Elon Musk’s $1 trillion Tesla pay package is a bold move, but it may not be as lucrative for shareholders as it seems. The package, approved by Tesla shareholders on November 6, is structured to reward Musk for achieving specific milestones, but two loopholes could lead to a disappointing outcome for investors.
The package consists of 12 tiered grants of restricted stock, with each ‘performance milestone’ requiring both a valuation and an operational goal. The market cap targets start at $2 trillion and increase by $500 billion increments, reaching an ambitious $8.5 trillion. However, the operational milestones, including sales targets for vehicles, robots, and robotaxis, as well as EBITDA tiers, present significant challenges.
One loophole allows Musk to benefit from his stock-pumping abilities. By making big promises and delivering just enough, he can secure a substantial reward. For instance, reaching the $2 trillion market cap target is achievable through a 48% stock price increase, which Musk can potentially achieve by promising exciting developments in robotaxis and self-driving technology.
Another loophole involves the operational target of selling 20 million vehicles. This is a cumulative total over Tesla’s history, and with an average of 2 million cars sold annually, Musk can easily meet this goal. However, this weak requirement could lead to shareholders suffering as Musk focuses on short-term gains rather than long-term profitability.
Despite the potential pitfalls, Musk’s best shot is to focus on the easier milestones. By hitting the $2 trillion market cap and selling 20 million vehicles, he can secure a substantial portion of the package. Yet, this still falls short of the $1 trillion goal, and shareholders may bear the brunt of Musk’s compensation, which averages nearly $90 million annually.
In conclusion, while Musk’s pay package is an impressive feat, it may not live up to its $1 trillion promise. Shareholders should be cautious, as the package’s structure and loopholes could result in a less-than-ideal outcome for investors.