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

According to Smart Finance APP, Aniket Shah, Global Head of Sustainability and Transition Strategy at investment bank Jefferies, stated that investors avoiding the commercial space giant SpaceX (SPCX.US) due to Elon Musk’s extraordinary control may be allowing concerns over corporate governance to overshadow potential long-term returns.

For investors, this debate highlights a broader issue in the field of ESG (Environmental, Social, and Governance) investing: should companies led by strong founders be automatically excluded from investment scope solely due to governance standards, or should financial performance be given greater weight? This question has become even more significant as SpaceX’s share price has dropped by about 20% since its IPO in June.

SpaceX’s corporate governance terms are raising alarms across Wall Street and institutional investor circles. The company adopts a dual-class share structure, giving Musk the right to appoint a majority of the board members, and the CEO cannot be removed without his consent. More notably, the threshold for shareholders to file derivative lawsuits is set at 3%—with a current market cap of $14.3 billion, an investor would need to hold at least $4.29 billion worth of shares to take action against the board or executives. This extremely management-friendly control structure makes Musk nearly unaccountable.

Institutional investors from cities like New York to Copenhagen have expressed strong concerns over SpaceX’s governance structure. Critics point out that Musk holds over 80% of the company’s voting power and combines the roles of CEO, CTO, and Chairman—an unprecedented level of control that some pension funds have called “catastrophic,” placing the company on their investment blacklist. Institutional investors argue that such an arrangement is reason enough to exclude the stock from portfolios, as it weakens board oversight and shareholder protections. New York City Comptroller Brad Lander has also stated that Musk’s control over SpaceX represents a new level of disregard for ordinary shareholder rights.

SpaceX’s governance arrangements are further shielded by its choice of registration—Texas, which benefits from newly enacted, management-friendly laws that make overturning board decisions much more difficult. Additionally, SpaceX’s corporate documents contain unique “legal forum selection” clauses, channeling potential disputes into specific jurisdictions favorable to the company.

Shah believes that many investors are too rigid in applying governance rules. He said, “The idea that there is an ‘acceptable form of good governance’ is something I strongly question. Those who try to fit governance standards into a fixed box are being overly simplistic—in reality, they’re not truly paying attention to the data.”

As for the recent decline in SpaceX’s share price, Shah denies that this validates the market’s concerns over governance. “I don’t think SpaceX’s stock performance in recent weeks is related to governance issues,” he said. “Investors may be reassessing their outlook on artificial intelligence (AI) overall, but attributing the decline to governance problems is, in my view, a very far-fetched connection.”

Shah further points out that rigid governance standards have caused many investors to miss out on historic wealth opportunities. Using Meta Platforms (META.US) and Tesla (TSLA.US) as examples, he notes both companies faced controversy during their IPOs due to dual-class shares and high founder control, yet their share prices have increased over 1,300% and approximately 27,000% since listing, respectively. He emphasizes that investors who rely solely on corporate governance checklists may miss out on enterprises with significant long-term return potential, especially those led by founders with concentrated decision-making power.

Short Bets Surge! First Earnings Report and $100 Billion Share Unlocking a “Double Challenge” This Week

It is worth noting that SpaceX is set to release its first quarterly earnings report since its IPO after the close of U.S. markets on Tuesday. The market will focus on the number of Starlink users, satellite internet revenue, rocket launch frequency, government contracts, and Starship project spending. Given the post-IPO volatility, this earnings report will help investors assess whether SpaceX’s business model, profitability, and cash flow can support its high valuation.

In addition to revenue and profit, management’s commentary on Starlink growth, Starship testing progress, space data centers, and AI-related businesses may also affect market sentiment. If the company can demonstrate stable cash flow and a clear commercialization path, the stock may find support. However, if capital and R&D expenditures continue to surge, the market may focus more on financing needs and potential share supply pressure.

Ahead of SpaceX’s earnings report, Wall Street short sellers are flocking to this high-profile Musk-led listing at an unprecedented pace. According to the latest S3 Partners data, as of July 29, SpaceX’s short interest had soared to 219.3 million shares, about 34% of freely traded shares, with a nominal value as high as $24.6 billion. This amount surpasses Tesla’s short interest, making SpaceX one of the most heavily shorted large-cap companies in the U.S. market.

SpaceX’s short interest has skyrocketed nearly tenfold from 23.3 million shares at the IPO to over 219 million in just over a month, driven by a three-prong contest over earnings data, share unlocking, and valuation bubbles. S3’s head of research Sam Pierson bluntly stated: “The biggest wager right now is on share unlockings—there’s a market perception that no news in the earnings report will offset the impact of a large volume of unlocked shares flooding the market.”

The core logic behind such aggressive short positioning in SpaceX is simple and brutal—they are betting on a coming supply shock next week. Two days after SpaceX announces its first earnings as a public company (i.e., August 6), according to phased lock-up arrangements, as many as 911.5 million shares will become eligible for sale and may pour into the market.

Currently, SpaceX has only about 640 million freely traded shares, accounting for about 5% of its total capital. The first round of unlockings will more than double this proportion to around 12%. But this is just the beginning—IPO documents reveal that by the end of the year, freely tradable shares could increase from 639 million currently to 5.33 billion, an increase of more than sevenfold.

What’s more concerning is that the 911.5 million unlockings on August 6 are just the first batch. Further batches, unlocking an additional 7% of shares, will be released on August 20, September 9, and other subsequent dates. There are also up to 455.8 million shares with early unlocking conditions attached, but the stock price threshold set earlier (trading above $175.50 for five out of 10 consecutive trading days) has not been met due to the price plunge. Morgan Stanley recently warned that SpaceX is approaching its “most dangerous moment”—with up to $100 billion worth of shares potentially hitting the market in the coming weeks.

Pierson points out three key drivers for SpaceX to watch in the coming year. First is the unlocking process, which poses the most urgent short-term risk. After the 911.5 million shares are unlocked, subsequent rounds released in batches will continue to apply supply pressure on the stock.

Second is the S&P 500 inclusion. According to relevant rules, a new listing needs to meet “seasoning rules” requirements (usually 6–12 months post-IPO with consecutive profitability), so SpaceX wouldn’t be eligible for S&P 500 inclusion until at least mid-2027. The market, however, has already begun pricing this in.

Third is the potential for a Tesla merger. Pierson notes that if SpaceX and Tesla achieve some form of business merger, it “will accelerate the inclusion process.” While this idea is still speculative, it is not entirely unimaginable given Musk’s simultaneous control of both companies.