay package that would give him 25 percent of Tesla's voting shares. Musk has said he is uncomfortable moving further into artificial intelligence with the company if he doesn't have 25 percent control. He currently holds about 13 percent of Tesla's outstanding shares.

Defense attorneys say the vote makes clear that Tesla shareholders, with full knowledge of the flaws in the 2018 process that McCormick pointed out in her January ruling, are adamant that Musk is entitled to the pay package. Photo via cdn.britannica.com

Tesla attorneys ask judge to vacate decision invalidating massive pay package for Elon Musk

a request

Attorneys for Elon Musk and Tesla’s corporate directors are asking a Delaware judge to vacate her ruling requiring the company to rescind a massive and unprecedented pay package for Musk.

Friday's hearing follows a January ruling in which Chancellor Kathaleen St. Jude McCormick concluded that Musk engineered the landmark 2018 pay package in sham negotiations with directors who were not independent. The compensation package initially carried a potential maximum value of about $56 billion, but that sum has fluctuated over the years based on Tesla's stock price.

Following the court ruling, Tesla shareholders met in June and ratified Musk’s 2018 pay package for a second time, again by an overwhelming margin.

“Honoring the shoulder vote would affirm the strength of our corporate system,” David Ross, an attorney for Musk and the other individual defendants, told McCormick. “This was stockholder democracy working.”

Ross told the judge that the defendants were not challenging the factual findings or legal conclusions in her ruling, but simply asking that she vacate her order directing Tesla to rescind the pay package.

McCormick, however, seemed skeptical of the defense arguments, peppering attorneys with questions and noting that there is no precedent in Delaware law for allowing a post-trial shareholder vote to ratify adjudicated breaches of fiduciary duty by corporate directors.

“This has never been done before,” she said.

Defense attorneys argued that, while they could find no case that is exactly comparable, Delaware law has long recognized shareholder ratification as a cure to corporate governance errors, and has long acknowledged the “sovereignty” of shareholders as the ultimate owners of a corporation.

“I candidly don’t see how Delaware law can tell the owners of the company that they’re not entitled to make the decision they made,” said Rudolf Koch, an attorney for Tesla.

Donald Verrilli, a lawyer for an induvial stockholder who owns more than 19,000 Tesla shares, suggested that it would be wrong for the lone shareholder who filed the lawsuit to thwart the will of the majority of Tesla shareholders. At the time the lawsuit was filed, the plaintiff owned just nine shares of Tesla stock.

“The voice of the majority of shareholders should matter…. This lawsuit is not representing the interest of the shareholders," Verrilli said.

Thomas Grady, an attorney for a group of Florida objectors who own or manage almost 8 million Tesla shares with some $2 billion, argued that for McCormick to rule for the plaintiff, she has to “disenfranchise” all other Tesla shareholders.

Greg Varallo, an attorney for the plaintiff, urged McCormick not to give any credence to the June shareholder vote, saying it has no legal precedent in Delaware or anywhere else. There also is no reason for the court to reopen the trial record and admit new evidence, he said.

Under Delaware law, stockholders have no authority to overrule courts by trying to use a post-trial ratification vote as a “giant eraser,” Varallo argued.

“Ratification is not magic, and it never has been,” Varallo added. “This should end here and now.”

McCormick gave no indication on when she would rule. She also has yet to rule on a huge and unprecedented fee request by plaintiff attorneys, who contend that they are entitled to legal fees in the form of Tesla stock valued at more than $7 billion.

Here's how Texan Elon Musk's unprecedented pay package compares to his peers. Photo via Getty Images

How Elon Musk's $44.9B Tesla pay package compares with the most generous plans for other U.S. CEOs

stacking up

Even though the median U.S. CEO pay package last year was nearly 200 times more than a worker in the middle of their company pay scales, Elon Musk's record-setting Tesla compensation dwarfs them by comparison.

Tesla shareholders on Thursday voted overwhelmingly in favor of restoring Musk's 10-year pay plan, valued by the company in April at $44.9 billion. It was worth more early in the year, but Tesla's stock value has fallen about 25% since then.

The all-stock package, approved by the board and shareholders in 2018, rewards Musk for hitting milestones that include raising Tesla's market value, pretax income and revenue.

It had been tossed out by a Delaware judge in January who said the process for approving it was “deeply flawed.” The court ruled that Musk controlled the company's board, and shareholders weren't fully informed.

But the company said Musk deserves the pay because he turned Tesla into the top-selling electric vehicle maker in the world, increasing its market value by billions.

Even with the reapproval vote, Musk won't get access to the stock options just yet. Tesla is expected to ask the judge to revisit her decision in light of the vote, and if she doesn't, the company probably will appeal the ruling to Delaware's Supreme Court. The whole process could take months.

No matter the outcome, Musk's package — the largest award to a CEO of a U.S. public company — is far above what's been granted to other chief executives. Here's how the package compares:

WITH THE MEDIAN CEO PAY

The median pay package for an S&P 500 U.S. CEO last year was $16.3 million, according to data analyzed for The Associated Press by Equilar. If you multiply that by 10 to get $163 million for a decade of work, Musk's earnings still would be 275 times greater.

In her January ruling that struck down the package, Delaware Chancellor Kathaleen St. Jude McCormick wrote that Musk's package, then worth about $56 billion, was 250 times larger than the median peer CEO's pay plan.

WITH INDIVIDUAL CEOS

The top earner in the AP's survey was Hock Tan, CEO of artificial intelligence company Broadcom Inc. His package, mostly consisting of stock awards, was valued at about $162 million, when given to Tan at the start of fiscal 2023. Thanks to a surging stock price, Broadcom in March valued Tan’s pay package, plus older options he hadn’t yet cashed in, at $767.7 million. That's an amount easily eclipsed by Musk’s potential haul of 304 million shares worth almost $45 billion.

Other CEOs at the top of AP's survey are William Lansing of Fair Isaac Corp, ($66.3 million); Tim Cook of Apple Inc. ($63.2 million); Hamid Moghadam of Prologis Inc. ($50.9 million); and Ted Sarandos, co-CEO of Netflix ($49.8 million).

Technically, Musk got no compensation last year because he didn't get any stock options. But he stands to get even richer if his pay package goes through.

WITH TESLA WORKERS

It's difficult to calculate what Musk's annual pay would have been last year. The company says he got nothing. But if his compensation package makes it through the courts, his pay will be in the billions. According to the company's proxy filing this year, the median annual pay of a non-CEO Tesla employee last year was $45,811.

The pay package is likely to remain tied up in the Delaware Chancery Court and Supreme Court for months as Tesla tries to overturn the Delaware judge's rejection. Photo via Getty Images

Elon Musk gets green light from shareholders to get back $44.9B Tesla pay package

bullish on EVs

Tesla shareholders voted Thursday to restore CEO Elon Musk's record $44.9 billion pay package that was thrown out by a Delaware judge earlier this year, sending a strong vote of confidence in his leadership of the world's largest electric vehicle maker.

The favorable vote doesn’t necessarily mean that Musk will get the all-stock compensation anytime soon. The package is likely to remain tied up in the Delaware Chancery Court and Supreme Court for months as Tesla tries to overturn the Delaware judge's rejection.

Musk has raised doubts about his future with Tesla this year, writing on X, the social media platform he owns, that he wanted a 25% stake in the company in order to stop him from taking artificial intelligence development elsewhere. The higher stake is needed to control the use of AI, he has said.

Tesla also has struggled with falling sales and profit margins as demand for electric vehicles slows worldwide.

But at the company's annual meeting Thursday in Austin, Texas, Musk reassured shareholders that he will stick around, telling them he can't sell any stock in the compensation package for five years.

“It's not actually cash, and I can't cut and run, nor would I want to,” he said.

The company said late Thursday that shareholders had voted for Musk's compensation plan, which initially was approved by the board and stockholders six years ago.

Tesla last valued the package at $44.9 billion in an April regulatory filing. It was once as much as $56 billion but has declined in value in tandem with Tesla's stock, which has dropped about 25% so far this year.

Chancellor Kathaleen St. Jude McCormick ruled in January in a shareholder’s lawsuit that Musk essentially controlled the Tesla board when it ratified the package in 2018, and that it failed to fully inform shareholders who approved it the same year.

Tesla has said it would appeal, but asked shareholders to reapprove the package at Thursday’s annual meeting.

A separate vote approved moving the company’s legal home to Texas to avoid the courts in Delaware, where Tesla is registered as a corporation.

“Its incredible," a jubilant Musk told the crowd gathered at Tesla's headquarters and large factory in Austin, Texas. “I think we’re not just opening a new chapter for Tesla, we’re starting a new book.”

Musk and Tesla didn’t win everything. Shareholders approved measures that trimmed board member terms from three years to one and cut the required vote on shareholder proposals to a simple majority.

Legal experts say the issue of Musk’s pay will still be decided in Delaware, largely because Musk’s lawyers have assured McCormick they won’t try to move the case to Texas.

But they differ on whether the new ratification of the pay package will make it easier for Tesla to get it approved.

Charles Elson, a retired professor and founder of the corporate governance center at the University of Delaware, said he doesn’t think the vote will influence McCormick, who issued a decision based on the law.

McCormick’s ruling essentially made the 2018 compensation package a gift to Musk, Elson said, and that would need unanimous shareholder approval, an impossible threshold. The vote, he said, is interesting from a public perception standpoint, but “in my view it does not affect the ruling.”

John Lawrence, a Dallas-based lawyer with Baker Botts who defends corporations against shareholder lawsuits, agreed the vote doesn’t end the legal dispute and automatically give Musk the stock options. But he says it gives Tesla a strong argument to get the ruling overturned.

He expects Musk and Tesla to argue that shareholders were fully informed before the latest votes, so McCormick should reverse her decision. But the plaintiff in the lawsuit will argue that the vote has no impact and isn’t legally binding, Lawrence said.

The vote, he said, was done under Delaware law and should be considered by the judge.

“This shareholder vote is a strong signal that you now have an absolutely well-informed body of shareholders,” he said. “The judge in Delaware still could decide that this doesn’t change a thing about her prior ruling and doesn’t require her to make any different ruling going forward. But I think it definitely gives Tesla and Musk strong ammunition to try to get her to revisit this.”

If the ruling stands, then Musk likely will appeal to the Delaware Supreme Court, Lawrence said.

Multiple institutional investors have come out against Musk’s sizeable payout, some citing the company’s recent struggles. But analysts said votes by individual shareholders likely put Musk’s pay over the top.

Early Friday, Tesla disclosed that shareholders voted for Musk's pay package by 1,760,780,650 to 528,908,419, with about 77% of all votes in favor. The company's shares jumped 3% by the time the markets closed Thursday and were up 1.2% in premarket trading early Friday.

After the votes were announced, Musk began telling shareholders about new developments in the company's “Full Self-Driving” system. He has staked the company's future on development of autonomous vehicles, robots and artificial intelligence.

“Full Self-Driving” keeps improving with new versions, and its safety per mile is better than human drivers, Musk said.

"This is actually going to work. This is going to happen. Mark my words, this is just a matter of time,” he said.

Despite its name, “Full Self-Driving” can’t drive itself, and the company says human drivers must be ready to intervene at all times. Tesla’s “Full Self-Driving” hardware went on sale late in 2015, and Musk has used the name ever since as the company gathered data to teach its computers how to drive.

In 2019, Musk promised a fleet of autonomous robotaxis by 2020, and he said in early 2022 that the cars would be autonomous that year. In April of last year, Musk said the system should be ready in 2023.

Since 2021, Tesla has been beta-testing “Full Self-Driving” using volunteer owners. U.S. safety regulators last year made Tesla recall the software after finding that the system misbehaved around intersections and could violate traffic laws.

Musk also said the company is making huge progress on its Optimus humanoid robot. Currently it has two working at its factory in Fremont, California, that take battery cells off a production line and put them in shipping containers, he said.

Despite laying off the team working on Tesla’s Supercharger electric vehicle charging network, Musk said he thinks the company will deploy more chargers this year “that are actually working” than the rest of the industry. In the second half of the year, he expects to spend $500 million on Superchargers, Musk said.

Shareholders of the electric vehicle and solar panel company are voting on the package, with the results to be tabulated at Tesla's June 13 annual meeting. Photo via cdn.britannica.com

Future of Elon Musk, Tesla on the line this week as shareholders vote on massive pay package

TBD

If Tesla shareholders vote against restoring Elon Musk's $44.9 billion pay package Thursday, the CEO could deliver on threats to take artificial intelligence research to one of his other companies. Or he could even could walk away.

If they approve the all-stock compensation package that was thrown out by a Delaware judge in January, it would almost guarantee he would remain at the company he grew to be the world leader in electric vehicles, shifting to AI and robotics including autonomous vehicles, which Musk says is Tesla's future.

But even with reapproval at Thursday's annual shareholders' meeting, which many analysts say is likely, there would be uncertainty. Musk has threatened on X, his social media platform, to develop AI elsewhere if he doesn't get a 25 percent stake in Tesla (He owns about 13 percent now). Musk's xAI recently received $6 billion in funding to develop artificial intelligence.

Wedbush Analyst Dan Ives said he expects the package to be overwhelmingly reapproved, ending a lot of uncertainty with Musk. “This issue has been an overhang on Tesla’s stock, and this will be important to move this distraction in the rearview mirror,” Ives wrote in a note to investors.

Shares of Tesla Inc. have slumped more than 30 percent this year with the company warning of “notably lower” sales growth in 2024.

Also on the shareholder ballot is the related issue of moving the electric vehicle maker's legal home out of Delaware to Texas.

The move is designed to escape from the Delaware court's oversight and possibly a ruling from Chancellor Kathaleen St. Jude McCormick that invalidated Musk's pay package. In a January opinion on a shareholder lawsuit, the judge determined that Musk controlled the Tesla board and is not entitled to the landmark package once worth nearly $56 billion.

Multiple institutional investors have come out against that sizeable payout, some citing falling vehicle sales, price cuts and the tumbling Tesla stock price. But Tesla's top five institutional shareholders, Vanguard, BlackRock, State Street, Geode Capital, and Capital Research either said they don't announce their votes or wouldn't comment. They control about 17 percent of the votes.

Erik Gordon, a business and law professor at the University of Michigan, said individual shareholders are likely to vote for the package, and they own more than half of Tesla's shares.

One institutional investor who came out against the package is California's State Teachers Retirement System. The large pension fund said Tuesday that it would vote against Musk's pay "based on its sheer magnitude, and because the award would be extremely dilutive to shareholders. We also have concerns with the lack of focus on profitability for the company.”

In May, two big shareholder advisory firms, ISS and Glass Lewis, recommended voting against the package.

But Tesla and Musk have unleashed a furious lobbying effort to get the package approved, in posts on X, television appearances and in proxy filings with the U.S. Securities and Exchange Commission.

“Only 2 days left to protect & help grow the value of your investment in $TSLA by voting FOR ratification of the 2018 CEO Performance Award,” Tesla posted on X early Tuesday.

Tesla Chairwoman Robyn Denholm, in a letter to shareholders, wrote that the package was approved by 73 percent of the vote six years ago. “Because the Delaware Court second-guessed your decision, Elon has not been paid for any of his work for Tesla for the past six years that has helped to generate significant growth and stockholder value. That strikes us — and the many stockholders from whom we already have heard — as fundamentally unfair, and inconsistent with the will of the stockholders who voted for it,” she wrote.

Tesla has said the 2018 award incentivized Musk to create over $735 billion in value for shareholders in the six years since it was approved.

If Tesla finalizes the vote on moving the company's legal home to Texas before the vote on Musk’s pay package, and it manages to file the paperwork in Austin and get approval of the move, then the effect of the Delaware court ruling could be in doubt. Reapproval of the pay package would then be done as a Texas corporation and could fall under the purview of Texas courts.

Anticipating a quick move by Tesla, lawyers for the shareholder who filed the lawsuit seeking to block Musk’s pay deal, Richard Tornetta, filed motions in Delaware last month seeking an order stopping Tesla from trying to move the case. Tesla responded in letters to the judge that there is no cause for such concerns because they won’t seek a move. Besides, Tesla would still be a Delaware corporation at the time of this week's shareholder vote, they wrote.

In an order denying Tornetta’s motions, Chancellor McCormick wrote that she interprets Tesla’s letters to mean it has no intention of relocating the case to Texas. “The defendants’ statements give me great comfort,” she wrote.

Eric Talley, a Columbia University law professor, said the lawyers are unlikely to try to move the case because their livelihood is handling business cases in Delaware courts.

But it’s also possible that the unpredictable Musk could change lawyers.

McCormick, Talley said, is telling the lawyers “OK, I’m going to believe you, but I’m going to be really irritated if this is a big send up for these things that you said you’re not going to do.”

Talley, who also is a Tesla shareholder and said at present he plans to vote against Musk’s pay, expects Tesla to follow through with appealing McCormick’s ruling to the Delaware Supreme Court.

Shareholders of the electric vehicle and solar panel company are voting on the package, with the results to be tabulated at Tesla's June 13 annual meeting. Photo via cdn.britannica.com

Elon Musk sees more resistance against his multibillion dollar pay package

just say no

A second shareholder advisory firm has come out against reinstating a pay package for Tesla CEO Elon Musk that was voided earlier this year by a Delaware judge.

ISS late Thursday joined Glass Lewis in recommending against the package, recently valued by the company at $44.9 billion but in January had a value of about $56 billion.

Shareholders of the electric vehicle and solar panel company are voting on the package, with the results to be tabulated at Tesla's June 13 annual meeting.

ISS said in its recommendations on Tesla's proxy voting items that Musk's stock-based package was outsized when it was approved by shareholders in 2018, and it failed to accomplish board objectives voiced at that time.

The firm said that Tesla met the pay package’s performance objectives, and it recognized the company's substantial growth in size and profitability. But concerns about Musk spending too much time on other ventures that were raised in 2018 and since then have not been sufficiently addressed, ISS said.

“The grant, in many ways, failed to achieve the board’s other original objectives of focusing CEO Musk on the interests of Tesla shareholders, as opposed to other business endeavors, and aligning his financial interests more closely with those of Tesla stockholders,” ISS wrote.

Also, future concerns remain unaddressed, including a lack of clarity on Musk's future compensation and the potential for his pay to significantly dilute shareholder value, ISS wrote.

Musk plays big roles in his other ventures including SpaceX, Neuralink and the Boring Company. Last year he bought social media platform X and formed an artificial intelligence unit called xAI.

Last week the other prominent proxy advisory firm, Glass Lewis, also recommended against reinstating Musk's 2018 compensation package. The firm said the package would dilute shareholders' value by about 8.7%. The rationale for the package “does not in our view adequately consider dilution and its long-lasting effects on disinterested shareholders,” Glass Lewis wrote.

But in a proxy filing, Tesla said that Glass Lewis failed to consider that the 2018 award incentivized Musk to create over $735 billion in value for shareholders in the six years since it was approved.

“Tesla is one of the most successful enterprises of our time,” the filing said. “We have revolutionized the automotive market and become the first vertically integrated sustainable energy company."

Tesla is struggling with falling global sales, slowing electric vehicle demand, an aging model lineup and a stock price that has tumbled about 30% this year.

Tesla asked shareholders to restore Musk's pay package after it was rejected by a Delaware judge this year. At the time, it also asked to shift the company’s legal corporate home to Texas.

Glass Lewis recommended against moving the legal corporate home to Texas, but ISS said it favored the move.

California’s public employee retirement system, which holds a stake in Tesla, said it has not made a final decision on how it will vote on Musk’s pay. But CEO Marcie Frost told CNBC that as of Wednesday, the system would not vote in favor. CalPERS, which opposed the package in 2018, said it will discuss the matter with Tesla “in the coming days.”

In January, Delaware Chancellor Kathaleen St. Jude McCormick ruled that Musk is not entitled to the landmark stock compensation that was to be granted over 10 years.

Ruling on a lawsuit from a shareholder, she voided the pay package, saying that Musk essentially controlled the board, making the process of enacting the compensation unfair to stakeholders. “Musk had extensive ties with the persons tasked with negotiating on Tesla’s behalf,” she wrote in her ruling.

In a letter to shareholders released in a regulatory filing last month, Tesla Chairwoman Robyn Denholm said that Musk has delivered on the growth it was looking for at the automaker, with Tesla meeting all of the stock value and operational targets in the 2018 package. Shares at the time were up 571% since the pay package began.

“Because the Delaware Court second-guessed your decision, Elon has not been paid for any of his work for Tesla for the past six years that has helped to generate significant growth and stockholder value,” Denholm wrote. “That strikes us — and the many stockholders from whom we already have heard — as fundamentally unfair, and inconsistent with the will of the stockholders who voted for it.”

Tesla posted record deliveries of more than 1.8 million electric vehicles worldwide in 2023, but the value of its shares has eroded quickly this year as EV sales soften.

The company said it delivered 386,810 vehicles from January through March, nearly 9% fewer than it sold in the same period last year. Future growth is in doubt and it may be a challenge to get shareholders to back a fat pay package in an environment where competition has increased worldwide.

Starting last year, Tesla has cut prices as much as $20,000 on some models. The price cuts caused used electric vehicle values to drop and clipped Tesla’s profit margins.

In April, Tesla said that it was letting about 10% of its workers go, about 14,000 people.

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Houston earns No. 3 spot among cities with most Fortune 500 headquarters

biggest companies

Houston maintained its No. 3 status this year among U.S. metro areas with the most Fortune 500 headquarters. Fortune magazine tallied 26 Fortune 500 headquarters in the Houston area, behind only the New York City area (62) and the Chicago area (30).

Last year, 23 Houston-area companies landed on the Fortune 500 list. Fortune bases the list on revenue that a public or private company earns during its 2024 budget year.

On the Fortune 500 list for 2025, Spring-based ExxonMobil remained the highest-ranked company based in the Houston area as well as in Texas, sitting at No. 8 nationally. That’s down one spot from its No. 7 perch on the 2024 list. During its 2024 budget year, ExxonMobil reported revenue of $349.6 billion, up from $344.6 billion the previous year.

Here are the rankings and 2024 revenue for the 25 other Houston-area companies that made this year’s Fortune 500:

No. 16 Chevron, $202.8 billion
No. 28 Phillips 66, $145.5 billion
No. 56 Sysco, $78.8 billion
No. 75 Conoco Phillips, $56.9 million
No. 78 Enterprise Products Partners, $56.2 billion
No. 92 Plains GP Holdings, $50 billion
No. 143 Hewlett-Packard Enterprise, $30.1 billion
No. 153 NRG Energy, $28.1 billion
No. 155 Baker Hughes, $27.8 billion
No. 159 Occidental Petroleum, $26.9 billion
No. 183 EOG Resources, $23.7 billion
No. 184 Quanta Services, $23.7 billion
No. 194 Halliburton, $23 billion
No. 197 Waste Management, $22.1 billion
No. 214 Group 1 Automotive, $19.9 billion
No. 224 Corebridge Financial, $18.8 billion
No. 256 Targa Resources, $16.4 billion
No. 275 Cheniere Energy, $15.7 billion
No. 289 Kinder Morgan, $15.1 billion
No. 345 Westlake Corp., $12.1 billion
No. 422 APA, $9.7 billion
No. 443 NOV, $8.9 billion
No. 450 CenterPoint Energy, $8.6 billion
No. 474 Par Pacific Holdings, $8 billion
No. 480 KBR Inc., $7.7 billion

Nationally, the top five Fortune 500 companies are:

Walmart
Amazon
UnitedHealth Group
Apple
CVS Health

“The Fortune 500 is a literal roadmap to the rise and fall of markets, a reliable playbook of the world's most important regions, services, and products, and an indispensable roster of those companies' dynamic leaders,” Anastasia Nyrkovskaya, CEO of Fortune Media, said in a news release.

Among the states, Texas ranks second for the number of Fortune 500 headquarters (54), preceded by California (58) and followed by New York (53).

3 Houston energy companies rank among most innovative startups in Texas

report card

Three Houston companies claimed spots on LexisNexis's 10 Most Innovative Startups in Texas report, with two working in the geothermal energy space.

Sage Geosystems claimed the No. 3 spot on the list, and Fervo Energy followed closely behind at No. 5. Fintech unicorn HighRadius rounded out the list of Houston companies at No. 8.

LexisNexis Intellectual Property Solutions compiled the report. It was based on each company's Patent Asset Index, a proprietary metric from LexisNexis that identifies the strength and value of each company’s patent assets based on factors such as patent quality, geographic scope and size of the portfolio.

Houston tied with Austin, each with three companies represented on the list. Caris Life Sciences, a biotechnology company based in Dallas, claimed the top spot with a Patent Asset Index more than 5 times that of its next competitor, Apptronik, an Austin-based AI-powered humanoid robotics company.

“Texas has always been fertile ground for bold entrepreneurs, and these innovative startups carry that tradition forward with strong businesses based on outstanding patent assets,” Marco Richter, senior director of IP analytics and strategy for LexisNexis Intellectual Property Solutions, said in a release. “These companies have proven their innovation by creating the most valuable patent portfolios in a state that’s known for game-changing inventions and cutting-edge technologies.We are pleased to recognize Texas’ most innovative startups for turning their ideas into patented innovations and look forward to watching them scale, disrupt, and thrive on the foundation they’ve laid today.”

This year's list reflects a range in location and industry. Here's the full list of LexisNexis' 10 Most Innovative Startups in Texas, ranked by patent portfolios.

Caris (Dallas)
Apptronik (Austin)
Sage Geosystems (Houston)
HiddenLayer (Austin)
Fervo Energy (Houston)
Plus One Robotics (San Antonio)
Diligent Robotics (Austin)
HighRadius (Houston)
LTK (Dallas)
Eagle Eye Networks (Austin)

Sage Geosystems has partnered on major geothermal projects with the United States Department of Defense's Defense Innovation Unit, the U.S. Air Force and Meta Platforms. Sage's 3-megawatt commercial EarthStore geothermal energy storage facility in Christine, Texas, was expected to be completed by the end of last year.

Fervo Energy fully contracted its flagship 500 MW geothermal development, Cape Station, this spring. Cape Station is currently one of the world’s largest enhanced geothermal systems (EGS) developments, and the station will begin to deliver electricity to the grid in 2026. The company was recently named North American Company of the Year by research and consulting firm Cleantech Group and came in at No. 6 on Time magazine and Statista’s list of America’s Top GreenTech Companies of 2025. It's now considered a unicorn, meaning its valuation as a private company has surpassed $1 billion.

Meanwhile, HighRadius announced earlier this year that it plans to release a fully autonomous finance platform for the "office of the CFO" by 2027. The company reached unicorn status in 2020.

Tech entrepreneur turned climate investor is on a mission to monetize carbon removal

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The climate conversation is evolving — fast. It’s no longer just about emissions targets and net-zero commitments. It’s about capital, infrastructure, and execution at industrial scale.

That’s exactly where Yao Huang operates. A seasoned tech entrepreneur turned climate investor, Yao brings sharp clarity to one of the biggest challenges in climate innovation: how do we fund and scale technologies that remove carbon without relying on goodwill or government subsidies?

In this episode of the Energy Tech Startups Podcast, Yao sits down with hosts Jason Ethier and Nada Ahmed for a wide-ranging conversation that redefines how we think about decarbonization. From algae-based photobioreactors that capture CO₂ at the smokestack, to financing models that mirror real estate and infrastructure—not venture capital—Yao lays out a case for why the climate fight will be won or lost on spreadsheets, not slogans.

Her message is as bold as it is practical: this isn’t about saving the planet for the sake of it. It’s about building profitable, resilient systems that scale. And Houston, with its industrial base and project finance expertise, is exactly the place to do it.

The 40-Gigaton Challenge—and a Pandemic Pivot

Yao’s entry into climate wasn’t part of a long-term plan. It was sparked by a quiet moment during the pandemic—and a book.

Reading How to Avoid a Climate Disaster by Bill Gates, she came to two uncomfortable realizations:

The people in power don’t actually have this figured out, and
She would be alive to suffer the consequences.

That insight jolted her out of the traditional tech world and into climate action. She studied at Stanford, surrounded herself with mentors, and began diving into early-stage climate deals. But she quickly realized that most of the solutions she was seeing were still years away from commercialization.

So she narrowed her focus: no R&D moonshots, no science experiments—just deployable solutions that could scale now.

Carbon Optimum: Where Algae Meets Infrastructure

That’s how she found Carbon Optimum, a company using algae photobioreactors to remove CO₂ directly from industrial emissions. Their approach is both elegant and economic:

Install algae reactors next to major emitters like coal and cement plants.
Feed the algae with flue gas, allowing it to absorb CO₂ in a controlled system.
Harvest the algae and convert it into valuable commodities like bio-oils, fertilizer, and food ingredients.

It’s a nature-based solution, enhanced by engineering.
One acre of tanks can capture emissions and generate profit—without subsidies.

“This is one of the few solutions I’ve seen that can scale profitably and quickly,” Yao says. “And we’re not inventing anything new—we’re just doing it better.”

The Real Problem? It’s Capital, Not Carbon

As an investor, Yao is blunt: most climate startups are misaligned with the capital markets.

They’re following a tech startup playbook—built for SaaS, not steel. But building climate infrastructure requires a completely different approach: project finance, blended capital, debt structures, carbon credit integration, and regulatory incentives.

“Climate tech is more like real estate or healthcare than software,” Yao explains. “You don’t raise six rounds of venture. You build a stack—grants, equity, debt, tax credits—and you structure your project like infrastructure.”

It’s not just theory. It’s exactly how Carbon Optimum is expanding—through partnerships, offtake agreements, and real-world deployments. And it’s why she believes many climate startups fail: they don’t speak the language of finance.

Houston’s Role in the Climate Capital Stack

For Yao, Houston isn’t just a backdrop—it’s a strategic asset.

The city’s deep bench of project finance professionals, commodity traders, lawyers, and infrastructure veterans makes it uniquely positioned to lead the deployment phase of climate solutions.

“We’ve been calling it the wrong thing,” she says. “This isn’t just about climate—it’s an energy transition. And Houston knows how to build energy infrastructure at scale.”

Still, she notes, the ecosystem needs to evolve. Less education, more execution. Fewer workshops, more closers.

“Houston could be the epicenter of this movement—if we activate the right people and get the right projects over the line.”

From Carbon Capture to Circular Economies

The potential applications of Carbon Optimum’s algae platform go beyond carbon capture. Because the output—algae biomass—can be converted into:

Renewable oil
High-efficiency fertilizers (critical in today’s geopolitically fragile supply chains)
Food ingredients rich in protein and nutrients
Even biochar, a highly stable form of carbon sequestration

It’s scalable, modular, and location-agnostic. In island nations, Yao notes, these systems can offer energy independence by turning waste CO₂ into local energy and fertilizer—without needing to import fuels or food.

“It’s not just emissions reduction. It’s economic sovereignty through circular systems.”

Doing, Not Just Talking

One of Yao’s key takeaways for founders? Don’t waste time. Climate startups don’t have the luxury of trial-and-error cycles stretched over years.

“Founders need to get real about what it takes to scale: talent, capital, storytelling, partnerships. If you’re not ready to do that, maybe you should be a CSO, not a CEO.”

She also points out that founders don’t need to hire everyone—they need to tap the right networks. And in cities like Houston, those networks exist—if you know how to motivate them.

“It takes a different kind of leadership. You’re not just raising money—you’re moving people.”

Why This Episode Matters

This conversation is for anyone who’s serious about scaling real solutions to the climate crisis. Whether you’re a founder navigating capital markets, an investor seeking return and impact, or a policymaker designing the frameworks — Yao Huang offers a grounded, urgent, and actionable perspective.

It’s not about hope. It’s about execution.

Listen to the full episode of the Energy Tech Startups Podcast with Yao Huang:

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Hosted by Jason Ethier and Nada Ahmed, the Digital Wildcatters’ podcast, Energy Tech Startups, delves into Houston's pivotal role in the energy transition, spotlighting entrepreneurs and industry leaders shaping a low-carbon future.

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