Can Musk's $1T Pay Package Keep Tesla on the Fast Track?

Tesla TSLA recently unveiled a compensation package for its CEO, Elon Musk, that could be historic. If Musk hits the targets set in the plan, he could become the world’s first trillionaire, collecting roughly $975 billion in additional Tesla shares.

The award would add more than 423 million shares to Musk’s holdings. This will potentially raise his stake from 13% currently to nearly 29%, per New York Times. While the numbers are staggering, the plan is tightly linked to performance milestones.

But the big question is whether this largest-ever pay package will accelerate Tesla’s growth or go down as the riskiest wager ever on a CEO.

Market Value Milestones & Operational Targets

The plan divides the award into 12 tranches, each earned by achieving a combination of market capitalization and operational goals.

To unlock the full payout, Tesla’s adjusted EBITDA has to rise 25 times to $400 billion in 2035. The company would need to reach a market value of $8.5 trillion by 2035, up from just over $1.1 trillion at present. That would value Tesla more than twice the current market cap of tech giants like NVIDIA NVDA, Apple AAPL and Microsoft MSFT. Even the first tranche requires Tesla to reach $2 trillion in market value, which is double its current valuation.

Beyond market value, the plan calls for 20 million vehicles sold by 2035, 10 million active Full Self-Driving (FSD) subscriptions, 1 million commercially operating robotaxis, and 1 million humanoid robots delivered. While some targets, like car sales, may appear modest, given Tesla’s recent annual deliveries, much of the growth hinges on Tesla’s ventures in artificial intelligence (AI), autonomous vehicles (AVs), and robotics.

These businesses are still in their early stages and carry execution and regulatory risks. Competition is also high as many companies are racing to perfect self-driving technology and robotics. Hitting these operational milestones will be challenging for Tesla.

Keeping Musk Focused Amid Distractions

By tying Musk’s rewards to such bold targets, the board is betting on Musk’s leadership, which it believes is essential for Tesla to pivot successfully into AI, AVs, and robotics. Tesla is facing significant challenges, with its core EV business struggling with shrinking sales and profits. Musk is also juggling multiple roles across other ventures, including SpaceX and xAI, raising concerns among investors that he may be spread too thin.

The plan requires Musk to remain actively engaged at Tesla. To cash in shares, he must stay with the company for at least seven and a half years, and to earn the full award, he must remain for the full 10-year performance period. This colossal package is designed to deepen Musk’s focus on Tesla and align his long-term incentives with the company’s growth in emerging technologies. Shareholders must approve the package, which is slated for a vote at the annual meeting on Nov. 6.

Final Thoughts

The plan is as controversial as it is massive. Critics argue that it excessively rewards Musk. The targets are speculative and hinge on markets that do not yet generate significant revenues. At the same time, supporters see the plan as a strategic move to retain the visionary who had once driven Tesla’s extraordinary growth.

If Musk succeeds, shareholders would benefit from a company transformed by next-generation technology. If not, the package will still be remembered as the most ambitious gamble ever on a single CEO.

The stakes are high for both Tesla and Musk. More than a compensation plan, it’s a bold statement about the company’s future and the exceptional growth that the board expects from its founder. Whether it keeps Tesla on the fast track remains to be seen.

The Zacks Rundown on TSLA Stock

Shares of Tesla have lost around 14% year to date. Meanwhile, NVIDIA and Microsoft are up 25% and 18%, respectively. Apple’s shares have lost 5% over the same time frame.

YTD Price Performance Comparison

From a valuation standpoint, TSLA trades at a forward price-to-sales ratio of 10.7, above Apple but below NVIDIA and Microsoft.

TSLA’s P/S Vs. Other Tech Titans

See how the Zacks Consensus Estimate for TSLA’s earnings has been revised over the past 90 days.

Tesla stock currently has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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