Elon Musk’s massive $1 trillion pay package has been the talk of the town this past week, and it has many Tesla (NASDAQ:TSLA | TSLA Price Prediction) shareholders pondering what could happen to the electric vehicle (EV) titan if it ever reached such a fork in the road again. Undoubtedly, Musk is a visionary CEO whose leadership is probably well worth paying up for. And when you buy shares of Tesla, it’s as much about the man (the star of the show) rather than the company itself.
But just how much of a Musk premium that Tesla stock deserves remains up for debate. Arguably, if Tesla can hit its ambitious milestones in the coming decade, any price must be worth paying for the stewardship of the great Elon Musk, right?
There was a significant divide among some big-name shareholders who opposed Musk’s big pay package, while others, including many Elon Musk fans, supported it. As of this writing, it looks like the pay package has been approved with flying colors.
Perhaps not all too tough a call to make, given the huge stakes if Musk ever were to depart the firm in response to a rejection of a historic pay package. Either way, we won’t get the opportunity to find out how much of a “Musk premium” will be taken off now that the big vote has gone Musk’s way in overwhelming fashion.
The $1 trillion pay package is unprecedented, but Tesla’s milestones are also incredibly ambitious
The pay package is shockingly lofty, but one could argue that so too are the conditions that Tesla will need to hit if Musk is to earn such a considerable sum. Undoubtedly, Tesla will need to hit an $8.5 trillion market cap, which seems a tad out of reach today, given the $1.5 trillion market cap. That said, such a more than 500% move, I think, isn’t outside the realm of reason within a 10-year timespan.
Despite resistance put forth by some shareholders, I do think that many investors are in the name solely because of Musk.
And if the man doesn’t stay aboard, there’s serious concern for a near-term sell-off in the stock, as the firm looks to find its way forward. Undoubtedly, not many people can execute upon such an ambitious game plan, as the company looks to seize the robotaxi and Optimus opportunities, which makes the firm far more than just a car company. In many ways, a Muskless Tesla seems like a directionless Tesla. And that’s probably why the latest vote was so heavily in favor (I think it was around 75% approval) of Musk getting what he wanted.
In any case, if Musk’s pay package gets voted down and he departs, Tesla will lose more than just a brilliant CEO. And despite the explosive growth that lies ahead in autonomous driving and robotics, there is a huge degree of execution risk that comes with the name. And if it’s not Musk who’s running the show, shares might end up dragging their feet again.
Let’s just say that the “Musk premium” on Tesla shares might be far bigger than the “Buffett premium” once attached to Berkshire Hathaway (NYSE:BRK-B) shares.
The bottom line
It’s hard to even envision a future for Tesla without Musk. And while it’s bound to happen one day (not anytime soon after Musk’s pay approval), the “key person risk” associated with the stock has always been present. In any case, it’s going to be interesting to see how the stock reacts as Musk gets to work to hit big milestones over the coming decade. Though $1 trillion is an obscenely high amount, shareholders might find that the price of admission may be worth paying.
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