Tesla's Trillion-Dollar Gamble: Is Musk Worth It?
Tesla shareholders are facing a high-stakes decision: approve a compensation package that could make Elon Musk the world's first trillionaire, or risk him abandoning the company. The proposed package hinges on Tesla reaching an $8.5 trillion market cap, a 466% increase from current levels. Let's break down the numbers and assess the probability of this audacious goal.
The $8.5 Trillion Question
To justify Musk's potential $1 trillion payout, Tesla needs to become significantly more valuable than even Nvidia, which recently touched a $5 trillion market cap. The company's current strategy involves shifting from electric vehicle sales to autonomous driving, robotaxis, and humanoid robots. These ventures are still in the developmental stage (no surprise there), and their success is far from guaranteed.
Tesla's financial performance this year hasn't been stellar either, with sales and profits declining in the first half. The loss of US government support for EV sales adds another layer of complexity. Musk dismisses these issues, but investors should be wary of relying solely on his pronouncements. We need to see concrete results, not just promises.
Wall Street analysts like Wedbush Securities' Dan Ives argue that Musk is essential to Tesla's future, particularly in autonomous driving and robotics. Ives believes shareholders will overwhelmingly support the package because Musk is "the key asset." But is this belief data-driven, or simply wishful thinking? (I've seen similar arguments used to justify exorbitant executive compensation at companies that later imploded.)
The Fairness Factor
Even some Tesla critics, like Ross Gerber of Gerber Kawasaki Wealth & Investment Management, expect the pay package to pass. Gerber, however, raises a crucial point: the sheer size of the potential payout. If Musk receives $1 trillion over 10 years, that's $275 million per day. I just don’t know in the world anybody thinks of that as fair to shareholders.
Numerous investment funds, including Norway's Norges Bank Investment Management, are voting against the package. Influential advisory firms Glass Lewis and ISS also recommend voting no, citing concerns about shareholder dilution and the "vague, undemanding" nature of the performance targets. Glass Lewis said in a note that recommends voting against the package, "The performance targets included in the (Musk’s proposed pay package) are in many cases vague, undemanding, and subject to significant discretion by the board."
Musk, predictably, lashed out at these firms, calling them "corporate terrorists." He argues that he needs a greater stake in the company to maintain influence. "It’s not like I’m going to go spend the money," Musk said on the call. "There needs to be enough voting control to give (me) a strong influence – but not so much that I can’t be fired if I go insane." This is where my analysis gets a bit trickier. His argument isn't entirely without merit, but it also sounds a bit like a king claiming divine right.
I've looked at hundreds of these filings, and this particular justification feels... unusual. Usually, the rationale is framed in terms of "incentivizing performance" or "aligning interests." The raw appeal to "voting control" is surprisingly blunt.
Is Tesla Really Worth $8.5 Trillion?
The core question remains: can Tesla realistically achieve an $8.5 trillion market cap? To put that in perspective, it's like turning a mid-sized city into a metropolis almost overnight. While Musk envisions a future dominated by self-driving cars and robots, these technologies are still unproven and face significant regulatory and technological hurdles. The vote that could make Elon Musk the first trillionaire – or prompt him to leave Tesla, is a decision that could reshape the company's trajectory.
Tesla's current valuation already bakes in a significant amount of future growth. The company trades at a high multiple of earnings (even after the recent dip), reflecting investor optimism. To justify a 466% increase from today’s stock price, Tesla would need to not only execute flawlessly on its existing plans but also create entirely new, massively profitable businesses.
Consider the robotaxi fleet, for example. Even if Tesla successfully develops a fully autonomous vehicle (which is a big "if"), it would need to navigate complex regulatory landscapes, compete with established ride-sharing services, and overcome public concerns about safety. The path to profitability is far from clear.
So, What's the Real Story?
The vote is a gamble. Shareholders are betting that Musk's vision, however audacious, is the only way for Tesla to reach its full potential. But the numbers suggest that the odds are stacked against them. Approving this pay package is less a rational investment decision and more a leap of faith – a belief that Musk can defy gravity and turn Tesla into a company worth more than the GDP of most countries. And personally, I think there is a lot more to it than just a simple pay package.
