Forget Elon Musk's £764bn New Pay Plan – It's the £20bn Old Package That Could Sink Tesla

Elon Musk has once again dominated headlines and not just for his billion dollar visions, but for a compensation controversy that could reportedly put Tesla's financials under serious strain. And while much of the new attention has focused on Musk's newly proposed $1 trillion pay plan, the far more immediate risk to Tesla comes from his 2018 compensation package.

Because that old award, entangled in a legal fight, could trigger a potential $26 billion accounting hit and wipe out years of Tesla's profits.

The Risk of Musk's 2018 Pay Package

The main reported issue here is Elon Musk's 2018 pay deal, which granted him 303 million stock options reportedly that would vest only if Tesla hit extremely aggressive targets. Moreover, a Delaware court struck this package down, saying Musk's payoff was approved by a board too closely tied to him, something close to a conflict of interest in this case.

Tesla did appeal the judgment and now if Tesla loses its appeal, it would need to issue a replacement package, but at today's much higher stock price, it would end up costing the company around $26 billion (£19.9 billion GBP), according to some reports.

However, that doesn't mean cash outflow, but rather an accounting expense stretched over eight quarters reportedly. So that works out to $3.25 billion per quarter, which is more than Tesla's net income in most recent quarters as per sources.

This is a huge deal for Tesla as even though it's a non cash charge, it still dents net income, and creates big issues about how Musk's compensation affects Tesla's financial health. Now, critics reportedly argue that this level of expense shows a wealth transfer from shareholders to Musk, especially since diluting shares with newly issued stock also weakens other investors' voting power.

Tesla's board, however, insists that Musk is essential to the company's future, and losing him 'could cause material adverse impact' on the business. And they've also warned that failing to replace the 2018 package could push Musk to walk away which is a risk they clearly don't want to take.

READ MORE: Elon Musk's Furious xAI Lawsuit Forces Apple and OpenAI to Face the Consequences

Why the New $1 Trillion Pay Plan Doesn't Solve the Problem

Some may think Musk's newly proposed pay plan, worth up to $1 trillion (£764 billion GBP), would overshadow old controversies, but that's not quite right. This new plan is structured to vest only if Tesla hits 'Mars-shot' goals which as per a study means massive market-cap growth, huge EBITDA milestones, and even product based targets like millions of robots or robotaxis.

Furthermore, the 2025 award also has important differences compared to the 2018 deal. Instead of stock options, the new compensation comes in restricted stock, and Musk will be required to remain employed for years before he can fully vest. Some tranches vest only after 7.5 or 10 years, and the very last ones depend on him laying out a formal CEO succession plan.

But even with those conditions, there's no guarantee Tesla escapes pain because if Musk hits performance goals, the accounting burden of the payout could still compress profits harshly over the next ten years it seems. Moreover, the maximum payout gets adjusted downward, so while the headline figure is $1 trillion, the actual maximum has been pegged at $878 billion (£671 billion GBP), after accounting for the share price at the time of grant as per sources.

On top of that, the new plan grants Musk voting rights earlier, since he can vote with earned shares even if they haven't fully vested. That actually helps him maintain or even increase his influence in Tesla's board decisions, reinforcing concerns about governance and shareholder dilution.

What This Means for Tesla and Its Shareholders

Practically speaking for Tesla and its investors, the implications of Musk's compensation saga are very pressing. Because if the Delaware Supreme Court rejects Tesla's appeal, the company's earnings could take a serious hit, potentially eroding more than half of the net income Tesla has generated since 2019. And that kind of accounting drag could spook investors, especially those who care about governance and capital allocation.

Some analysts warn that while Musk's new pay deal looks futuristic and performance based, it may not sync with long term shareholder value. According to experts as per reports, the scale of Musk's wealth transfer from Tesla could reflect poor fiduciary discipline.

Still, Tesla's board seems determined to hold onto its charismatic CEO. They reportedly argue that Musk's vision and leadership are central to Tesla's mission, from EVs to robotics and that the risk of him leaving is far worse than any accounting charge