A strong leader undeniably benefits a company, but is any individual truly worth $1 trillion?
That is the performance-based compensation package Tesla shareholders have approved for Elon Musk, contingent upon his achieving specific targets over the next decade.
During this period, he will forgo a salary, presumably dedicating himself to his work with renewed focus.
He exuded energy at the carmaker’s Texas headquarters, where he addressed the audience with enthusiasm, contrasting Tesla’s meetings with conventional “snoozefests.”
Musk has drawn criticism for aligning with figures like former US President Donald Trump, whose policies have faced scrutiny, and for his involvement in overseas political matters.
However, he also commands a considerable following of supporters who share his vision and believe in his capacity to realize it.
Following this week’s vote in favor of his new compensation package, it appears that the majority of his shareholders fall into the latter category.
According to Dan Ives, a New York-based financial analyst, shareholders have opted in with the understanding that Musk’s success will generate trillions of dollars in shareholder value, a significant return for investors.
Ives likens Musk to “a modern day Albert Einstein, a Thomas Edison.”
He suggests that without this substantial incentive, Musk might have departed within a few years, taking his artificial intelligence initiatives with him.
“Tesla without Musk is like pizza without cheese,” he states.
Ives, who does not hold Tesla shares but analyzes the company for Wedbush Securities, believes Musk’s ability to innovate will enable him to achieve the established targets.
“While his behavior may be unconventional and polarizing, many admire him for it. This contributes to his status as the world’s wealthiest individual.”
“Although it may not directly boost European car sales, it enhances Tesla’s prospects in the AI sector.”
Musk’s political stances have elicited backlash from some consumers, including protests outside showrooms earlier this year.
Matt Britzman of Hargreaves Lansdown in London, a Tesla investor, contends that the impact is negligible in the context of Tesla’s overall earnings.
Britzman estimates that approximately one-third of Tesla’s value can be attributed to the “Musk premium,” which represents the value derived from his leadership.
“The company’s $1.4 trillion valuation is based on future expectations, not solely on current car sales.”
He emphasizes that these expectations are closely tied to Musk’s visionary approach and long-term perspective.
The potential reward for Musk is as significant as his ambitions for space exploration.
With $1 trillion, one could purchase 20 million Model Y Teslas at approximately $50,000 each or acquire a $10 million residence daily for 250 years with funds remaining for furnishing and decoration.
The performance conditions are stringent, requiring the delivery of 20 million Tesla vehicles and one million robots, as well as the deployment of one million self-driving Robotaxi vehicles.
Tesla’s market value must increase from its current $1.4 trillion to $8.5 trillion.
According to Ann Lipton, a law professor at the University of Colorado, these are “incredibly high milestones.”
However, she notes that the board retains “discretion” in determining when certain milestones have been achieved.
“The board may deem goals met even if intervening events prevent their full attainment.”
Therefore, the targets may be less demanding than they initially appear.
Furthermore, the terms do not restrict Musk from expressing his views on politics or other subjects.
Prof. Lipton adds, “Even after the pay package was proposed, he continued to engage in political commentary.”
“Therefore, it seems that this pay package, regardless of the goals and their loftiness, will not deter him from pursuing his interests.”
Stephanie Valdez Streaty, director of industry insights at Cox Automotive, believes that this freedom poses the greatest risk.
While acknowledging Musk’s visionary qualities, she notes his unpredictability and the potential for his other interests to divert his attention from Tesla, which encompasses a diverse range of businesses and challenges.
“I hope that his experience with political involvement has taught him to prioritize the business.”
“However, the board must ensure that he adheres to ethical guidelines and acts in the best interests of Tesla.”
If he does, Musk’s ambitions, whether focused on Earth or Mars, may know no bounds.
Prof. Lipton notes, “People were skeptical when his 2018 pay package was approved, but he surpassed those milestones ahead of schedule.”
Despite his fondness for cars and jets, the world’s wealthiest individual is said to lead a relatively modest lifestyle.
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