Against a backdrop of falling sales and earnings, Tesla (NASDAQ:TSLA) stock jumped 5.6% on Friday (5 September) after the company unveiled its ‘2025 CEO Performance Award‘.
What’s the incentive?
Although there’s plenty of devil in the detail of the deal, the headline is that if Elon Musk can get the company’s stock market valuation to $8.5trn within 10 years, he will receive shares worth a staggering $1trn.
Tesla’s current market-cap is $1.09trn. If the group’s chief executive and largest shareholder were to meet all of the targets, the company’s stock price would be at least $2,739. At the moment, it’s around $355.
Hugely ambitious
The group’s board of directors acknowledge that it’s a challenge. A closer look at the proposal (it requires shareholder approval) shows that it’s not an ‘all or nothing’ package. There are 12 milestones on the way to $8.5trn. For each one that Musk hits, he will receive a tranche of new shares.
There are also EBITDA (earnings before interest, tax, depreciation and amortisation) targets – the last of which is $400bn – as well as four product goals. These comprise 20m vehicles and 1m bots to be delivered, 10m active Full Self-Drive (FSD) subscriptions and 1m robotaxis in commercial operation.
| Measure | Q1 24 | Q2 24 | Q3 24 | Q4 24 | Q1 25 | Q2 25 |
|---|---|---|---|---|---|---|
| Total revenue ($m) | 21,301 | 25,500 | 25,182 | 25,707 | 19,335 | 22,496 |
| Gross profit ($m) | 3,696 | 4,578 | 4,997 | 4,179 | 3,153 | 3,878 |
| Gross margin (%) | 17.4 | 18.0 | 19.9 | 16.3 | 16.3 | 17.2 |
| Net income ($m) | 1,129 | 1,400 | 2,173 | 2,128 | 409 | 1,172 |
| Deliveries | 386,810 | 443,956 | 462,890 | 495,570 | 336,681 | 384,122 |
Will it happen?
The trillion-dollar question is: will Musk get Tesla to a market-cap of $8.5trn?
Due to the enormous numbers involved, it’s easy to say it’s impossible although I suspect even the most sceptical will acknowledge that, at some point over the next 10 years, the company’s going to be worth more than it is today.
For the 12 months ended 30 June, Tesla’s adjusted EBITDA was $15.2bn. At the moment, the group’s valued at 71 times this figure. Using this multiple, if it can reach $400bn of EBITDA, it would be valued at $28.4trn!
I find these figures mind blowing. And this makes me doubtful. But Musk has a history of proving the sceptics wrong. In 2018, Business Insider ran an article with the headline: ‘All the ways that Tesla could go bankrupt in the next year‘.
The decision to offer such an enormous incentive package is a vote of confidence in a man whose recent foray into American politics has reportedly damaged the brand. Also of concern, President Trump has cut government subsidies for the industry.
A different world
But Tesla isn’t the only electric vehicle (EV) maker experiencing falling sales. Reports suggest BYD has cut its production targets for 2025. And I think this reflects the fact that every car manufacturer in the world is now moving into a market that was previously occupied exclusively by Tesla.
Supporters will point out that Tesla isn’t a car company and should be valued more highly than others in the automotive industry. But mainstream manufacturers are closing the gap with their own technology offerings. Personally, I struggle to understand the fascination with self-driving taxis. Having a human get me from A to B works pretty well at the moment.
Whether Musk becomes the world’s first trillionaire is still up for debate. But in my opinion, the stock’s currently trading at a level that seems to be ignoring the EV progress being made by other car producers. And I believe it over-estimates the uniqueness of Tesla’s offer. On this basis, the stock’s not for me.
