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Tesla’s $29 Billion Problem: The Cost of Rewarding Elon Musk

by Ram ben Ze'ev


Tesla’s $29 Billion Problem: The Cost of Rewarding Elon Musk
Tesla’s $29 Billion Problem: The Cost of Rewarding Elon Musk

Tesla’s board of directors has granted Elon Musk approximately 96 million restricted stock units (RSUs) at a strike price of $23.34 per share—the same exercise price used in his 2018 compensation plan. At today’s valuation, this grant represents a potential $29 billion windfall, awarded without shareholder approval and in the midst of a legal battle over Musk’s original $56 billion package.


Framed as a “good faith interim” award while the 2018 plan is under appeal following its invalidation by the Delaware Court of Chancery, this new grant raises urgent questions about corporate governance, tax exposure, and, most importantly, the cost to existing shareholders.



The Financial Cost to Shareholders

Tesla has approximately 3.2 billion shares outstanding. Issuing 96 million new shares equates to roughly 3 percent dilution. This is not a theoretical cost—existing shareholders now own a smaller percentage of the company. The value being transferred to Musk is not being earned through new capital or performance, but rather extracted from the equity of other investors.


By granting the shares at $23.34—when the market value of Tesla stock is more than ten times that—the board has effectively handed Musk billions in unrealised gain on day one.


While the RSUs are subject to a five-year holding requirement, the grant still imposes immediate economic and accounting consequences.


Corporate Accounting and Reporting Impact

Under U.S. accounting rules, Tesla will be required to recognise a non-cash compensation expense based on the fair market value of the RSUs at the time of grant. Analysts estimate this could result in an expense of $25 billion or more across Tesla’s income statements over the vesting period.


Though Tesla will not pay this amount in cash, it significantly reduces reported earnings and may erode investor confidence, especially among institutional holders focused on profitability metrics.



The Tax Burden on Elon Musk

For Musk personally, the RSUs will generate a substantial tax liability. When the shares vest, the difference between the market value and the $23.34 strike price will be treated as ordinary income for tax purposes. At current rates, his combined federal and state income tax exposure could exceed 50 percent, potentially resulting in a personal tax bill of $14 billion or more.


Despite the five-year holding restriction, the plan reportedly permits Musk to sell shares immediately for the sole purpose of covering taxes and paying the strike price. This creates a very likely scenario: Musk will need to liquidate a portion of the shares—possibly billions of dollars' worth—as soon as they vest.


This is complicated by the fact that much of Musk’s existing Tesla shareholding is already encumbered. He has previously pledged shares as collateral for substantial personal loans. This makes the new award not only a windfall but a liquidity lifeline, enabling Musk to extract real value while avoiding margin calls or forced sales of pledged assets.


A Strategic Workaround?

In every sense, this appears to be a carefully engineered workaround. Musk’s original 2018 package—valued at $56 billion—was invalidated after a shareholder lawsuit argued that Tesla’s board was not sufficiently independent and failed to properly disclose the terms. This interim award is structured to maintain Musk’s alignment with Tesla while avoiding immediate court scrutiny.


Tesla has made the award contingent: if the 2018 plan is reinstated on appeal, these new RSUs are forfeited. If not, they remain in place. This legal positioning is clever—but to shareholders, it may look more like a game of compensation musical chairs, where the music never stops and Musk always wins.



Can Shareholders Block or Reverse This?

There are few realistic paths for reversal. The Delaware courts are reluctant to interfere with board-approved executive compensation unless there is clear evidence of self-dealing, breach of fiduciary duty, or a failure of disclosure. The interim nature of the grant may help shield it from immediate legal challenge.


Shareholders could attempt to file another derivative suit or class action, but Tesla has likely structured this award to avoid the pitfalls that voided the original package. Even a shareholder vote at a future annual meeting would have no retroactive effect on this grant. In legal terms, it would be exceedingly difficult to “claw back” the shares once granted and vested.


Conclusion

Tesla’s board has once again placed extraordinary faith—and capital—in the hands of Elon Musk. But this time, the cost to shareholders is immediate, measurable, and concerning. With dilution, earnings impact, tax-triggered share sales, and potential volatility ahead, this award is not just a bonus—it is a transfer of wealth from shareholders to the CEO.


While Musk’s leadership and vision are often credited with Tesla’s rise, the mechanisms through which he is compensated continue to raise serious governance questions.

Shareholders must now decide whether loyalty to Musk is worth the price they are paying—not just in shares, but in principle.


If left unchallenged, this episode may set a precedent far more damaging than any financial expense: the normalisation of corporate boards granting executive favours under the veil of necessity, even when the courts say otherwise.


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