Tesla’s Billion-Dollar Conundrum: What’s Next for Elon Musk?
In a stunning ruling, a Delaware judge has rejected Tesla’s $56 billion compensation package for CEO Elon Musk, despite shareholder approval. This raises critical questions about the electric car maker’s future and its billionaire founder’s next move.
Musk’s Demands: A Bigger Stake or Else
Musk has made it clear he wants a massive payday from Tesla. In a securities filing, he indicated he’s seeking a replacement package similar in size to the original deal. Moreover, he’s hinted on his social media platform X that he might develop products outside Tesla if he doesn’t get a larger stake in the company. With other ventures like SpaceX and Neuralink, Musk has plenty of options.
Appealing the Ruling: A Long and Uncertain Road
Tesla’s board could appeal the decision to the Delaware Supreme Court, a process that typically takes around a year. However, the case’s novelty and complexity add uncertainty to the outcome. The trial court judge’s finding that Musk controlled compensation negotiations despite owning only 22% of Tesla’s stock raises eyebrows.
Crafting a New Plan: A Costly Affair
Tesla’s board could devise a new pay package, but it would come at a hefty price. The original plan, agreed upon in 2018, awarded Musk stock options tied to aggressive performance and financial targets. With Tesla’s stock having risen 10-fold since then, the options are now incredibly valuable. A replacement plan would likely need to be significantly smaller to avoid breaking the bank.
Restoring the Old Plan: A Risky Proposition
Tesla could try to restore the original plan, offering Musk the same 304 million stock options. However, this would come with significant accounting and tax implications, including a potential $25 billion charge. Moreover, the stock options would be treated unfavorably for tax purposes, potentially resulting in a 57% tax rate for Musk.
Settling the Lawsuit: An Unlikely Outcome
Musk could attempt to settle the lawsuit, brought by a Tesla shareholder, and accept a smaller portion of his pay package. However, this would be out of character for the CEO, who has a history of taking cases to trial rather than striking deals. It’s unclear how the judge would view a settlement at this stage in the litigation. One thing is certain: the battle for Tesla’s future has only just begun.
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