Tesla’s Board Approved a Trillion-Dollar Pay Package for Musk

Will Elon Musk become the first trillionaire in history? Tesla’s board of directors has crafted a new compensation package potentially worth up to $900 billion, a move that could cement his status as the world’s wealthiest individual.

Over the past few years, Tesla’s stock has soared, pushing its market capitalization past $1 trillion and establishing it as the most valuable automaker globally. This surge in value has allowed Musk to unlock performance-based compensation, propelling his personal wealth beyond $400 billion and securing his position as the world’s richest person.

Now, a new opportunity awaits: the chance to become the world’s first trillionaire. To reach this summit, Musk needs to remain at Tesla for another decade and guide the company through even more significant performance and market cap challenges than those set seven years ago.

The Multi-Tasking CEO

Last Friday, Tesla’s board filed regulatory documents outlining a new compensation plan for Musk, which will be put to a shareholder vote on November 6th. Given past shareholder voting patterns, the plan’s approval is widely anticipated. Tesla’s retail investor base is significant, holding approximately 42% of the company’s shares – one of the highest percentages within the trillion-dollar market cap club. By comparison, retail investors hold less than 20% of the shares in Google and Meta. These retail investors are often staunch supporters of Musk, having previously approved his substantial compensation packages believing in his ambitious vision and the potential for substantial performance achievements.

Under the proposed compensation structure, if Musk achieves all performance targets, he could receive Tesla options valued at up to $900 billion, effectively doubling his ownership stake in the company to approximately one-quarter. This proportion aligns with Musk’s previously expressed desire for a secure voting right.

Musk’s wealth extends beyond Tesla, encompassing significant stakes in SpaceX, xAI, Neuralink, and The Boring Company. SpaceX and xAI have seen dramatic valuation increases alongside the growing interest in aerospace and artificial intelligence, with current valuations reaching figures around $400 billion and $200 billion respectively. Musk retains 42% and 54% ownership in these two companies, respectively. Notably, Musk’s SpaceX holdings is estimated to be more valuable than his Tesla stakes.

Juggling multiple companies across various industries – from electric vehicles and space exploration to artificial intelligence, social media, and even underground transportation – all while seemingly immersed in political debates, underscores the remarkable demands on Musk’s time and energy.

Musk has a history of facilitating cross-investments and personnel movement between his companies, creating a complex network that ensures resource optimization, control, and access to capital.

During his acquisition of Twitter, he reportedly borrowed $1 billion from SpaceX and redeployed Tesla engineers for layoff assessments. Further, SpaceX invested $2 billion in xAI, and Tesla procured xAI systems. Next month, Tesla shareholders will have the opportunity to vote on the plan to invest in xAI.

While such inter-company transactions may be acceptable for privately held companies like SpaceX and xAI with board approval, where Musk holds significant ownership, they can raise concerns about conflicts of interest and shareholder value erosion at publicly-traded Tesla. Such practices have triggered shareholder lawsuits in the past.

The $900 Billion Incentive

To retain the “multi-tasking CEO” and prioritize his focus on Tesla’s operations, the board crafted a generous performance-based compensation plan. Tesla may have a specific intention regardless of whether musk completes the goal.

To unlock the full $900 billion payout, Musk must lead Tesla to a market capitalization of $8.5 trillion within the next decade. This figure is more than double the current market capitalization of Nvidia (which is over $4 trillion). Tesla’s market cap is projected to grow, along with Nvidia.

Currently, Tesla’s market capitalization stands at around $1.1 trillion, meaning Musk needs to increase the stock price eightfold over the next decade. For each performance milestone achieved as it climbs from $1 trillion to $8.5 trillion, Musk can earn 3.53 million stock options.

Beyond market capitalization targets, Musk also needs to achieve specific operational goals: increasing operating profit from $17 billion last year to $400 billion, delivering 20 million Tesla vehicles, reaching 10 million active users of Full Self-Driving (FSD) software, delivering 1 million Tesla robots, and operating 1 million autonomous Robotaxis.

Tesla Board Chair Robyn Denholm and Director Kathleen Wilson-Thompson stated that retaining Musk is “critical for Tesla to achieve these goals and become the most valuable company in history.”

Crucially, to vest, Musk must remain as CEO or in another approved executive role at Tesla. Any unattained targets after 10 years will result in the cancellation of any reward not claimed yet. Should Musk stop leading Tesla, any shares not yet vested will be forfeited, except under certain circumstances. The Tesla board has designed a monumental challenge for Musk, securing his commitment for a decade.

An Impossibly Possible Task?

To secure the $900 billion compensation, Musk may face an even more difficult challenge than with the 2018 plan, which seemed impossible at the time but was eventually achieved.

On January 23, 2018, the Tesla board approved a long-term performance award package for Musk, regarded as one of the biggest CEO compensation packages in American corporate history. The potential total amount was about $56 billion (based on stock options), created to incentivize him to achieve long-term growth targets.

To earn these options, Musk was to grow the company’s market cap from around $59 billion to $650 billion (in $50 billion segments). Each market cap target needed to last at least six months (based on 30- and 180-day trading averages). He must hold the shares at a price of $350 after exercising the options.

Musk achieved this. When Tesla’s value exceeded $1 trillion, he opened all 12 stages, awarded about 120 billion stock options, and completed impressive milestones. He had to sell over $10 billion in Tesla shares from 2021 to 2022 to pay taxes, which lowered his ownership from around 20% to 13%.

However, this highly aggressive compensation plan was the subject of shareholder lawsuits and, in January 2024, was rejected by a Delaware judge; the same judge rejected it last year, after which, the Tesla board had to offer a substitute compensation plan last month to makeup for Musk’s potential losses.

Musk, furious by the fact that he wasn’t receiving payment for his accomplishments, relocated Tesla’s registration from Delaware to Texas, where business courts favor protecting company benefits. Therefore, the $900 billion compensation shouldn’t be cause for more shareholder lawsuits.

Tesla’s Future is Not About Cars

Increasing his chances of completing his task and reaching those targets may be harder than with the 2018 compensation package, since Tesla is going through a strategic transition in which the EV business is showing signs of significant slowdowns, and new businesses are not showing any actual revenue.

Tesla suffered a decline across three leading EV markets: China, the U.S., and Europe. Due to political unrest, Musk has become the subject of boycotts, especially in the U.S. and Europe. Tesla also faced challenges from the continuous rise of domestic EV companies in China. Tesla’s dated design, basic features, and diminished range are no longer advantageous in the high-competition market.

To grow Tesla’s performance and stock price, and reach his achievement, Musk can no longer count on the EV business, which is a declining market. Its EV sales declined 1% last year, and 7% in the first half of this year. He has repeatedly downplayed or ignored questions regarding raising Tesla’s EV business on calls.

In fact, Musk does not seem interested in the EV business. Besides the Cybertruck, a sales failure, Tesla has not released any new automobiles over the past five years, in light of the recent expansion of competitors. Although the Model Y is still the best EV, it is insufficient to induce increased sales.

Experts and investors understand the future of Tesla is not selling EVs. Analysts no longer ask about raising Tesla’s EV sales on business calls, and they now depend on robot and autonomous driving businesses for growth moving forward, even when results remain low.

According to Musk, autonomous driving will account for 80% of Tesla’s value. Walter Isaacson, Musk’s biographer, claims Musk has informed him that autonomous driving may turn Tesla to a company worth tens of trillions. Musk likely has high hopes of completing the board’s mission.

Tesla’s Generation Four Development Plan

Musk announced the latest Tesla “Master Plan IV” before the Tesla board awarded him the $900 billion compensation package. The plan includes no new EVs being developed and is instead an ambitious vision for the future.

Musk imagines a future where Tesla-made humanoid robots will liberate society from monotonous tasks and produce a “sustainable-prosperity” utopia, which will then run on Tesla’s Robotazi and power from Tesla’s energy storage production.

Tesla unveiled its “development plan” thrice throughout its 23-year history, which identified the strategic direction for future business. The first plan, issued in 2006, outlines how Tesla would tackle the EV market, starting with expensive EVs. This is almost a blueprint for EV companies, considering most of Tesla’s competitors still follow this route.

The 2016 “development plan” was projected for more EVs, which also contained several SUVs and pickup trucks. Model Y, which has been a key driver of the growth in the market cap of Tesla, is the world’s best-selling EV. Though, as early as 2016, Musk predicted that Tesla will transport customers and charge EVs automatically, raising more revenue for their owners. The third “development plan”, published in 2023, is a 41-page document regarding the future of sustainable energy and how it can power independent fleets.

The fourth development plan centers on AI, which involves autonomous driving and robots. This plan features a video showing Teslas autonomous driving and Tesla robots doing many tasks in homes and factories.

While Tesla unveiled the Cybercab, an autonomous taxi without a steering wheel, last year, it will not enter production until the following year. Besides, Tesla is known for delaying and postponing production of new models. Further, Tesla’s autonomous vehicle prospects do not hinge on CyberCab; rather, they hinge on Model Y which runs on FSD.

Having carried out a two-month test operation in Austin, Texas, Tesla has introduced the Robotaxi service in the U.S. However, it isn’t exactly a full autonomous driving similar to Google Waymon like it is. Instead, it’s a driver-seated Uber. Musk anticipates that Robotaxi will serve millions of people in the U.S. this year. This aggressive development plan is different to the steady approach to that by Google’s.

Robots are another pillar that Tesla hopes to achieve. Tesla stated in its plan that “analysts expect sales in the humanoid robot business to surge to around $4.7 trillion by 2050. According to these projections, Tesla is developing Optimus, a humanoid robot, whose long-term vision involves shifting commercial and home-based jobs and output.”

Recently, Tesla unveiled a robot restaurant in LA, featuring several Optimus robots as servers whose goal seeks to feature the expertise of their robotics team and their vision for the future. According to a recent Twitter video of Salesforce CEO Marc Benioff touring Tesla factories, Optimus is frequently delayed while interacting with people; it is expected to undergo further testing before getting used in the workforce.

In the future, launching 1 million Robotaxis, creating 1 million Optimus, and using both of them will require overcoming critical challenges.

Although, Musk has created a negative image as of late, the compensation package does still exclude limitations or restrictions on Musk’s political involvement.

Even if Musk fails at leading Tesla to meeting strategic goals he will dedicate his attention, if not much of it so to Tesla’s future, which includes autonomous driving and robotics.

Tesla’s rationale for the compensation package is to secure Musk on Tesla’s leadership.