Sources: CNN, GETTY, BLOOMBERG, TESLA, CCTV, WLUK, WSYX, KCNC, CNBC, X, ELONMUSK, X/ElonMusk
(CNN) — Elon Musk, already the world’s richest person, is poised to potentially become the first trillionaire following the unveiling of a new compensation package by the Tesla board. The package aims to incentivize Musk to remain focused on the electric vehicle (EV) manufacturer.
This new package outlines the grant of additional Tesla stock shares contingent on the company’s growth exceeding its current valuation, reaching a market capitalization unprecedented in corporate history. Musk’s previous compensation agreement, which significantly increased his wealth, also contained ambitious growth targets, initially deemed challenging but ultimately achievable by Tesla.
The proposed package could grant Musk 423.7 million additional Tesla shares. At today’s stock prices, these shares would be worth approximately $143.5 billion.
However, Musk’s acquisition of these shares hinges on substantial increases in Tesla’s stock value over the coming years. The company’s market capitalization must reach $8.5 trillion for Musk to receive the full allocation, a figure significantly exceeding the current $1.1 trillion valuation.
Reaching the increased valuation targets specified in Friday’s proxy statement would make those 423.7 million shares worth nearly $1 trillion for Musk.
If Tesla achieves an $8.5 trillion market capitalization, it would become the most valuable company globally, surpassing Nvidia (NVDA) by roughly double its current valuation. Currently, Tesla holds the position of the most valuable automaker, despite legacy manufacturers like Toyota selling more vehicles and generating greater profits.
Proposal for Tesla to invest in xAI
The proxy statement also includes a shareholder proposal suggesting Tesla acquire a stake in xAI, Musk’s privately-held artificial intelligence company, which could further consolidate his expanding business ventures.
XAI recently acquired X, formerly known as Twitter, which Musk purchased in 2022 for $44 billion. The company did not express support or opposition to the shareholder proposal, which lacked details on the stake size and price Tesla should offer for xAI.
However, any investment in xAI could further benefit Tesla, given Musk’s primary ownership of the AI company.
Musk currently possesses 410 million Tesla shares, valued at $139 billion based on Thursday’s closing price. This stake, combined with his holdings in xAI, SpaceX, and other ventures, contributes to his status as the world’s wealthiest individual, with a net worth of $378 billion, according to Bloomberg’s Billionaires Index.
He also holds options to purchase an additional 304 million Tesla shares; however, a Delaware judge has twice ruled against the 2018 compensation package that granted him those options. Despite repeated shareholder approval, the company has attempted to re-grant those options, potentially increasing his ownership to 18% of Tesla’s shares.
Tesla’s shares experienced nearly a doubling in value between Election Day and mid-December 2024, fueled by investor optimism about the potential benefits of Musk’s relationship with President Donald Trump for Tesla. However, protests, sales declines, and profit drops related to those ties (before a falling out with Trump) erased those gains. While the stock has partially recovered, it remains 26% below its December peak.
Despite these challenges, Musk and his Wall Street supporters maintain the company’s strong position for future growth and success. Musk continues to assert that his plans for autonomous vehicles, including a robotaxi service, will generate significant profits and value for shareholders. The robotaxis are envisioned to provide rides and allow Tesla owners to rent out their vehicles for driverless rides when not in use.
Musk has also announced plans for a line of humanoid robots, potentially exceeding Tesla’s car business in sales revenue.
Keeping Musk focused on Tesla
“It’s a big pay package, but Tesla needs to retain its most valuable asset: Musk as CEO,” Wedbush Securities analyst Dan Ives told CNN. Ives is known as one of the biggest Tesla bulls on Wall Street.
“In this AI era, Musk will drive the next phase of growth,” Ives added. “The board faced a $1 trillion decision and made the right choice.”
The board’s proxy statement emphasizes the importance of maintaining Musk’s focus on Tesla. Besides his various business interests, he remains active in politics, despite his dispute with President Trump, having announced plans to form a third political party.
Tesla, in its proxy statement, stressed the necessity of incentivizing Musk to dedicate his attention to growing the company. It stated that during pay package negotiations, “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 “believes that Mr. Musk singularly possesses the leadership characteristics necessary to transform Tesla and realize its long-term mission at an unparalleled level.”
The company is also developing succession plans, stating that one requirement for Musk to receive the final 70 million shares of stock is the development of “a framework for Chief Executive Officer succession.”
“The board regularly discusses management succession planning and leadership development,” according to the proxy statement, encompassing both “sudden, unanticipated events” and “longer-term planned succession.” It “believes that management has developed a robust pipeline of seasoned leadership talent within Tesla” while also considering potential external candidates.
Musk does not receive a cash salary from Tesla. His compensation is derived entirely from Tesla shares and options granted in the past. Due to the ongoing legal battle over the 304 million options, Musk has not received compensation since 2017, when the last disbursement from a 2012 pay package occurred.
Alternatively, some tech billionaires, such as Amazon founder Jeff Bezos and Facebook co-founder Mark Zuckerberg, do not receive stock options or grants, instead benefitting from the increased valuations of their existing company stakes. Neither Bezos nor Zuckerberg has received stock grants or options since their companies’ IPOs in 1997 and 2012, respectively.
Musk’s demand for more Tesla shares
Musk has stated publicly that he needs to control at least 25% of Tesla’s 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.”
This need for control is a key driver behind the proposed compensation package, according to Ross Gerber, CEO of Gerber Kawasaki, an investment firm and early Tesla investor.
“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 also expressed concerns regarding the size of the proposed pay package.
“If he hits the financial and market share targets, then the pay package could be warranted,” Gerber said. “But it raises the question of how much greed is acceptable in modern society.”
If Musk and his supporters are correct, his current holdings of 410 million Tesla shares (excluding the disputed 304 million options) would be worth nearly $1 trillion more than today’s valuation should Tesla’s market cap reach $8.5 trillion.
However, Musk will not receive any shares until Tesla’s market cap reaches $2 trillion, almost twice its current value.
Additionally, he must achieve at least one of several ambitious operational and financial goals, such as having one million robots in operation or achieving an adjusted operating income of $50 billion, significantly exceeding the record $19.2 billion earned in 2022, let alone the $16.6 billion made last year.
Despite promises, Tesla faces problems
Achieving these targets requires Tesla to deliver on Musk’s promises regarding self-driving vehicles and robotaxis, a challenge considering the company’s history of falling short of such claims.
Tesla’s critics argue that the stock is overvalued due to Wall Street’s acceptance of Musk’s vision for the future, particularly in AI, self-driving vehicles, and robots, despite past failures to deliver on such promises.
“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, a vocal critic 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.”
Gerber and others suggest that the pay package may incentivize Musk and Tesla to prioritize goals that will increase its stock price over addressing the challenges facing its EV business.
Tesla faces increasing competition from Chinese EV manufacturers, with BYD, a Chinese automaker, poised to surpass Tesla in global EV sales, despite not being available in the United States.
Recent changes in US law have eliminated billions of dollars in penalties previously imposed on traditional automakers for exceeding emissions regulations on their gas-powered vehicles. These automakers historically avoided penalties by purchasing regulatory credits from EV makers like Tesla, resulting in billions of dollars in revenue for Tesla that will now disappear.
Johnson believes that Tesla’s stock price is unlikely to reach the ambitious targets outlined in the Musk pay package due to these challenges.
“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) rose approximately 5% in early trading following the news.
This story has been updated with additional context and reporting.
The-CNN-Wire
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