Tesla Shareholders to Vote on Elon Musk's Potential $1 Trillion Pay Package

On Thursday, Tesla shareholders are set to decide on a landmark compensation plan for CEO Elon Musk. This package could award him new Tesla stock valued at approximately $1 trillion, significantly increasing his ownership. Musk currently holds about a 15% stake in Tesla, not including stock options from a 2018 award currently in legal dispute.

The proposed plan ties the release of 424 million Tesla shares to the company achieving specific milestones. These are divided into 12 tranches, each requiring both a market capitalization goal and an operational target to be met. The market cap targets range from $2 trillion up to $8.5 trillion, a substantial increase from Tesla's current market cap of around $1.5 trillion. Some targets would place Tesla's valuation at or above $5 trillion, comparable to chip maker Nvidia.

Operational milestones are linked to Tesla's products, including increasing electric vehicle sales, expanding self-driving subscriptions, and successfully developing robotaxis and the Optimus humanoid robot. Other milestones are tied to achieving specific levels of adjusted earnings before interest, taxes, depreciation, and amortization (Ebitda). For instance, Musk would need Tesla's trailing 12-month adjusted Ebitda to reach $50 billion for the first tranche, eventually aiming for $400 billion annually to unlock the full award. Last year, Tesla's adjusted Ebitda was $16 billion.

Upon unlocking each tranche, Musk would receive equity equivalent to about 1% of Tesla's current shares. These shares would be unlockable but not sellable for 7.5 to 10 years. Musk is already the world's wealthiest person, with his net worth exceeding $450 billion, largely due to his stakes in Tesla and SpaceX.

Impact: This news could significantly influence investor sentiment towards Tesla, impacting its stock price depending on the shareholder vote outcome and future performance against milestones. It also highlights corporate governance practices concerning executive compensation at major public companies. Rating: 7/10.

Explained Terms: Market Capitalization: The total market value of a company's outstanding shares of stock. It is calculated by multiplying the total number of a company's shares in circulation by the market price of one share.

Tranches: Portions or installments of a larger amount, often used in finance to describe phases of payment or release of assets.

Vest: The process by which an employee earns the right to a portion of their granted stock options or restricted stock units. Vesting typically occurs over a period of time.

Ebitda (Earnings Before Interest, Taxes, Depreciation, and Amortization): A measure of a company's operating performance. It is a proxy for a firm's overall financial health and operational efficiency, showing how much profit is generated from core business operations before accounting for financing costs, taxes, and non-cash expenses.