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What is the story about?
Elon Musk made headlines on SpaceX’s earnings call yesterday when he confirmed that it and Tesla Inc. had formed special committees to explore a potential merger.
“We are pretty much in the super-intelligence singularity,” said Musk. “There’s a lot to be gained from cooperating.”
Depending on the details of a merger, there could also be a lot to gain for Musk.
A tie-up could add more than $110 billion to his fortune by accelerating the vesting of Tesla shares that otherwise wouldn’t vest until 2028, according to calculations by the Bloomberg Billionaires Index. And depending on Tesla’s valuation in a deal, it could unlock billions more from Musk’s 2025 compensation package without Tesla having to meet the operating milestones that would otherwise be required to trigger the payout.
Tesla and SpaceX didn’t reply to requests for comment. Musk’s fortune soared by more than $60 billion Wednesday after shares of both companies rose on news of the merger discussions and strong quarterly earnings from SpaceX.
Ambitious Targets
Musk, 55, was handed a record-breaking pay package at Tesla last year that could be worth nearly $1 trillion if fully earned. Spanning 10 years, it’s subject to ambitious performance goals including delivering a million Optimus robots, having a million robotaxis in commercial operation and delivering 20 million vehicles.
It paired the goals with market capitalisation targets of between $2 trillion and $8.5 trillion. All of the operational and market-cap milestones have yet to be achieved.
Like most executive compensation plans, Musk’s is subject to change-in-control provisions. A merger can trigger them if Tesla’s existing shareholders emerge with less than 50% of the voting power of the surviving company or its parent. That would be a plausible outcome given SpaceX is currently worth roughly one-third more than Tesla, but would ultimately depend on the transaction’s structure.
If the provisions are triggered, then the operational milestones are disregarded and Musk’s payout is calculated using Tesla’s market value in the deal.
That means that if Tesla is valued at $2 trillion in the merger — the first market-cap milestone — Musk would unlock shares with a net value of more than $6 billion. Tesla is currently worth about $1.5 trillion.
“Whether these change-in-control provisions technically trigger will depend on how the deal is structured, but shareholders on both sides should assume his incentives point toward a high headline valuation and ask what the committees will do about it,” said Jason Schloetzer, an associate professor of accounting at Georgetown University’s McDonough School of Business.
Under the current package, Musk can’t sell the shares from the award for five years, but that’s also subject to exceptions for change-in-control events.
Accelerated Vesting
An even bigger benefit for Musk could come from the accelerated vesting of his 2018 Tesla compensation award.
Musk’s original “moonshot” pay package gave him about 304 million options subject to Tesla meeting certain market-cap and operational milestones, all of which were accomplished. Musk and the board negotiated an implementation package earlier this year that allowed him to net-settle the options, reducing his need for cash to pay taxes and exercise costs. In return, the roughly 286 million shares he received won’t vest until January 2028 as an added incentive for him to stay at the company.
But if there’s a change-in-control, those shares vest immediately.
Additionally, after vesting, those shares are subject to a five-year holding period. But the agreement provides for some exceptions in a change-of-control event, potentially allowing Musk to sell them earlier too.
The shares are currently worth more than $110 billion, and are excluded from Musk’s current net worth calculation on Bloomberg’s wealth index because they haven’t yet vested.
SpaceX Compensation
Musk also has two compensation packages at SpaceX that are less likely to be affected by any deal.
The rocket and artificial intelligence company awarded him up to 1.3 billion restricted shares dependent on market capitalisation milestones as well as operational milestones tied to a human colony on Mars and the computing power of its planned space-based data centers.
The market-cap milestones can be adjusted by the board to account for any mergers or acquisitions, which it did after SpaceX bought Musk’s artificial intelligence startup, xAI. That suggests the board would again adjust them in the event of a Tesla merger, so that the deal doesn’t make achieving those goals artificially easier.
But there could be pressure on the board to craft another compensation package for its founder, given the forfeiture of most of his Tesla compensation package and the lack of explicit goals for Musk that would be tied to Tesla’s traditional business lines.
That “would seem a foregone conclusion, given the history of both companies in granting very large equity packages,” said Schloetzer. “The combined company’s board would face the familiar argument that new awards are needed to keep Musk engaged.”
Also Read: Cars24's Vikram Chopra: AI Is 100x Bigger Than The Internet | $20M Bet, IPO & Co-Founders Exit
“We are pretty much in the super-intelligence singularity,” said Musk. “There’s a lot to be gained from cooperating.”
Depending on the details of a merger, there could also be a lot to gain for Musk.
A tie-up could add more than $110 billion to his fortune by accelerating the vesting of Tesla shares that otherwise wouldn’t vest until 2028, according to calculations by the Bloomberg Billionaires Index. And depending on Tesla’s valuation in a deal, it could unlock billions more from Musk’s 2025 compensation package without Tesla having to meet the operating milestones that would otherwise be required to trigger the payout.
Tesla and SpaceX didn’t reply to requests for comment. Musk’s fortune soared by more than $60 billion Wednesday after shares of both companies rose on news of the merger discussions and strong quarterly earnings from SpaceX.
Ambitious Targets
Musk, 55, was handed a record-breaking pay package at Tesla last year that could be worth nearly $1 trillion if fully earned. Spanning 10 years, it’s subject to ambitious performance goals including delivering a million Optimus robots, having a million robotaxis in commercial operation and delivering 20 million vehicles.
It paired the goals with market capitalisation targets of between $2 trillion and $8.5 trillion. All of the operational and market-cap milestones have yet to be achieved.
Like most executive compensation plans, Musk’s is subject to change-in-control provisions. A merger can trigger them if Tesla’s existing shareholders emerge with less than 50% of the voting power of the surviving company or its parent. That would be a plausible outcome given SpaceX is currently worth roughly one-third more than Tesla, but would ultimately depend on the transaction’s structure.
If the provisions are triggered, then the operational milestones are disregarded and Musk’s payout is calculated using Tesla’s market value in the deal.
That means that if Tesla is valued at $2 trillion in the merger — the first market-cap milestone — Musk would unlock shares with a net value of more than $6 billion. Tesla is currently worth about $1.5 trillion.
“Whether these change-in-control provisions technically trigger will depend on how the deal is structured, but shareholders on both sides should assume his incentives point toward a high headline valuation and ask what the committees will do about it,” said Jason Schloetzer, an associate professor of accounting at Georgetown University’s McDonough School of Business.
Under the current package, Musk can’t sell the shares from the award for five years, but that’s also subject to exceptions for change-in-control events.
Accelerated Vesting
An even bigger benefit for Musk could come from the accelerated vesting of his 2018 Tesla compensation award.
Musk’s original “moonshot” pay package gave him about 304 million options subject to Tesla meeting certain market-cap and operational milestones, all of which were accomplished. Musk and the board negotiated an implementation package earlier this year that allowed him to net-settle the options, reducing his need for cash to pay taxes and exercise costs. In return, the roughly 286 million shares he received won’t vest until January 2028 as an added incentive for him to stay at the company.
But if there’s a change-in-control, those shares vest immediately.
Additionally, after vesting, those shares are subject to a five-year holding period. But the agreement provides for some exceptions in a change-of-control event, potentially allowing Musk to sell them earlier too.
The shares are currently worth more than $110 billion, and are excluded from Musk’s current net worth calculation on Bloomberg’s wealth index because they haven’t yet vested.
SpaceX Compensation
Musk also has two compensation packages at SpaceX that are less likely to be affected by any deal.
The rocket and artificial intelligence company awarded him up to 1.3 billion restricted shares dependent on market capitalisation milestones as well as operational milestones tied to a human colony on Mars and the computing power of its planned space-based data centers.
The market-cap milestones can be adjusted by the board to account for any mergers or acquisitions, which it did after SpaceX bought Musk’s artificial intelligence startup, xAI. That suggests the board would again adjust them in the event of a Tesla merger, so that the deal doesn’t make achieving those goals artificially easier.
But there could be pressure on the board to craft another compensation package for its founder, given the forfeiture of most of his Tesla compensation package and the lack of explicit goals for Musk that would be tied to Tesla’s traditional business lines.
That “would seem a foregone conclusion, given the history of both companies in granting very large equity packages,” said Schloetzer. “The combined company’s board would face the familiar argument that new awards are needed to keep Musk engaged.”
Also Read: Cars24's Vikram Chopra: AI Is 100x Bigger Than The Internet | $20M Bet, IPO & Co-Founders Exit
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