In a significant move to keep their top executive in place, Tesla has granted CEO Elon Musk a staggering nearly $30 billion worth of shares. This decision follows Musk’s announcement that he might step down unless he is afforded greater power within the company.
In its recent filing, Tesla revealed that it awarded Musk a whopping 96 million shares, which are estimated to be valued around $29 billion. This is part of a temporary award set to be fulfilled in 2025 and scheduled to unlock in two years.
For a bit of context, Tesla reported net earnings of about $7 billion last year. If this performance maintains over the next couple of years, it means that the company’s total profits would be significantly less than the compensation package being minted for Musk.
The recent pay package is part of an ongoing dispute surrounding a prior award aimed at Musk back in 2018, which was worth an eye-popping $56 billion. A court in Delaware had struck down that deal last year after shareholders raised concerns over its excessive value and questioned the process the board took to arrive at that number.
Earlier this year, Musk appealed the ruling, pointing out alleged mistakes made by the judge. Meanwhile, Tesla has initiated the formation of a special committee to investigate his remuneration.
While all this unfolds, Musk has been pushing for more share options, making it clear he could walk away from the company if he doesn’t receive a chunk of more than 25%. Despite currently being the largest stakeholder with a 12.7% share, Musk views this limited holding as precarious, indicating that he feels vulnerable in light of potential challenges from activist investors.
In fact, during a call with investors last month, he stated, “I believe my influence over Tesla is crucial to steer its direction rightly, but I don’t want to hold so much power that I can’t be replaced if needed.”
In a correspondence shared with shareholders on Monday, Tesla underscored, “Keeping Elon involved is critical now more than ever.”
They expressed confidence that this major stock option would encourage Musk to remain with Tesla, thereby leveraging his exceptional leadership to further enhance value for shareholders and attract top talent.
The company also justified this colossal compensation by pointing to an ongoing struggle for talent in the AI field, where tech firms have been dishing out massive financial packages—some reaching into the billions—to lure skilled workers.
The fight to advance artificial intelligence has driven competitors like Meta, led by Mark Zuckerberg, to offer packages allegedly valued up to $1 billion for some employees.
Managing Declining Demand and Intense Competition
Tesla noted that this interim compensation grant is sculpted to gradually enhance Musk’s voting influence within the company. They stated, “For Tesla to s d, we require a leader like Elon, who possesses the vision, adaptability, and determination to stand out amidst tough competition and inspire the workforce.”
The renewal of Musk’s award comes as Tesla contends with dwindling demand for its vehicles, particularly in the face of fierce competition from aggressively priced Chinese auto suppliers. Concerns about Musk’s stint during Donald Trump’s administration have also negatively impacted perceptions of the company, and numerous critics assert that he might be losing focus.
With eyes fixed on recovery, Musk aims to revitalize Tesla’s prospects through developments in AI and robotics, particularly with his ambitious vision for autonomous vehicles and robotaxis.
Wedbush analyst Dan Ives commented, “This stock grant essentially secures Musk’s position as CEO until at least 2030, easing stock market worries that resurfaced with the controversies from Delaware.”
Shares of Tesla experienced a uptick of over 2% during pre-market trades, reinforcing confidence in Musk as an invaluable asset for the company.
Ives further emphasized the paramount need for the board to finalize a long-term compensation agreement before an upcoming shareholder meeting set for November.
