Musk Wins Appeal Restoring 2018 Tesla Deal, Now Valued at About $139B

Elon Musk’s 2018 pay package from Tesla, once valued at $56 billion, has been restored by the Delaware Supreme Court, nearly two years after a lower court struck down the compensation deal as “unfathomable”.

 

The ruling overturns a decision that had triggered a furious backlash from Musk and dented Delaware’s reputation as a business-friendly jurisdiction. It also assures Musk greater control over Tesla, which he has said is his primary concern, even after shareholders recently approved a new pay package that could be worth as much as $878 billion if the company meets certain performance targets.

 

The Supreme Court said a 2024 ruling that rescinded the pay package had been improper and inequitable to Musk. The remedy of total rescission “leaves Musk uncompensated for his time and efforts over a period of six years,” the 49-page ruling issued on Friday stated.

 

The 2018 pay package is now worth about $139 billion, based on Tesla’s share price at the close of trading on Friday.

 

“For Elon, this is a win because he gets control faster,” said Gene Munster, managing partner at Tesla investor Deepwater Asset Management.

 

If Musk exercises all the stock options from the 2018 package, his stake in Tesla would rise from about 12.4 per cent to 18.1 per cent of an expanded share base. The company is issuing shares linked to his new pay package, although he must earn them by meeting performance goals.

 

Lawyers who challenged the pay package said in a statement that they were considering their next steps and were “proud to have participated in the historic verdict below, calling to account the Tesla board and its largest shareholder for their breaches of fiduciary duty”.

 

The pay package was by far the largest ever until Tesla shareholders approved the new pay plan in November. Had Tesla’s appeal failed, the company could have faced a $26 billion hit to profits over two years to account for the replacement stock compensation it had promised Musk, at today’s much higher share price.

 

The 2018 pay deal granted Musk options to acquire about 304 million Tesla shares at a heavily discounted price if the company met various milestones, which it did. The options represent around 9 per cent of Tesla’s outstanding shares.

 

Musk never collected the stock options because, soon after shareholders approved the 2018 compensation plan, the board was sued by Richard Tornetta, an investor who owned nine Tesla shares.

Unfriendly to Business?

In 2024, following a five-day trial, Delaware Judge Kathaleen McCormick concluded that Tesla’s directors were conflicted and that key facts had been withheld from shareholders when they voted to approve the plan. She ordered the 2018 package to be rescinded.

Musk accused Delaware judges of activism and hostility towards technology founders, urging businesses to follow Tesla and reincorporate elsewhere. Dropbox, Roblox, Trade Desk and Coinbase were among a handful of large companies that moved their legal homes to Nevada or Texas. Delaware, however, remains by far the most popular legal home for US public companies.

Tesla’s board had warned that Musk, the world’s richest person who also leads SpaceX and artificial intelligence start-up xAI, could leave the electric carmaker if he did not receive the pay he wanted and an increase in his voting power.

The Delaware Supreme Court may have been reluctant to annul Musk’s pay package because shareholders had overwhelmingly voted in favour of it, said Brian Dunn, director of the Institute for Compensation Studies at Cornell University’s School of Industrial and Labor Relations.

“I think there’s some belief that maybe the courts shouldn’t get between shareholders and the decisions they make,” Dunn said.

Shareholders approved a new pay package in November, and Tesla has taken steps to reduce the risk that the 2025 package could be tied up in the courts.

The Austin-based company is now incorporated in Texas, which allows Tesla to require that any investor or group of investors must own at least 3 per cent of the company’s shares before suing over an alleged corporate law violation. A stake of that size would be worth around $30 billion, and Musk is the only individual who holds that much stock.

 

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