The past week has seen a flurry of commentary across the financial press – and far beyond – on Tesla’s newly approved long-term performance award for its chief executive, Elon Musk, following a protracted standoff with the board. Musk had openly threatened to resign should his demands not be met. Headlines have converged on a single arresting figure: one trillion dollars, the theoretical maximum value of the award if Musk manages to deliver a series of ambitious milestones by 2035.
Behind the sensationalist headline lies a markedly more intricate structure.
To begin with, the payment would not take the form of cash, but of equity – roughly 12% of Tesla’s share capital. The trillion-dollar figure represents 12% of a target valuation of $8.5 trillion by 2035 (versus approximately $1.35 trillion today, implying a staggering 530% increase). This distinction is crucial, as will become apparent.
The grant is further sliced into tranches, each contingent on the achievement of financial and operational objectives over time. The financial conditions include market-capitalisation thresholds and EBITDA milestones. The operational hurdles, meanwhile, include 20 million vehicles delivered annually, 10 million active subscribers to Tesla’s fully autonomous driving software, one million humanoid robots sold, and one million robotaxis in commercial service.
Assessing the credibility of Tesla’s ability to deliver against these targets, under the leadership of its all-pervasive chief executive, is a subject that could merit a separate and lengthy discussion. The firm’s robotaxi ambitions, for instance, have been unveiled multiple times and delayed just as often. This analysis focuses instead on the structure and implications of the award itself.
The package inevitably reignites a long-running debate: what constitutes fair compensation and genuine value creation? Economic theory holds that an agent should not capture more value than he or she creates for the principal – in this case, the company and its shareholders. If compensation exceeds the agent’s marginal contribution, the principal would be better off by terminating the relationship and retaining the surplus.
In Musk’s case, the relationship between value creation and valuation has transcended conventional rationality. Tesla currently trades at roughly 300 times its trailing earnings (P/E ratio), compared with multiples of three to eleven for its automotive peers. The gulf reflects investors’ sharply divergent expectations for Tesla’s future growth potential.
Yet, while Tesla’s product line may have appeared radically innovative a decade ago, that technological advantage has been largely eroded, particularly by Chinese competitors. Instead, a substantial share of Tesla’s premium valuation arguably stems from Musk’s personality – restlessly innovative, unpredictable, and unbounded by industry norms – and from the halo effect of his ventures beyond the automotive sphere. Without Musk, many of these projects would likely not be taken seriously at all.
Tesla’s shareholders are acutely aware of this. They appear unwilling to expose themselves to the risk of a sudden collapse in the “Musk premium” – a drop that could, in extremis, wipe out 90% of the firm’s current market value. More than a bet on future value creation, the approval of this “trillion-dollar package” resembles a costly insurance policy designed to preserve present-day perceived value. And that insurance premium is meaningful: 12% dilution of the company’s equity.
Viewed more constructively, a legitimate question arises: could Tesla realistically reach a market capitalisation of $8.5 trillion by 2035 (equivalent to roughly $6.3 trillion in 2025 dollars, assuming 3% average annual inflation)? For context, the current record valuation is held by Nvidia at around $4.6 trillion – propelled by an extraordinary surge in demand for artificial-intelligence infrastructure, amid growing murmurings of a potential bubble.
To envisage Tesla not merely surpassing but significantly outperforming this level implies a scenario of both enduring profitability and epoch-shaping industrial transformation. Should Musk succeed in steering the company to that destination, assigning 12% of the value to him would not necessarily appear excessive when compared with the performance fees earned by certain asset managers or intermediaries. In that light, the sheer magnitude becomes somewhat less anomalous.
The structure of the award, paid exclusively in equity rather than cash, warrants further consideration. For Musk to monetise any gains, he would need to sell shares – after a lock-up period of five years. Equity sales by insiders, particularly by a chief executive, are typically interpreted as a negative signal. When a highly informed shareholder chooses to sell without an obvious external motivation, markets tend to conclude that the individual perceives the company as overvalued. Insider sales are therefore scrutinised intensely, and share-price declines often follow.
Another noteworthy clause conditions 2% of the total 12% award on Musk implementing a succession mechanism for the appointment of a future CEO. Given Tesla’s extreme dependence on Musk’s personal brand and leadership, this requirement may prove difficult to satisfy in practice. Markets could react sceptically, viewing such a commitment either as tokenistic or as destabilising – potentially rendering this clause a “poison pill” of sorts that may never be consumed.
The broader context is as important as the numbers. Tesla faces intensifying competition, margin pressure, and slower growth across key markets. Its once-talismanic aura of uncontested innovation no longer commands the same reverence. Against such a backdrop, the sheer ambition of the targets – robotaxis, humanoid robots, mass-market autonomy – appears both audacious and deeply uncertain. The company is effectively betting on a future in which it evolves from a car manufacturer into a diversified AI-powered robotics and mobility ecosystem.
It is also impossible to ignore the governance implications. The award reinforces a long-standing trend in Silicon Valley: founders who accumulate disproportionate influence over boards and shareholders, reshaping the balance of corporate power. Investors, captivated by the promise of exponential growth, increasingly tolerate governance structures that would have been unthinkable in previous decades. In Tesla’s case, the recalibration of authority has reached new heights. Shareholders have signalled they would rather dilute themselves significantly than risk losing the individual they perceive as central to the firm’s identity and valuation.
The package therefore sets a precedent – one that other technology and industrial firms may struggle to avoid referencing. It raises questions about how far boards will go to retain “superstar founders” whose presence is seen as inseparable from corporate value. The implications extend beyond remuneration: they touch the philosophy of corporate governance, fiduciary duty, and shareholder-manager alignment in an era where narrative often drives valuation more forcefully than fundamentals.
Grand declarations should, however, be treated with caution. The timeline is long, the operational hurdles formidable, and the crystallisation of the award far from guaranteed. The scale of the challenge is, by any measure, unprecedented. It may well prove to be the greatest test of Musk’s career.
But if any executive thrives on the improbable, it is him.
P.S.: More details around Musk’s proposed package can be found in Tesla’s Schedule 14A, pages 60 and following.