Elon Musk’s work at Tesla has already made him the wealthiest man in the world, but the company is so grateful that, if everything goes as expected, it plans to make him the wealthiest man in history.
While the new pay package is initially valued at about $29 billion, it could be worth much, much more later.
“It is imperative to retain and motivate our extraordinary talent, beginning with Elon,” the company said in an SEC filing announcing the package.
The package is incentive-laden, and Musk can reach the full amount if he hits the dozen milestones that are part of the deal.
Elon Musk Tesla incentives package milestones:
Delivery of 20 million vehicles10 million FSD subscriptionsDelivery of 1 million robots
Elon Musk sees a future with humanoid Optimus robots being Tesla’s main product.
Image source: Fallon/AFP via Getty Images
Elon Musk pay package rests on Tesla reaching monumental $8.5 trillion valuation
Last week, Tesla awarded Elon Musk a new pay package that is worth about $29 billion now, subject to shareholder approval in November. But the package will be worth much more than that if Tesla reaches the valuation it says it can.
According to the pay package, Musk essentially has 10 years to increase Tesla’s valuation from about $1 trillion to $8.5 trillion.
But the company’s valuation already seems bloated. Tesla is currently trading as a growth company, even though its main product is falling in popularity.
As of mid-September, Tesla’s price-to-earnings ratio was between 200 and 209, while its forward P/E ratio was around 140 to 180.
Related: Elon Musk unveils Tesla’s Master Plan Part 4
(For comparison, the average price-to-earnings ratio for the Magnificent 7 stocks — the group of blue-chip tech stocks that includes Alphabet, Meta, Microsoft, Amazon, and others — is about 35x).
But Tesla is still an electric vehicle company, ostensibly, as it derived 90% of its 2024 revenue and 94% of its gross margin from auto sales. Those auto sales have been falling and not growing for 18 months.
Still, permabulls such as Cathie Wood, CEO of Ark Invest, don’t see Tesla as a car company, believing that what it is doing now pales in comparison to what it will do in the future.
“Our target in five years is $2,600, and our confidence in that number has gone up now that Tesla is commercializing Robotaxis in August and June,” Wood said recently.
But Tesla’s stock is down 14% year to date, according to Yahoo Finance. And without an uptick in sales, which fell another 12% in the second quarter, the company’s stock price could be in even more trouble.
Tesla will need to pivot to make Elon Musk the wealthiest person ever
To reach his pay goal, Elon Musk will have to increase Tesla’s EBITDA substantially.
Musk’s pay package has a top EBITDA of $400 billion and a market cap of $8.5 trillion, representing a P/E multiple of just 21, not 180.
“What jumps out to me is that Robotaxi is really the key here, as well as xAI,” William Blair analyst Jed Dorsheimer told CNBC recently. “The institutional side seems to be very skeptical about Tesla’s ability to achieve automony, while the retail side is looking at the opportunity here. The deal really touches on both of those and closes that gap.”
Tesla’s humanoid robot Optimus is also a big part of this future story.
Musk says that about 80% of Tesla’s value will eventually come from its Optimus robots, but Bloomberg’s Dana Hull says such a pivot will be extremely difficult to pull off.
“Fundamentally, I think that Tesla has a real marketing problem, where you have a CEO who is clearly bored of the car industry, wanting to continue to ride this AI hype wave and convince shareholders that the future is all about robotics and AI. But they keep falling short of being able to do that in a cogent way,” Hull said recently.
Musk has made grand declarations about Tesla’s future in the past that have never come true. Whether it was 1 million robotaxis on the road by 2020 (pushed back to 2026) or 1 million Optimus robots built by 2027, Musk loves setting tough milestones to reach.
Tesla is betting it can finally deliver on Musk’s promises and make its shareholders wealthy in the process.
Related: Key Tesla analyst has plenty to say about Musk’s new package
