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Tesla proposes Elon Musk pay package that could make him the world’s first trillionaire
Elon Musk, already the world’s richest person, could become the first trillionaire after the Tesla board unveiled a massive new pay package for its CEO to keep his focus on the troubled EV maker.
The package would grant him additional shares of Tesla stock if the company is able to grow far beyond its current value, with a market capitalization far greater than any company has ever approached. Musk’s previous pay package, which added significantly to his massive wealth, also laid out ambitious growth plans that once appeared to be a reach – but which Tesla proved able to reach easily.
The new pay package could grant Musk 423.7 million additional shares of Tesla stock. Those shares would be be worth $143.5 billion at today’s stock value.
But Musk would get those shares only if the value of Tesla stock increases significantly in coming years. The company stock would need to reach an overall value of $8.5 trillion for Musk to get all the shares, significantly above the current market capitalization of $1.1 trillion
Those 423.7 million new shares that Musk would get under this package would be worth close to $1 trillion should the company hit the increased valuation targets spelled out in Friday’s proxy statement.
If Tesla shares are able to reach the $8.5 billion market capitalization value, it could become the most valuable company ever. It would be worth roughly double the current market value of Nvidia (NVDA), the current most-valuable company on the market. Tesla is already the most valuable automaker by a large margin, even though legacy automakers, like second-most valuable automaker Toyota, sell far more vehicles and now make more profits.
Proposal for Tesla in invest in xAI
The company’s proxy statement that laid out Musk’s payment plan also included a shareholder proposal that Tesla take a stake in privately-held xAI, the artificial intelligence company that Musk also owns. That could help Elon Musk further consolidate his growing business empire.XAI recently purchased X, the social media platform formerly known as Twitter, which Musk bought for $44 billion of his own money in 2022. The company did not take a position for or against that shareholder proposal, which does not give any details of how large a stake Tesla should take in xAI, and what price.
But any such investment could further enrich Tesla since Musk is the primary owner of xAI.
Musk currently owns 410 million shares of Tesla shares, worth $139 billion at Thursday’s closing price. That stake, along with his stakes in xAI, rocket company SpaceX, and several other companies he has started and runs, have made him the richest person on the planet, worth $378 billion according to Bloomberg’s billionaire tracker.
He currently has options to buy an additional 304 million shares of Tesla, but a judge in Delaware has twice struck down that 2018 pay package that granted him those options as illegal. Those rulings came despite overwhelming approval by Tesla shareholders – twice. The company again has tried to grant those options to Musk this year, and adding in those options, he now owns 18% of the company’s shares.
Tesla shares nearly doubled in value to a record-high price for its shares between election day and mid-December 2024, as investors bet that his close ties to President Donald Trump would be a boon for Tesla. But as Tesla faced protests and dropping sales and falling profits in backlash to those ties (before he had a falling out with Trump), all those things resulted in Telsa’s stock losing those gains. The shares have recovered some of those losses, but they are still down 26% from the December peak.
Still, Musk and his fans on Wall Street have insisted the company is well positioned to grow even larger and more successful in the future. He has continued to predict that his plans for self-driving cars – including a robotaxi service – will create massive profits and value for shareholders. The robotaxis would provide rides to passengers andalso allow Tesla owners to rent out their cars for driverless rides when not in use.
Musk has also promised a line of humanoid robots that could bring in even more sales than Tesla’s car business.
Keeping Musk focused on Tesla
“It’s a big pay package but Tesla needs to keep its biggest asset in Musk as CEO,” Wedbush Securities analyst Dan Ives told CNN Friday. Ives is one of the bigger Tesla bulls on Wall Street.“In this AI era Musk now will drive its next leg of growth,” Ives added. “The Board had a $1 trillion dollar decision and made the right one.”
The board’s proxy statement spoke of the importance of keeping Musk focused on Tesla going forward. In addition to his many business interests, he remains active in politics, despite his falling out with President Trump. He has announced plans to form a third political party.
Tesla, in its proxy statement, warned that it needed to incentivize Musk to focus his attention on growing the company. It said that during the negotiations on the pay package, “Musk also raised the possibility that he may pursue other interests that may afford him greater influence if he did not receive such assurances.”
The board said it “believes that Mr. Musk singularly possesses the leadership characteristics necessary to transform Tesla and realize its long-term mission at an unparalleled level.”
But the company said it is also making plans for life after Elon Musk, saying it is already working on succession plans. And it said that one of the terms of the employment package that Musk must meet to receive the final 70 million shares of stock is that he needs to have “developed a framework for Chief Executive Officer succession.”
“The board regularly discusses management succession planning and leadership development,” said the proxy statement. It said those succession plans are “for both sudden, unanticipated events, in addition to longer-term planned succession for its executives.” It said it “believes that management has developed a robust pipeline of seasoned leadership talent within Tesla,” and that is also looking at possible external talent.
Musk does not receive a cash salary from Tesla. All of his compensation comes from Tesla shares and options he has been granted in the past. Since there is still an ongoing court fight over the 304 million options, Musk has not received any compensation for nearly a decade, since a 2012 pay package made its last disbursement of options to him in 2017.
But not all tech billionaires receive additional stock options or grants as compensation, instead benefiting from the increased valuations of their existing stakes in their companies. That includes Amazon founder Jeff Bezos and Mark Zuckerberg, who co-founded Facebook. Both took large stakes in their companies as founders, but neither has received stock grants or options since those companies had initial public offerings in 1997 and 2012, respectively.
Musk’s demand for more Tesla shares
Musk is on record saying it’s important that he needs to control at least 25% of Tesla shares.“I am uncomfortable growing Tesla to be a leader in AI & robotics without having ~25% voting control. Enough to be influential, but not so much that I can’t be overturned,” Musk wrote in a post on X. “Unless that is the case, I would prefer to build products outside of Tesla.”
That need for control is what’s behind this pay package, said Ross Gerber, CEO of Gerber Kawasaki, an investment firm and one of the early investors in Tesla.
“This is all about Musk being scared about being kicked out of Tesla because he only owns 13%,” said Gerber, who has sold almost his entire stake in Tesla.
Gerber said he also has problems with the size of the proposed pay package.
“If he hits them (the financial and market share targets) then in some ways it (the pay package) is warranted,” Gerber said. “But I think it goes back to what level of greed can you reach in a modern society that’s enough.”
If Musk and his fans are right, Musk would become far wealthier even without any additional shares of Tesla stock. His current holdings of 410 million Tesla shares, even without the disputed 304 million options, would be worth nearly $1 trillion more than today’s valuation, should Tesla’s market cap rise to $8.5 billion.
But Musk won’t get any of the shares of stock until the company raises its market cap to $2 trillion, or nearly twice as valuable as it is today.
And he would have to meet at least one of a number of ambitious operational and financial goals, such as having a million robots in operation or getting its adjusted operating income up to $50 billion, which would be well above the record $19.2 billion it earned on that basis in 2022, let alone the $16.6 billion it made last year.
Despite promises, Tesla faces problems
But to achieve those targets, it would have to start doing the things Musk is promising in terms of self-driving vehicles and its robotaxi. And that would mean meeting grand claims from a man and company that have often fallen short of their promises.Tesla critics say that the stock has become grossly overvalued because of Wall Street’s willingness to buy into Musk’s vision of the future in terms of AI, self-driving vehicles and robots, despite its failures to deliver on past promises along those lines.
“Elon Musk has been saying since 2014 ‘we will have a fully autonomous car next year.’ It hasn’t happened, but that promise has been valued in the billions by Wall Street,” said analyst Gordon Johnson, one of the harsher critics of Tesla. “Elon Musk is a master manipulator. He’s been able to keep the stock elevated. The reason the board is paying him is he’s willing to say things that other CEOs aren’t willing to say or get away with.”
And some critics, such as Gerber, say another problem with the package is that it will lead Musk and Tesla to pursue and promise the kind of goals that will lift its stock price, more than it will get him to focus on fixing the problems facing its EV business.
Tesla is facing growing competition from Chinese EV makers. BYD, one of those Chinese automakers, is poised to pass Tesla for the most EV sales worldwide, even though it is not available for sale in the United States.
US law also recently removed the billions of dollars in penalties that traditional automakers have had to pay if their gas-powered vehicles exceed emissions rules. The way that they avoided those payments in the past was by buying regulatory credits from an EV maker like Tesla. But the payments that brought billions in revenue to Tesla will now vanish.
Johnson said that Tesla’s stock price is unlikely to hit the ambitious targets laid out in this Musk pay package due to the problems it faces.
“Things are going to get worse for them, not better,” said Johnson. “Is Tesla going to go to $8 trillion? Abso-f**king-lutely not.”
Shares of Tesla (TSLA) were up about 5% in early trading on the news.
