Key Takeaways
- Tesla shareholders yesterday approved a pay package for CEO Elon Musk that could be worth $1 trillion if the company and its stock hit certain goals.
- One of the pay plan’s performance targets is to expand Tesla’s stock market valuation to $8.5 trillion from its current $1.4 trillion.
Tesla shareholders showed up for Elon Musk. Now it’s up to the CEO to make good on his promises and make them—and him—richer.
Attendees at Tesla’s (TSLA) annual shareholder meeting in Austin, Texas yesterday erupted in applause, chanting Musk’s name after a tally showed that his compensation package valued at almost $1 trillion—the biggest CEO pay plan on record—passed with more than 75% of votes cast in favor. Enthusiasm for Tesla’s future as more than just a car company eclipsed worries about the pay plan’s lack of guardrails around key-person risk, as well as perceived excesses that drew tuts from the Pope.
The pay package stands to give the CEO the control he sought, with as much as a 25% stake in the company. Unlocking all 12 tranches of Tesla stock, for the largest possible financial reward, will require the company’s market cap to reach at least $8.5 trillion and profits of $400 billion, and for the company to meet product goals including 20 million car deliveries, 1 million robots sold, and 1 million robotaxis in operation. (Tesla’s market cap is around $1.3 trillion currently and it reported $4.2 billion in earnings before interest, taxes, depreciation, and amortization for the third quarter.)
Why This Is Significant
The outcome of yesterday’s shareholder meeting shows investors are eager to see Musk realize his ambitions of transforming the carmaker into a robotics and AI leader, though it also underscored some reluctance in green-lighting an investment in his private AI startup.
“What we’re about to embark upon is not merely a new chapter of the future of Tesla, but a whole new book,” Musk said in opening remarks last night. Later, he added: “Hang onto your Tesla stock.”
Wedbush analyst Dan Ives in a report yesterday wrote that shareholders secured “Musk as a wartime CEO as the AI Revolution takes hold,” giving the analyst “greater confidence in the TSLA story moving forward.” Ives maintained a buy-equivalent rating on the stock and a 12-month price target of $600 that suggests upside of more than 40% from a recent price of $426.
As much as shareholders and Tesla’s board appears keen on seeing the electric-vehicle company realize its potential as an AI contender, they showed some reluctance in investing in Musk’s private company and OpenAI rival, xAI. The company’s directors didn’t take a position on a shareholder proposal for, or against, the measure that asked the board of directors to authorize an investment in it.
And while more shareholders voted in support than against, many refrained from voting; Tesla’s board will “examine next steps,” the company’s legal counsel Brandon Ehrhart said during the company’s shareholder meeting.
