Tesla $1 Trillion Award to Elon Musk: A Detailed Analysis

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Tesla $1 trillion award to Elon Musk – a detailed analysis

Recently, a shocking headline has been dominating the financial and automotive news around the world. Tesla is going to give Musk an unprecedented award of $1 trillion (about Rs 83.5 lakh crore) based on performance. This figure is so huge that it is difficult to even comprehend it. This is not just a salary hike or bonus but a complex performance-based compensation plan whose example has never been seen before. This article will shed light on this topic and explain every aspect of it in detail.

Background: That historic package of 2018

Actually this is not a new proposal. It is a renewal and reaffirmation of a CEO Performance Award approved by Tesla’s Board of Directors in 2018. In 2018, Elon Musk refused to take any salary or traditional bonus. They had struck a deal that was entirely dependent on Tesla’s future performance and market valuation Under that package, Musk was to be given stock options in 12 tranches For each tranche, Tesla had to cross certain financial and market capitalization targets Upon meeting each target, Musk would get the right to buy a share of Tesla’s company at a huge discount In 2018, Tesla’s market cap was around $50 billion. The goals were to increase it to $650 billion, which was a huge target in itself.

What happened after 2018? Incredible success

What Elon Musk and the Tesla team did was historic. Tesla not only reached the target of $650 billion but also surpassed it and touched a market cap of $1 trillion The main reasons behind this unprecedented growth were Tremendous sales of Model 3 and Model Y Tesla successfully launched mass-market electric cars and sold millions of them. Expansion of Gigafactories New factories in China (Shanghai) and Germany (Berlin) drastically increased production capacity. Technological lead: Tesla maintained its lead in autopilot technology, battery technology, and software. Profitability Tesla began to consistently make profits quarter after quarter, which increased investor confidence. This success meant that Musk had met all 12 steps of the 2018 package. This gave him the right to buy a very large number of Tesla shares, worth a total of about $56 billion. This was the largest performance-based package received by any CEO in history.

So where did the $1 trillion come from?

Here comes a new twist in the story. In January 2024, Tesla’s board proposed a new CEO Performance Award. This proposal is essentially a new, even more ambitious version of the 2018 package. Musk will not receive any salary or cash bonus. He will again rely only on stock options. The goals are even higher: this time to increase Tesla’s market cap from $650 billion to $1.5 trillion to $3.5 trillion.

This is an incredible goal. $1 trillion figure: Analysts believe that if Musk meets all the goals of this new package (including revenue and profit targets), the total value of the stock options he receives could be $55 billion to $100 billion (ie close to $1 trillion). This figure will depend on the future share price. In simple words, Musk will get this money only if he makes Tesla one of the most valuable companies in the world. This is an “all-or-nothing” deal.

Arguments in favour and against this package Tesla $1 trillion award

Arguments in favour on Alignment of interests The board believes that this will completely align Musk’s interests with the interests of shareholders. Musk will become rich only when Tesla’s shareholders also become rich. Long-term commitment This package is to keep Musk associated with Tesla for a long time, so that he can pay full attention to the company. Success of 2018: The 2018 package proved to be a tremendous success for Tesla. The board wants to repeat the same formula.

Arguments against on Excessive reward Many investor institutions and proxy advisory firms believe that this package is “excessive”. They say that the previous package of $56 billion was enough. Musk’s distraction: Some shareholders are concerned that Musk’s focus is more on his other companies (such as SpaceX, xAI, Neuralink) than on Tesla. Will this package be able to focus him back on Tesla? Shareholder dilution: Every time Musk buys new shares using stock options, the value of the share of existing shareholders will be diluted a little.

Shareholder approval: The biggest challenge

To implement this package, Tesla needs the approval of its shareholders. In March 2024, a Delaware court struck down the 2018 $56 billion package, saying the board did not give full information to shareholders. Therefore, Tesla is respecting the voting rights of shareholders with transparency this time. Tesla has presented it as a referendum for shareholders. If shareholders vote “yes”, it will mean that they will approve Musk’s $56 billion package.They believe in the leadership and future plans. If they do not, it will be a big blow to Musk.

Conclusion: The Performance Game Tesla $1 trillion award Elon Musk

The $1 trillion package proposed by Tesla to Elon Musk is an extreme and unique example of capitalism. It is not just a salary; it is a “Shared Success” agreement. It reflects Musk’s ambition and vision for Tesla’s future. Ultimately, it all comes down to performance. If Musk takes Tesla to greater heights, he will be entitled to one of the biggest prizes in history. If not, he will get nothing. It is a game of risk and reward in which the eyes of the whole world are on Tesla and its controversial but genius CEO. Now it is up to the shareholders to decide whether they want to make Musk their partner in this game or not.