Tesla’s latest Master Plan offers few specifics, with real details emerging in a proxy statement that pushes a trillion-dollar pay package for CEO Elon Musk, highlighting concerns over the company’s governance.Tesla Inc.’s latest Master Plan is too vague to be an actual plan. The real details have dropped soon after in the form of a proxy statement. This is largely an extended argument for a new, roughly trillion-dollar compensation plan for Chief Executive Elon Musk. It serves to both embellish Tesla’s latest pitch and remind everyone, even if unintentionally, of the company’s hollow governance. Over the past two years, Tesla’s core electric vehicle business has flipped from growth to decline, amid setbacks such as the Cybertruck flop and the politicization of the brand, both of which Musk owns. During that time, however, the board has appeared to mostly engage itself in restoring a multi-billion-dollar compensation package for Musk that was agreed in 2018 but struck down by a Delaware court over conflicts of interest and disclosure issues.
The board pushed shareholders to revalidate the compensation package — which the Delaware court effectively ruled as irrelevant — and switch Tesla’s incorporation to Texas. It has since granted Musk an “interim” award of restricted stock units, currently worth about $32 billion, that will vest if the company’s appeal in Delaware fails and he sticks around for another two years. It now proposes a new set of multi-tranche stock payments that mimic Musk’s 2018 package but at vastly higher thresholds, since Tesla is already valued at more than $1 trillion.
The new targets task Musk with growing Tesla’s market cap to $8.5 trillion — roughly double that of the world’s most valuable company today, Nvidia Corp. — over a period of up to 10 years, along with various profit and operational targets. These include getting adjusted Ebitda up to $400 billion, or 26 times the trailing 12-month figure, and delivering set numbers of products, such as a million robots and operating robotaxis.
Regardless of future achievement, the whole package, today, helps Tesla in one crucial respect: Reinforcing the shift in its narrative away from EVs toward autonomous driving, artificial intelligence and robotics. The latter have total addressable markets which are, at this point, limited only by the imagination. Recall that, for all the thrills and spills, Tesla’s stock price today is only 29 per cent higher than where it was three years ago, less than half the gain of the S&P 500 Index. But even this lackluster performance is owed to sheer belief: Tesla’s forward earnings multiple has tripled. The master plan tees up the pay package and the pay package lends the master plan a certain narrative ballast.
There is a legitimate argument to be made that the enormous increase in Tesla’s market cap since 2018 means it is unfair that Musk lost out on the tens of billions approved back then. It is, equally, overstating things to say that he hasn’t been compensated for his efforts given that he owns 12.4 per cent of the company, and that’s after he already sold $39 billion worth around the period when he bought Twitter Inc. and before including the new interim award. The proxy shows that, as of late August, Musk had $79 billion worth of Tesla shares pledged as collateral for personal loans which (a) rather cuts against this post he made on X in July, and (b) suggests he isn’t exactly scrambling to find jet-fuel money at the end of each month.
Above all, though, the fairness argument obscures the fact that the 2018 package was struck down because of a failure by the board. And while this latest pay package will doubtless pass muster if challenged in Texas, it also advertises the board’s continuing deficiencies.
This is the most telling passage in the entire proxy:
During negotiations, Mr. Musk reiterated that, if he were to remain at Tesla, it was a critical consideration that he have at least a 25 per cent voting interest in Tesla and that he receive assurances that he would be compensated for his past services in accordance with the 2018 CEO Performance Award. Mr. Musk also raised the possibility that he may pursue other interests that may afford him greater influence if he did not receive such assurances.
Nice stock price tied to faith in the genius of one man you’ve got there; be a shame if he left. On one level, this is absolutely correct: Tesla is priced at more than $1 trillion because of belief in Musk, not an objective assessment of its declining profits. Yet other bits of the proxy highlight the potential costs and absurdities of this effective hostage situation.
The most glaring is that Musk has already pursued other interests, notably in the founding of his private artificial intelligence empire, xAI. Even better, there’s another resolution on the docket seeking authorization for Tesla to invest some unspecified amount in xAI. This has been raised by an individual investor declaring a stake equivalent to “at least” roughly 0.000000002 per cent of Tesla’s shares and the board makes no recommendation either way. Musk has, however, pressed publicly for this highly dubious injection of cash into a personal venture whose bonds currently trade at a junky yield of 12.7 per cent.
Perhaps the most comedic aspect, however, concerns Musk’s eventual replacement. Tesla has been a listed company for 15 years and while the proxy maintains that the board regularly reviews succession planning, a long-running exodus of senior executives and the new trillion-dollar package to keep Musk around rather suggest those reviews are wanting. The bonus here is that one of the conditions of Musk’s new compensation package is that, in order to be able to vote the shares awarded in the final two tranches, he must develop a succession “framework” of his own. Will the board reviews continue regardless? Of course, by then, Tesla would be worth at least $7.5 trillion, so who cares I guess.
