Tesla (TSLA) shareholders are voting this week on a new pay package for CEO Elon Musk that could be worth up to $1 trillion. The compensation comes with some fairly steep hurdles that the electric vehicle maker will need to surpass in order for Musk to collect, which could have big implications for the Magnificent 7 stock.
While Musk’s 2018 pay package is currently in litigation, Tesla’s board of directors in early September outlined a new 2025 CEO pay package. The board also specified specific targets that must be hit for Musk to earn the full compensation of 423.7 million shares of Tesla’s common stock.
The shares will be distributed in 12 lots of 35.3 million apiece as certain market cap milestones are met over the next decade – the first being $2 trillion and the last being $8.5 trillion. TSLA closed on November 4 with a $1.5 trillion market capitalization.
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There are also 12 operational milestones that need to be reached in order for Musk to reap his rewards. These include 20 million Tesla vehicles delivered, 1 million robotaxis in operation and four consecutive fiscal quarters of $400 billion in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization).
In its most recently reported quarter, Tesla delivered just shy of 498,000 vehicles and reported adjusted EBITDA of $4.2 billion.
“We are, and have always been, a company that thinks bolder, acts faster and strives for a better future,” the board wrote. “We believe that Elon’s singular vision is vital to navigating this critical inflection point,” and “retaining and incentivizing Elon is fundamental to Tesla achieving these goals and becoming the most valuable company in history.”
When is the Tesla shareholder vote?
Elon Musk’s new pay package requires shareholder approval. Stakeholders who are unable to attend the company’s Annual Shareholder Meeting on Thursday, November 6, have been voting this week.
Tesla allows shareholders the option to vote online, by QR code or by phone.
Norway’s sovereign fund, which is managed by Norges Bank Investment Management (NBIM) and owns a 1.1% stake in Tesla as of June 30, recently said that it voted against the pay package.
“While we appreciate the significant value created under Mr. Musk’s visionary role, we are concerned about the total size of the award, dilution, and lack of mitigation of key person risk – consistent with our views on executive compensation,” NBIM posted on its website.
Meanwhile, Nancy Tengler, CEO and CIO of Laffer Tengler Investments, says her firm voted for the pay package.
“I like having my incentives aligned with the CEO. If he’s going to get shares, his incentive is to increase the value of those shares. That works for me as a shareholder,” she says. “What we saw in the last round with his pay package was that he hit some ridiculous goals no one thought he could hit – and he’s never been paid for it because it’s been tied up in court. That, to me, is just wrong.”
What would approval mean for Tesla stock?
Wedbush analyst Daniel Ives expects Musk to get “overwhelming shareholder approval” for the pay package despite opposition from various shareholders. A yes vote will “send a loud and clear message to Elon being ‘wartime CEO’ during this most important chapter of growth in Tesla’s history as the AI Revolution is here.”
Ives has an Outperform rating on Tesla stock and a Street-high $600 price target, representing implied upside of 33% to current levels. If the pay package passes, the top market cap goal suggests a Tesla stock price above $2,000 based on the current number of shares outstanding.
As a group, Wall Street is split when it comes to the Tesla. Of the 46 analysts covering the stock who are tracked by S&P Global Market Intelligence, 15 say it’s a Strong Buy, five have it at Buy, 17 call it a Hold and 10 rate it a Sell or Strong Sell.
Needham analyst Chris Pierce is one of those with a Hold rating on the consumer discretionary stock. “TSLA continues to demonstrate operational discipline and long-term leadership across electrification and energy storage, but we see the stock as fairly valued against our already aggressive longer-term full self-driving (FSD) and Robotics estimates,” wrote Pierce in an October 23 note.
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Elon Musk
Tesla, Inc.