A bright spot for Tesla shareholders: Under Elon Musk’s new $27 billion comp package, their fate is now intertwined with his
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If shareholders suffer over the next five years, so will Musk.
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August 6, 2025
02:59 PM
Fortune
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Finance·TeslaA bright spot for Tesla holders: Under Elon Musk’s new $27 billion comp package, their fate is now intertwined with hisBy Shawn TullyBy Shawn TullySenior Editor-at-LargeShawn TullySenior Editor-at-LargeShawn Tully is a senior editor-at-large at Fortune, covering the biggest trends in , aviation, , and leadership.SEE FULL BIO There is one big change in how Elon Musk's new pay package is structured
Kevin Dietsch—Getty ImagesThe new “replacement” pay package that Tesla unveiled for Elon Musk on August 3 marks a big imvement over its predecessor, for a basic reason
It guarantees what the previous version left open—the very real possibility that if Tesla’s stock takes a giant round trip back to the price where they gave Musk that huge slug, holders get nothing but dilution for the directors’ largesse
And Musk still holds s worth billions
Recall that in 2024, in response to a lawsuit from the EV-maker’s holders, the Delaware courts invalidated the famous giga-grant apved in January of 2018
Musk and the company appealed the ruling, and the decision’s now on appeal
The Tesla board stepped in to ensure that if the Tesla side loses, the CEO will get something similar to the numbers he’d sacrifice
But this time, they’re attaching a series of wise conditions absent the first time around
Naturally, the deal only applies if Musk and Tesla lose on appeal
If that happens, under the new iteration he’d receive a restricted stock grant of 96 million s at a strike price of $23.34, equivalent to the figure when he got the gigantic trove at the start of 2018
At Tesla’s current price of roughly $309, those s would be worth over $27 billion
Here are the restrictions: The s vest on the second anniversary of the grant, or early August 2027, but only if Musk serves that entire period as either CEO, or chief of duct development or operations
In addition, he can’t sell any of those vested s until five years from the date of the award, or August 3, 2030
The directors’ objective is obviously to keep Musk in charge for enhancing the chances he’ll der big time on his mises for forthcoming, not yet commercial robotaxis, self-driving software, and humanoid robots
But for Tesla holders who are starting to lose faith as the gauzy pledges come and go unkept, the plan’s structure, to use the cliche so often found in CEO comp plans, “aligns” Musk’s fate to their own far more tightly than did the first gram The 2018 plan rewarded Musk for hitting huge valuation gains with lofty rhetoric The landmark original pledged Musk laddered awards of 1% of Tesla stock, each granted as the valuation rose by an additional $50 billion
The starting point was $100 billion—a multiple of its market cap at the time
If Musk reached the max of $650 billion, a number that seemed wildly imbable at the time, he’d amass 12% of Tesla’s stock
The framework resembled the cess of opening a safety deposit box; getting a new 1% required two “keys,” first hitting the valuation bogey, and second, achieving 12 of 18 combined goals for revenues and EBITDA
The top EBITDA target was $14 billion, and the highest sales figure $175 billion
Within a mere three-and-half years—by mid-2021—Musk rang the bell
He first surpassed the $650 billion market cap max, and later scored all the EBITDA benchmarks and supplemented that accomplishment by reaching an intermediate sales bogey of $75 billion good enough overall to satisfy the 12 operating metrics requirement
Hence, Musk got the full windfall
The concept’s big flaw: Musk kept making big vows for incredibly fitable new ducts that wowed investors
That helped send the stock skyward, helping him achieve the valuation part
The revenue and EBITDA requirements were relatively easy to hit
So the combination of rhetorically inflating the stock price and not having to der fabulous basic fitability numbers won the day
To be fair, Tesla’s cap at almost $1 trillion is still three times its level when Musk received his average one percent stock grant, and 50% above where he got his last piece at $650 billion
The blem: It’s impossible to get any idea what Tesla’s really worth in the long-run
And if it turns out be be mainly a metal bending car company, or if the capex requirements needed to build out Musk’s visionary es, as well as heavy competition, make them marginally fitable, Tesla’s value could fall back to something where it stood when Musk captured the then seemingly mission impossible package at the start of 2018, when Tesla s traded at $23.34
Under the new deal, if Tesla’s stock tanks big time, Musk doesn’t get paid The original plan had a major weakness
Musk got his 12% of the stock upfront
So even if s dropped all the way back to the original strike price of $23.34, putting Tesla’s market cap at $75 billion, he’d still own $9 billion in s (12% of $75 billion)
And the holders would have endured big dilution, and gotten zip for it
But the new plan ensures that can’t happen
Is it absolutely impossible that Tesla drops that far? Not at all
Just look at its current fundamentals
The original plan only made sense if Tesla reached the operating goals stipulated to trigger the grants, and kept ramping revenues and fits swiftly from there
In other words, the fundamentals had to grow into the valuation
Musk was essentially getting paid for great things to come
In the first two quarters of this year, Tesla’s sales ran at an annual rate of $84 billion just above the bogey of $75 billion Musk hit a few years back
In the same six months its EBITDA was stuck at $12 billion on a yearly basis, below the $14 billion number that unlocked the payout
I recently wrote a piece on the “Musk Magic Premium,” that calculated what Tesla’s worth based on its current ducts, and the extra valued awarded for Musk’s visionary pledges—that’s the premium
To get the core, repeatable earnings number for today’s EVs and batteries, I remove accounting gains or losses on its Bitcoin holdings, and subtract sales of regulatory credits that will bably now die due to Trump’s recent pulling of penalties for the automakers who stop buying them
For the last four quarters, that “hardcore” number is $3.3 billion
Imagine that Musk raises that figure at a decent 8% a year, so that net earnings reach $5.4 billion in 2030, the year Musk’s free to sell s under the new gram (if it happens)
Let’s also assume that since it’s a low growth manufacturer, Tesla warrants a PE that’s well above the auto industry average at 14
Then, it would be worth a $75 billion five years hence
That result would put the s right back near Musk’s strike price of $23.34
His big grant would be worthless, while under the old one, he’d still have stock worth $9 billion
Even if Tesla’s s drop to around $50 and its cap stands at roughly $150 billion, Musk would make a lot less, around $2.5 billion
Yes, it’s a good thing that the Tesla’s board’s forcing Musk to wait a long time to get paid
Five years from now, we’ll be able to see what all those mises are really worth
If they’re exhaust from a tailpipe, holders will suffer big time
But Elon Musk will suffer along with them
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