Tesla (TSLA) investors (and shareholders) may want to brush up on their “legalese” because the next few months could have severe implications on the firm’s overarching financials. An upcoming decision by the Supreme Court of Delaware on Elon Musk’s 2018 compensation package could meaningfully affect the car giant’s earnings, governance, and shareholder value.
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That’s the view being put forth by a growing army of Tesla naysayers who argue that the firm has bitten off more than it can chew, including a legally-binding $1 trillion agreement regarding Elon Musk’s pay over the next decade.
Rewinding back to 2018 for a moment, Tesla’s board approved a stock-option package for Musk that was expected to be worth ~$56 billion at the time. However, given Tesla’s rampant share price gains in recent years, Musk’s package has since “appreciated significantly,” and has crossed some red lines. Estimates place the legacy pay package at an in-the-money value of ~$100 billion.
In January 2024, a Delaware court invalidated the pay award, citing that Musk “exerted controlling shareholder influence” over the process, that the board lacked independence, and that shareholders were not fully informed. Following Tesla’s appeal, the case is now before the Delaware Supreme Court. There is also a separate appeal concerning ~$345 million in “attorney fees” awarded to the plaintiffs in the earlier litigation.
Why the Court’s Decision Matters for TSLA Shareholders
If Tesla loses the appeal and is ordered to replace Musk’s 2018 award, analysts warn the accounting charge could amount to ~$26 billion over two years — more than half of Tesla’s net profit since it posted back-to-back profitable quarters in 2019. Even if Tesla wins, the company’s new proposed compensation plan for Musk (approaching $1 trillion) poses its own margin and dilution risks.
Moreover, there are governance implications for TSLA. The case raises questions about how well Tesla’s board monitored a CEO who is also the largest shareholder, the independence of the compensation committee, and whether shareholder votes were genuinely “fully informed”.
For TSLA shareholders, this issue strikes at the heart of share-value protection and corporate oversight. Recent history offers cautionary examples: Novo Nordisk (NVO), for instance, is facing allegations of misleading investors, eventually prompting hundreds of law firms to pursue claims on behalf of shareholders. If Tesla were ever pushed down a similar path, the resulting legal entanglements could consume management attention and create prolonged uncertainty.
Ultimately, the clear overarching consideration for both the Delaware court and investors is shareholder dilution. While stock-based compensation doesn’t drain cash immediately, accounting rules require it to be treated as an expense, which reduces reported earnings. Critics argue that massive awards to Musk amount to a transfer of value away from ordinary shareholders, thereby shrinking their proportional ownership and long-term voting power.
What If Scenarios for TSLA Investors
If Tesla wins the appeal, Musk retains his 2018 package, Tesla avoids a massive replacement charge, and the board preserves maximum flexibility. In practical terms, this would position Musk to receive roughly $300 billion today, with several additional tranches of performance-based compensation that could push the total toward $1 trillion by 2035.
If the appeal fails, Tesla would need to renegotiate and finalize a new agreement with Musk — one involving fewer shares but issued at much higher stock prices. This scenario could create substantial accounting burdens in future years, especially if Tesla’s operational performance improves enough to trigger the payouts.
Conversely, if Tesla’s stock price rises mainly on speculation without a corresponding improvement in fundamentals, the required accounting charges could weigh on investor sentiment. Some argue this dynamic is already developing, as Musk is positioned to claim extraordinary rewards while Tesla’s long-term success case remains unproven.
Court Ruling Will Influence TSLA Shareholders
The Delaware Supreme Court now holds the power to impact Tesla shareholders, possibly even more so than Tesla’s long-term operations. Regardless of how the court rules, Tesla is likely to find a way to compensate Elon Musk while continuing to advance its wide-ranging ambitions in AI, electric vehicles, batteries, energy storage, and robotics. However, the court’s ruling is likely to affect shareholders regardless, either by perceivably restricting innovation or allowing dilution — depending on the perspective. The case has not attracted extensive media coverage, but its implications may be far more significant than many investors realize.
For TSLA shareholders, the ruling will directly affect how much economic value ultimately flows to Musk — a figure that, based on current projections, reaches levels large enough to materially impact any corporation’s financials. The court’s decision will also influence how much share dilution investors could face over the next decade. With the sheer scale of the potential payouts and the prominence of Tesla’s compensation structures, this ruling stands out as one of the most consequential governance events market participants have seen in recent years.