Tesla Pays Elon Musk $29 Billion in Stock During Court Fight Over Earlier $56 Billion Compensation Plan
Tesla has granted CEO Elon Musk a new interim pay package worth around $29 billion, giving him 96 million Tesla shares. The action, disclosed in a Monday regulatory filing, is being taken while the electric vehicle (EV) manufacturer is waiting for the Delaware Supreme Court to rule on a disputed $56 billion compensation plan earlier awarded to Musk in 2018.
The new award would vest in two years if Musk remains CEO or is in some other important executive position at Tesla. But if the court eventually decides in Musk's favor in the current Tornetta v. Musk case — allowing him to exercise shares under the 2018 compensation plan — the recent award will be forfeited.
As much as the legal situation is unclear, Tesla's shares went up more than 2% on the announcement day.
The 2018 Compensation Plan Controversy
Tesla's initial 2018 CEO compensation package — the biggest in company history — has been under withering legal fire. In a decision earlier this year, Delaware Chancellor Kathaleen McCormick upheld her January ruling that the package was illegally awarded. The court ruled that Tesla's board did not sufficiently inform shareholders before requesting they vote on the huge award.
Musk countered by publicly denouncing Delaware's judicial system and moving the state of incorporation of Tesla to Texas. The company then brought the appeal, and the case is being considered by the Delaware Supreme Court.
Musk's Control and Influence
Elon Musk controls around 13% of the outstanding shares of Tesla, and his degree of control over the company — both operationally and through public influence — continues to be a staple of investor and analyst debate.
In January 2024, Musk threatened to create AI and robotics businesses elsewhere than Tesla if given around 25% voting authority. This raised more worries about how much he cares in the long run for the EV maker, particularly as he keeps growing his other businesses, such as the artificial intelligence company xAI, which he secretly registered in March 2023.
xAI, parent company to social platform X, has partnered with Tesla to embed its Grok AI chatbot in Tesla's cars, showcasing Musk's growing tech ecosystem.
Political Engagement and Brand Impact
Musk's political leanings have also attracted public notoriety and controversy. He took time off from Tesla last year to aid Donald Trump's re-election campaign, according to reports, and later worked in a temporary position for the Trump administration. Musk's politicking, especially his role in the now-dissolved federal "DOGE" program, has polarized Tesla's consumer base.
A public falling out with Trump also made matters more difficult. In July, Musk revealed plans to start a new political party, sparking rumors of his more general ambitions outside of the technology and automotive industries.
Business Challenges Ahead
Tesla is facing more than mere legal and political setbacks. The firm also had a poor earnings performance in July, as automotive revenues dropped 16% and sales for the second quarter in a row declined. Musk recognized the difficulties in an analyst call, saying, "We probably could have a few rough quarters. I am not saying that we will, but we could."
Adding to the uncertainty, the imminent expiration of EV tax credits in the U.S. could affect future sales.
Tesla's next shareholders' annual meeting in November will see the new compensation plan and long-term leadership approach being prominent topics of discussion.
Frequently Asked Questions (FAQ)
Why did Tesla grant Elon Musk 96 million shares now?
Tesla's board ratified this temporary pay deal to give a performance-based incentive for Musk to remain in a leadership position, particularly as the legality of his 2018 pay plan is pending court hearing.
Will both the 2018 and 2025 compensation packages be paid to Elon Musk?
No. If the Delaware Supreme Court rules in Musk's favor and reinstates his 2018 pay package, the newly granted 96 million shares will be lost.
How do Tesla shareholders fare?
Although Musk's leadership is viewed as essential to Tesla's innovation and expansion, there remain worries about his outside business and political pursuits as a distraction from Tesla's primary business.
Where stands the 2018 pay package lawsuit?
The Delaware Supreme Court is considering Tesla's appeal of the lower court's ruling that struck down the 2018 package. A decision will be forthcoming later this year.
How is Elon Musk's AI company xAI related to Tesla?
Musk's company xAI, started in 2023, creates AI products and infrastructure. xAI has a close relationship with Tesla, such as embedding its Grok chatbot into Tesla cars, although Tesla never publicly announced the firm to shareholders when it was established.
