Should Tesla’s shareholders green-light Elon Musk’s US$1 trillion performance package?

SINGAPORE - When Tesla’s board first disclosed on Sept 5 details of an unprecedented US$1 trillion (S$1.28 trillion) performance plan to motivate chief executive Elon Musk, investors rushed in, driving the electric vehicle (EV) maker’s shares up by as high as 3.6 per cent that day.

Trading in the stock jumped sharply and options activity spiked 37 per cent, showing that investors were not just buying shares but also actively betting on future price moves, data from trading platform Moomoo Singapore showed.

Tesla is one of the most heavily traded US stocks by retail investors in the Asia-Pacific, including Singapore.

The company outlined a highly performance-based compensation award for Mr Musk. Under the 2025 CEO performance award, he will be granted 423.7 million new Tesla shares – about 12 per cent of the company – across 12 tranches, each tied to ambitious market capitalisation and operational milestones.

The market capitalisation targets begin at a US$2 trillion valuation and rise in increments to a staggering US$8.5 trillion over 10 years, compared with Tesla’s current market value of US$1.1 trillion.

The operational goals include delivering 20 million vehicles, achieving 10 million active full self-driving subscriptions, deploying one million humanoid robots and putting one million robotaxis into service.

In addition, milestones raising Tesla’s adjusted cash profit from US$50 billion to US$400 billion over multiple periods are also included.

If he succeeds in meeting all the targets, Mr Musk, already the best-paid CEO in the world, would receive a US$1 trillion pay package, the largest in history, and end up holding as much as 25 per cent of Tesla.

All Tesla’s shareholders within and outside the US as at the close of Sept 15 will be able to vote on this package at an annual meeting on Nov 6. Here’s what to consider before voting.

Why was the 2025 CEO performance award proposed?

Primarily, it was proposed in response to feedback from shareholders who want to retain Mr Musk so that he can focus on growing Tesla, according to a letter to shareholders on Sept 6 by a special committee appointed by Tesla’s board to design the award.

Since the start of the year, Mr Musk’s focus has been elsewhere, such as on politics and growing his other ventures: xAI, SpaceX, Neuralink, X Corp and The Boring Company.

Retaining and motivating Mr Musk is also crucial as the war for artificial intelligence (AI) talent intensifies, the letter said.

The award aims to recognise Mr Musk’s “unprecedented and transformative” contributions to Tesla and the “immense shareholder value” he has created over the years.

It will also serve as a “good faith” step towards honouring the 2018 CEO performance award, which is tied up in legal proceedings. As such, Mr Musk has not received any meaningful compensation from Tesla since achieving the 2012 CEO performance award.

The terms of the plan were shaped over 10 meetings with Mr Musk across seven months to align with his vision for the company, after he threatened to quit without certain guarantees, including a 25 per cent stake and compensation for past services, Bloomberg reported.

“With Tesla at a critical inflection point and pushing deeper into new frontiers like AI and robotics, the 2025 CEO performance plan will not only retain Elon, but motivate him to dedicate his time, energy and considerable talents to delivering unprecedented growth,” the board said.

Should shareholders approve?

According to Tesla’s board, the pay package was designed to ensure Mr Musk’s interests are “100 per cent aligned with shareholders”.

Dealing manager at Moomoo Singapore Too Jun Cheong noted that the new shares promised to Mr Musk will only be valuable if he meets his targets in vehicle production, AI and robotics.

This is because the shares will be deemed as “earned” after each of the targets is met, and will vest only after 7.5 to 10 years, which is when he officially gains the right to own them. And once they vest, he must hold on to them for five more years before he can sell, ensuring his personal wealth stays tied to Tesla’s long-term performance.

“Mr Musk benefits only if shareholders themselves also see significant gains in Tesla’s valuation,” he said.

Mr Too noted that Mr Musk has shown that he can deliver those gains. “The 2018 CEO performance award, initially valued at just US$2.6 billion, ballooned above US$50 billion with Mr Musk meeting targets that many considered unrealistic at the time.

“Rejecting this new deal raises the risk that Mr Musk focuses more heavily on his other ventures instead of Tesla,” he said.

At the same time, shareholders must weigh the governance concerns.

“If fully vested, Mr Musk’s stake could exceed 25 per cent, concentrating even more control in his hands. This ensures strong alignment with long-term growth but also increases risk: any major controversy or disruption involving Mr Musk could have outsized consequences for Tesla’s stock.”

Can Musk meet his targets?

While the new pay package is expected to help Tesla retain Mr Musk, some analysts remain sceptical for now.

Mr Seth Goldstein, an analyst at research house Morningstar, has forecast that Tesla’s robotaxi testing will take longer than expected.

He noted that Tesla began testing its robotaxis with extra safety features in July. “Tesla is still in the early testing stage for its autonomous driving software. We think the software will require further testing and do not expect a full robotaxi product until 2028,” Mr Goldstein wrote in a Sept 5 report.

During its second-quarter results briefing in July, Tesla has guided that it expects its Cybercab robotaxi to roll out in 2026.

Meanwhile, progress on the robot front has yet to take off, despite Mr Musk declaring earlier in September on his social-media platform X that about “80 per cent of Tesla’s value will be Optimus”, referring to the company’s robot initiative. 

The company also reported a 14 per cent year-on-year slide in vehicle deliveries to 384,000 for the second quarter to June 30, leading to a 16 per cent slide in revenue to US$16.7 billion for the period, falling short of analyst estimates.

Tesla’s EV sales have been under pressure since 2023, as demand slowed and competition intensified.

For now, Tesla’s US$400 billion cash profit target is “materially more aggressive” than Morgan Stanley’s predictions on Tesla’s auto, energy and robotaxi businesses, its analysts said in a Sept 7 note, adding that it “would imply substantial contributions from Optimus and other AI robot end markets currently not in our forecasts”.

Mr Goldstein of Morningstar reckons Tesla stock is now worth US$250 a share, based on its fundamentals. That is much lower that the stock’s current levels, implying that it is trading above what it is really worth.

Still, shares of Tesla were trading around US$385 a share after the market opened on Sept 12. That is up 8.7 per cent since the award was announced.