Tesla shareholders bow at the $1tn shrine of Elon Musk

The pope’s “big trouble” couldn’t stop Tesla shareholders from voting last week to award Elon Musk a potentially $1tn pay package. But then the pontiff is not, as far as we know, a Tesla shareholder. Whether anyone should be paid $1tn makes for interesting theological debate – bring on the holy father, arguing it out with Peter Thiel, Silicon Valley’s most high-profile Catholic. Yet, as a question of mere mammon economics, the case for giving Musk the pay package is so strong it’s surprising that as many as a quarter of Tesla shareholders voted no.

Here’s the logic. First, the electric vehicle maker’s current market capitalisation is nearly 300 times annual profits, compared with, say, around seven times for Ford and 10 times for Toyota. Rather than as a lowly car maker, the markets seem to view Tesla as a bet on Musk continuing to use it as one of the main outlets for his proven business genius. Demotivate him, let alone make him quit, as voting down the package might have done, and Tesla’s share price would surely have tumbled.

Giving Musk the pay package, meanwhile, has potentially huge upside and little downside for shareholders. The award of $1tn in shares will be triggered only if Tesla’s market cap hits $8.5tn, up from $1.4tn today – at which point, today’s shareholders would have made massive gains. True, Musk would own a bigger piece of Tesla, but not a controlling stake.

At other companies, you might worry that a CEO incentivised to generate such an improbably large share price rise might take reckless risks, jeopardising your investment. But at Tesla, what you are mostly investing in is Musk continuing his successful record of taking wild gambles that no one else would consider.

Photography by Noam Galai/GC Images