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 capitalisation 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 worth $US143.5 billion ($218.6 billion) at today’s stock value.
Elon Musk could become the world’s first trillionaire if shareholders adopt a new proposal that would give him unprecedented sums of money if the company reaches certain ambitious milestones. (Andrew Harnik/Getty Images via CNN Newsource)
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 $US8.5 trillion ($12.95 trillion) for Musk to get all the shares, significantly above the current market capitalisation of $US1.1 trillion ($1.68 trillion).
Those 423.7 million new shares that Musk would get under this package would be worth close to $US1 trillion ($1.52 trillion) should the company hit the increased valuation targets spelled out in Friday’s proxy statement.
If Tesla shares are able to reach the $US8.5 billion market capitalisation 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 $US44 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.
If Tesla shares are able to reach the $US8.5 billion market capitalisation value, it could become the most valuable company ever. (AP)
Musk currently owns 410 million shares of Tesla shares, worth $US139 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 $US378 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 per cent 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 US 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 per cent 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 and also allow Tesla owners to rent out their cars for driverless rides when not in use.
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 US President Donald Trump would be a boon for Tesla. (AP)
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 on 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 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 Trump. He has announced plans to form a third political party.
Tesla, in its proxy statement, warned that it needed to incentivise 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 realise its long-term mission at an unparalleled level”.
Musk currently owns 410 million shares of Tesla shares, worth $US139 billion at Thursday’s closing price. (AP)
But the company said it is also making plans for life after 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.
Tesla faced protests and dropping sales and falling profits in backlash to Musk’s ties to Donald Trump. (Getty)
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 $US1 trillion more than today’s valuation, should Tesla’s market cap rise to $US8.5 billion.
Despite promises, Tesla faces problems
But to achieve that target, 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.”
The richest man’s relationship with the president eventually soured before he abandoned the administration. (AP)
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.
Tesla also faces competition from other companies that are ahead of it in providing robotaxi services, including Waymo, the autonomous vehicle unit of Google parent Alphabet, which has its own service and has partnered with Uber in some cities.
And a change in US law is about to remove a $7500 tax credit for buyers of most electric vehicles, which could cause prices and sales of those vehicles to fall sharply.
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 therefore unlikely to hit the ambitious targets laid out in this Musk pay package.
Musk has also promised a line of humanoid robots that could bring in even more sales than Tesla’s car business. (AP)
“Things are going to get worse for them, not better,” said Johnson. “Is Tesla going to go to $8 trillion? Abso-f—ing-lutely not.”
Shares of Tesla (TSLA) were up about 5 per cent in early trading on the news.
