Key Takeaways
- Tesla faces a potential $26 billion profit hit from Elon Musk’s 2018 pay package legal dispute
- The Delaware Supreme Court’s ruling could force Tesla to book massive expenses by August 2027
- Quarterly profits could drop by $3.25 billion if the court rules against Tesla
Tesla confronts a massive $26 billion financial risk stemming from the ongoing legal battle over CEO Elon Musk’s 2018 compensation package. The Delaware Supreme Court’s pending decision could significantly impact the automaker’s profitability over the next two years.
The $26 Billion Accounting Risk
If the Delaware Supreme Court upholds the lower court’s ruling that invalidated Musk’s 2018 pay package, Tesla must account for a replacement compensation package valued at current stock prices. This $26 billion expense represents more than half of Tesla’s total net income since the company first became profitable in 2019.
When spread across eight quarters as expected, this would reduce Tesla’s quarterly profits by $3.25 billion – an amount larger than the company’s net income in nearly every quarter since 2019.
Impact on Musk’s Compensation Plans
Even if Tesla wins the 2018 package dispute, the newly approved $1 trillion compensation plan could continue putting pressure on profits over the next decade as Musk achieves performance milestones.
Tesla’s board maintains that these substantial pay packages are essential to retain Musk and keep him focused on the company’s ambitious goals. In regulatory filings, Tesla acknowledged that losing the appeal could cause “a material adverse impact on our business and reported earnings.”
However, if the Delaware Supreme Court rules in Tesla’s favor, the company would face no additional accounting expenses, and Musk would retain his original 2018 stock options currently valued at $116 billion.
