Musk’s $1 Trillion Pay Package: A Sign of Unmet Aspirations

Tesla has unveiled a comprehensive new compensation package for CEO Elon Musk, valued at $1 trillion. This includes various performance metrics that are aligned with the company’s long-term objectives, which Musk has traditionally advocated.

This view contrasts sharply with the annual proxy statement issued by Tesla’s board of directors, which lays out the proposed compensation plan. The board highlights their vision of transforming Tesla into “the most valuable company in history.”

If Tesla meets the specified targets within this agreement, the company’s circumstances will undergo significant changes by the end of the decade. However, the goals Musk needs to reach are notably less ambitious than his prior targets.

As this groundbreaking compensation package awaits shareholder approval at a meeting in November, it is highly probable that the ardent supporter base will cast a “yes” vote. Previous compensation proposals for Musk have received substantial support from Tesla shareholders.

With this context, let’s delve into the milestones Musk must achieve for the complete payout.

Target of 20 Million Cars

Musk has consistently stated that Tesla plans to produce 20 million electric vehicles annually by 2030, aiming for a consistent annual growth rate of 50% throughout that timeframe.

However, in light of stagnating and declining sales in 2024, Tesla revisited these commitments. The 20 million annual vehicle target was notably absent from last year’s impact report, and plans for a factory in Mexico aimed at increasing output have been scrapped.

Presently, the board’s primary “product goal” for Musk is to achieve a cumulative total of 20 million vehicles. To date, Tesla has sold eight million cars and, despite recent sales challenges, is nearing an annual production rate of just under 2 million.

With the new compensation plan extending over a decade, priorities have shifted from producing 20 million EVs annually by 2030 to achieving a total of 20 million by 2035.

Target of One Million Robotaxis*

In one of Musk’s most ambitious predictions from 2019, he expected to have a million robotaxis operational by 2020. Fast forward to 2025, and Tesla has only just initiated testing a robotaxi service in Austin, Texas, with a small fleet of about 20 to 30 vehicles supervised by safety drivers.

To qualify for the full payout, Tesla has revised Musk’s target to “1 million Robotaxis in Commercial Operation.”

This goal includes specific conditions. The detailed requirements specify that Tesla must maintain a “daily average aggregate” of one million robotaxis “commercially operated by or on behalf of [Tesla] for three consecutive months as part of a transportation service.”

Tesla defines “Robotaxi” to encompass any Tesla vehicle, including the specialized “Cybercab” being developed, which will leverage the company’s Full Self-Driving software for ride services.

This definition also applies to vehicles owned by customers, fulfilling a promise Musk has yet to deliver. He has often expressed that Tesla could enable a feature allowing existing cars to operate autonomously, enabling owners to integrate or remove their vehicles from a wider robotaxi fleet as desired.

However, Musk recently mentioned that many Teslas currently in circulation lack the necessary hardware to fulfill this promise, and no supporting evidence has been made available. Nonetheless, Musk now has an extended timeline to achieve these objectives.

One Million “Bots”?

Musk envisions Tesla’s future significantly depending on the humanoid robot, Optimus, claiming it may contribute up to 80% of the company’s future revenue.

With his heightened focus on Optimus, Musk has made bold assertions regarding its potential, saying Tesla aims to produce one million Optimus bots annually by 2029.

In contrast, the board has established a more conservative target, requiring Musk to create one million “bots” in total for the compensation plan. These “bots” are defined by the company as “any robot or similar product with mobility that utilizes artificial intelligence, manufactured by or on behalf of the Company,” excluding vehicles.

The directors seem to agree that Optimus could become “Tesla’s bestselling product,” viewing it as “the most evident demonstration of how Tesla can make autonomy advantageous for all of humanity.”

However, the board concedes that the “commercialization strategies” for Optimus are “still being developed,” allowing Musk until 2035 to meet the one million target.

Other Goals

The final product goal Musk is expected to fulfill is to secure 10 million active subscriptions for Tesla’s Full Self-Driving (FSD) software, a daunting task. While Tesla has not revealed the current number of paid FSD users, executives’ recent comments suggest adoption figures in the “teens,” likely indicating a few hundred thousand to several million Tesla vehicles equipped with the software.

In addition to this, Tesla’s board connects further objectives to financial success. Essentially, Musk must steer Tesla toward an $8.5 trillion market valuation to unlock the entire compensation package and secure his billionaire status.

Musk has previously expressed grand aspirations of surpassing the combined market value of both Apple and Saudi Aramco. These two firms are currently valued at roughly $5.5 trillion, but earlier this year, Musk speculated that Tesla might exceed the total worth of the next five most valuable companies, approaching a $15 trillion valuation.

In addition to boosting Tesla’s valuation, Musk is tasked with increasing the company’s annual earnings to around $400 billion—a staggering rise from last year’s profits of approximately $17 billion.

Ultimately, the board has outlined two critical commitments from Musk to access the full compensation package. First, he must collaborate with the company on a succession plan for his role as CEO (effectively binding him to the company for at least 7.5 years).

Second, buried in a footnote, is a requirement that Musk’s involvement in political matters will need to decrease in a timely manner.

In summary, this intricate agreement encompasses sweeping ambitions regarding Tesla’s potential trajectory under Musk’s leadership over the next decade. Recurrent expectations were voiced concerning Musk’s earlier compensation package from 2018, and the company successfully fulfilled those seemingly unattainable targets, which were ultimately upheld by Delaware’s Chancery Court.

Nevertheless, it is challenging to ignore how these new objectives appear to act as a mechanism to temper Musk’s extraordinary claims.