Tesla (TSLA) stock fell as much as 2% Tuesday after a Delaware judge denied CEO Elon Musk’s $56 billion pay package for a second time.
The Delaware Court of Chancery in January struck down Musk’s performance-based stock options-based pay package, ending a multiyear lawsuit brought by a Tesla investor and heavy metal drummer who argued the scheme was excessive and that Tesla misled shareholders into approving it. On Monday, the court denied Musk’s motion to revise the earlier ruling.
Musk has previously indicated that he could walk away from the EV maker for compensation reasons. In a post on X in January, he said that if he does not secure 25% voting control in the company, he “would prefer to build products outside of Tesla.”
Musk once held a 22% stake in the EV-maker, but that stake has fallen to 13% as he sold shares to fund his purchase of Twitter in 2022, which he renamed X.
Musk’s 2018 package was an effort by the Tesla board to retain him. At the time it was announced, Tesla shares rose 4%.
In order for Musk to achieve the full value of the package, which includes roughly 304 million stock options, he’d have to see Tesla hit a market cap between $50 billion and $650 billion by 2028, with the top of that range earning him the maximum value of $55.8 billion in 2018. Given Musk’s 22% stake at the time, the deal would have brought his voting control closer to 30%, court documents said.
When Tesla shareholders voted to approve the package a second time in 2024, Tesla chair Robyn Denholm said the deal was required “to retain Elon’s attention and motivate him to continue to devote his time, energy, ambition” to Tesla.
“What we recognized in 2018 and continue to recognize today is that one thing Elon most certainly does not have is unlimited time. Nor does he face any shortage of ideas and other places he can make an incredible difference in the world,” wrote Denholm in a June letter to shareholders. “We want those ideas, that energy and that time to be at Tesla, for the benefit of you, our owners. But that requires reciprocal respect.”
Following Monday’s ruling, Elon Musk wrote in a post on X: “Shareholders should control company votes, not judges.”
“The court’s decision is wrong, and we’re going to appeal,” said Tesla in a separate post on X. The company noted that shareholders have voted twice to confirm the Musk’s pay package.
Given that Tesla’s market cap has reached more than $1 trillion thanks to its recent stock rally, the value of the package has reached roughly $100 billion. Tesla’s market cap was closer to $60 billion in 2018, when Tesla was in the dark depths of “production hell” to mass manufacture Model 3s, to borrow a phrase Musk himself used at the time. The $55.8 billion maximum value of the package was described as “theoretical” by the company then, but Tesla has surpassed every metric laid out in the board’s terms to Musk.
