By Chris Kirkham, Rachael Levy and Abhirup Roy
LOS ANGELES (Reuters) -When Tesla (TSLA) administrators provided Elon Musk the largest govt pay bundle in company historical past in September, it reassured traders that he must obtain the equal of “Mars-shot milestones” to earn $878 billion in Tesla inventory over 10 years.
The board’s proposal stated Musk must “fully rework Tesla and society as we all know it” in robotics and autonomous driving in addition to inventory worth and earnings. Conversely, Musk would get “zero” except he meets these “extremely formidable” targets.
But Musk may reap tens of billions of {dollars} with out assembly most of these targets, in line with a Reuters evaluation of his efficiency targets and greater than a dozen consultants in govt pay, firm valuations, robotics and automotive traits together with autonomous driving.
He may gather greater than $50 billion by hitting a handful of the board’s simpler targets that gained’t essentially revolutionize Tesla’s merchandise or enterprise, the Reuters overview discovered.
Even hitting simply two of the simplest targets, together with modest inventory development, would web Musk $26 billion, greater than the lifetime pay of the following eight best-paid CEOs mixed, a gaggle that features Meta (META) Platforms’ Mark Zuckerberg, Oracle (ORCL) co-founder Larry Ellison, Apple‘s (AAPL) Tim Prepare dinner, and Nvidia‘s (NVDA) Jensen Huang, in line with an evaluation for Reuters by analysis agency Equilar.
Musk’s car gross sales targets are exceptionally straightforward to attain, in line with 4 automotive consultants. If Musk sells 1.2 million vehicles a yr over the following decade, on common, he earns $8.2 billion in inventory if Tesla’s market worth grows from $1.4 trillion at present to $2 trillion in 2035, effectively beneath long-term market-average development. That’s a half-million fewer vehicles per yr than Tesla bought in 2024.
On Tuesday, Tesla unveiled lower-cost variations of its best-selling Mannequin Y SUV and Mannequin 3 sedan to reverse falling gross sales.
Three different product-development targets are written in obscure language that would present Musk hefty payouts with out considerably boosting revenue, in line with six robotics or autonomous-driving {industry} consultants who reviewed Musk’s targets for Reuters.
Tesla and Musk didn’t reply to requests for remark.
In an announcement, a spokesperson for the Tesla board stated: “The proposed pay bundle is definitely value zero to our CEO except and till the shareholders see the worth of the corporate practically double and an operational milestone is met.”
The board’s pay proposal requires Musk to stay a Tesla govt for at the very least seven-and-a-half years to gather any inventory compensation. Musk, nevertheless, would get the voting rights related to the share awards as quickly as he earns them.
Musk stated final month on his social media platform X that the bundle is “not about ‘compensation,’ however about me having sufficient affect over Tesla to make sure security if we construct thousands and thousands of robots.”
In its proposal, the board stated Musk is “motivated by extra than simply standard types of compensation.”
Every objective grants Musk 1% of Tesla inventory if he additionally reaches valuation milestones between $2 trillion and $8.5 trillion.
One objective requires 10 million subscriptions to Tesla’s “Full Self-Driving” software program, which may’t at the moment drive itself with out human intervention. The objective accommodates no requirement that Tesla make the system totally autonomous, as an alternative requiring solely an “superior driving system.”
That’s a “made-up time period” with no industry-standard definition, stated William Widen, a College of Miami legislation professor specializing in autonomous driving. Autonomous-driving consultants say the subscription goal is likely to be simply met by dropping the worth, at the moment $8,000 upfront or $99 a month. Tesla’s main electric-vehicle rival, China’s BYD, already gives the same system totally free.
“If I had been Musk’s private employment lawyer, I would really like these definitions,” stated Matthew Wansley, a professor at New York’s Cardozo College of Regulation who focuses on autonomous driving.
One other objective requires a million robotaxis in business operation and specifies vehicles “and not using a human driver within the car.” That’s a probably extra restrictive definition however 4 autonomous-vehicle consultants stated it may very well be interpreted to permit for people controlling autos remotely or from the passenger seat – as Tesla does now in its first small-scale robotaxi take a look at in Austin, Texas.
Musk’s employment deal additionally units a goal of 1 million robots, an obvious reference to the Optimus humanoid robots Musk has lengthy promised. However the objective doesn’t specify “humanoid” and may very well be interpreted broadly, two robotics-industry consultants stated. It defines “bot” as “any robotic or different bodily product with mobility utilizing synthetic intelligence.”
“It’s a completely obscure formulation,” stated Christian Rokseth, an analyst with market analysis agency Humanoid.information specializing in robotics and synthetic intelligence. Traders, he stated, expect a humanoid robotic.
Hitting any two product targets in a decade, together with a $2.5 trillion valuation, pays Musk $26.4 billion in inventory. Hitting three targets and a $3 trillion valuation pays him $54.6 billion.
Which means Musk may earn these quantities with out delivering driverless Teslas, the signature product he’s promised for a decade.
Gene Munster, managing associate at Tesla investor Deepwater Asset Administration, stated that regardless of the unfastened language in his efficiency settlement, traders would in the end maintain him accountable for delivering transformational merchandise.
“If folks begin smelling there’s one thing goofy right here, he is in bother,” Munster stated.
In its pay proposal, Tesla’s board declared Musk the one individual able to remodeling Tesla into an artificial-intelligence juggernaut. The board added that Musk, throughout negotiations, raised the prospect of “prioritizing different ventures” if he and the board couldn’t agree on compensation.
Company governance consultants stated the board is taking an enormous danger by so explicitly staking its future on one chief. Wei Jiang, vice dean at Emory College’s enterprise faculty, stated Tesla’s board has granted Musk a “monopoly” on Tesla’s prime job. Good company governance, she stated, requires embracing a “aggressive and fluid marketplace for CEOs.”
Musk’s hardest efficiency targets are probably these involving revenue, a measure with no room for interpretation. The administrators set eight revenue targets between $50 billion and $400 billion in earnings earlier than curiosity, tax, depreciation and amortization, in comparison with Tesla’s 2024 earnings of $16.6 billion.
Tesla’s EV enterprise, which accounts for nearly all its income, is deteriorating with getting old fashions going through fierce competitors. Its solely newer mannequin, the Cybertruck, has flopped.
The best way Musk’s compensation is structured, nevertheless, permits for large payouts with out hitting any revenue goal. Each objective mixed with a market-value enhance gives the identical 1% inventory payout. So Musk will get the identical pay for assembly the comparatively straightforward car gross sales and FSD-subscription targets, as an illustration, as he would for enhancing earnings five-fold to $80 billion.
The board’s valuation targets might show far simpler than its revenue targets.
Tesla’s worth may hit $2 trillion, as an illustration, if shares develop a modest 6.4% yearly over the last decade following the board’s Sept. 3 pay-package approval. That’s slower development than the S&P 500’s 8.5% annual common over the previous 30 years and fewer than half the Nasdaq’s 13.2% common.
Seth Goldstein, a Morningstar analyst who tracks Tesla, stated its valuation may simply hit $3 trillion or extra over a decade with market-average efficiency. He identified, nevertheless, that Tesla’s worth is already largely based mostly on “future merchandise that don’t exist at present.”
For Musk to assert the largest payouts provided by Tesla’s board, Goldstein stated, “we’re going to begin having to see actual merchandise.”
Kevin Murphy, a College of Southern California finance professor and an skilled witness for Tesla in defending Musk’s 2018 pay bundle, acknowledged that the car gross sales and $2 trillion valuation targets aren’t “a lot of a stretch” however merely reaching these gained’t appease shareholders.
Neither will the “handful of billions” for lower-rung targets matter a lot to Musk, who cares extra about historic technological achievements, Murphy stated. Shareholders, he stated, have targeted on the toughest targets and largest payouts as a result of they imagine Musk – and solely Musk – can hit them.
“Is it value it?” Murphy stated. “Shareholders appear to assume so.”
(Reporting by Chris Kirkham in Los Angeles, Rachael Levy in Washington, DC and Abhirup Roy in San Francisco. Enhancing by Brian Thevenot and Michael Learmonth)
