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--:-- Jessica Mendoza: Welcome back to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Friday, November 7th.
--:-- Jessica Mendoza: Coming up on the show, another record-breaking pay package for Elon Musk. This episode is presented by SAP. A bad storm hitting your warehouse. Incomplete customs forms. A short supply of those little plastic twist ties. These could all deal a crushing setback to your business. But they don't have to. The AI-powered capabilities of SAP will help you navigate uncertainty. You can pivot to new suppliers, automate paperwork, and source the twist ties you need. So your business can stay unstoppable. Learn more at sap.com slash uncertainty.
--:-- Jessica Mendoza: This episode is brought to you by Canva. Bring your ideas to life with Canva, the all-in-one design platform that makes ideas flow into impactful work. With Canva AI, you can generate a stunning video clip for your presentation or create a first draft of your report. Canva has even reimagined spreadsheets with visual-first Canva sheets. Canva lets you bring your big ideas to life as fast as you can think of them. Put imagination to work at Canva.com.
--:-- Jessica Mendoza: Thursday vote is not the first time that Tesla shareholders have approved a major pay raise for Musk. In 2018 he was awarded a multi-dollar pay package. But a shareholder filed a lawsuit in Delaware saying that the approval process was flawed because of Musk's influence over the board. That case wound its way through the courts for years. And in the beginning of 2024, the Delaware Chancery Court judge decided that the package was not fair to shareholders and rescinded it.
--:-- Jessica Mendoza: According to a decision in a Delaware court, the Tesla chief executive's record-breaking $56 billion pay award will not be reinstated. Tesla tried to get around that decision last year. They held a new shareholder vote on the same 2018 package, asking shareholders, if you could give it to him again, would you? It was basically like a popularity contest. It didn't have any sort of legal status. It didn't do anything to give him the package back. Musk never received that full package, though the board has given him a third of the shares as the court case continues.
--:-- Jessica Mendoza: The way that they see it, Musk hasn't been paid since then, since that pay package was canceled. And while that's still going through the appeal process in court, they were trying to solve the problem of our CEO hasn't been paid. The record-setting pay package is also meant to get Musk's attention. The billionaire spent the first part of the year leading the Department of Government Efficiency. And more recently, he's focused on his artificial intelligence company, XAI.
--:-- Jessica Mendoza: Meanwhile, Tesla hasn't been getting a lot of love from Musk. He spent a lot of time this summer at XAI, as we reported. Tesla people would have to go to the XAI offices for their meetings. People in this universe know that he's splitting his time. And even the board says like they're not actually asking for time. What they're asking for is like his energy and his devotion and his like interest in the success of the company, which seems to be waning for a lot of the last year.
--:-- Jessica Mendoza: And what does that mean for Tesla? Like how is the company doing? The first half of the year was really hard on Tesla sales. And I reported on this a lot. There was a lot of controversy. People were sort of boycotting the company. People were protesting the company. Nobody voting for Elon Musk. Tesla owners were putting bumper stickers on their car saying, like, I bought this before Elon went crazy. There was a massive rebellion against the brand. And we saw that in the sales numbers. In the first half of the year, sales fell more than 13 percent globally.
--:-- Jessica Mendoza: Tesla's profit also slid 71% in the first quarter of this year. But the company has somewhat bounced back as customers rushed to buy cars ahead of the end to EV subsidies in the U.S. In the run-up to the vote, some big shareholders expressed their opposition to such a huge pay raise for Musk. There were a few shareholders who came out against the pay package before the vote. One was Norway's public pension fund. And they answer to the people of Norway, and they have maybe slightly different values than other Tesla shareholders.
--:-- Jessica Mendoza: But a lot of the U.S. public pension funds also came out against it. Maybe he is the visionary that the board thinks he is, but we don't know what could happen to anybody. That's an executive from California State Pension Fund. And if it is, you know, so key on just one person, key person risk, you know, that's a worry for me as a shareholder.
--:-- Jessica Mendoza: Musk threatened to leave Tesla if the pay package didn't get approved. In response to a post on X criticizing the plan, he pointed out how valuable Tesla is compared to other car companies. And he wrote, quote, Why is Musk so valuable Like is he really the only person who can lead Tesla That how they see it Tesla in a unique situation compared to other publicly traded companies in that more than 30 of its shareholders are retail investors.
--:-- Jessica Mendoza: So these are just individuals who are putting their money in, a lot of times putting all of their money in. And they're really excited by it. They believe in Musk, the man. They believe in his companies. And in a lot of cases, he can't do any wrong. Yesterday, 75% of the Tesla shareholders who voted cast a yes on the pay package. And unlike the last pay package, this one probably won't get snarled up in court. That's because Tesla relocated its headquarters to Texas. And so the company isn't under the jurisdiction of that Delaware court anymore.
--:-- Jessica Mendoza: But for Musk, there's a long road to a trillion dollars. What he has to do and what it means for the future of Tesla is next.
--:-- Becky Peterson: Musk's new pay package is made up of chunks of stock. And to get each one, he has to reach certain targets. The board set goals that would require him to actually create operational growth. So he has to grow Tesla's profits and he has to grow its sales of a few key products. And so does he have to, like practically speaking, how does it work? Like does he have to hit all the goals at once? Is there an option to choose which goals he wants to hit at any given time? And what does he get for each goal achieved?
--:-- Becky Peterson: It's almost like a video game. That's a great way to think about it. The package is divided into 12 tranches. Each of the 12 tranches is tied to a market cap goal. To unlock a tranche of shares, Musk needs to grow Tesla's market cap by $500 billion or more, and also hit one of a series of sales milestones, which include delivering 20 million cars, selling a million robots, and getting a million robo-taxis on the road.
--:-- Becky Peterson: The final goal is to get Tesla to that $8.5 trillion valuation over the next 10 years. If Musk does that, he gets to level up his voting power from 15% to 25%. He's already the largest shareholder in the company. Just big picture, stepping back, what does the future of Tesla look like as far as Musk is concerned?
--:-- Becky Peterson: If he's successful, robots will be ruling the world. And I think the idea is that humanoid robots will supercharge the economy and there will be so much wealth creation that humans won't need to work and we'll all just live as very wealthy people in an economy that's supported by humanoid robots.
--:-- Becky Peterson: With AI and robotics, you can actually increase the global economy by a factor of 10 or maybe 100. There's not an obvious limit. That's obviously not what our world looks like right now. And he, at Tesla in particular, would be building these robots that are able to move around, work in factories, take care of babies. This is how he's described it. And he has started referring to this as his robot army.
--:-- Becky Peterson: I mean, I guess a guy with that many kids could use a robot army. I don't know. Yeah, most people don't need as many babysitters. Totally. Have you used or interacted with any of these robots at this point?
--:-- Becky Peterson: When the board was promoting the pay package, they brought an older version of Optimist to New York's Times Square. And I stood in line and got handed a Snickers bar as part of their like Halloween candy moment But this was an older one So it not like the most up technology but like it was a little clunky And it was also tele-operated by someone behind the scenes. And you could hear a little bit of like the gears churning. And then I stuck around and got to watch it leave its post. and it walks like two inches at a time.
--:-- Becky Peterson: But then when they demoed the robots on stage last night, dancing, it moved a lot more like a human than the one that I saw in Times Square. I guess dancing is the first step and then you can start cleaning.
--:-- Becky Peterson: Do electric cars play a role in Musk's vision for Tesla at all? Besides the robo-taxis? He just doesn't, he doesn't think people will be using cars the way that they do now. The cars that they have in the lineup, like for the future, don't have steering wheels, don't have pedals, don't have side mirrors. Like he's not designing cars that people are buying today.
--:-- Becky Peterson: So again, to hit these goals, the world is going to have to change a little bit. It's worth noting, it's not guaranteed that Musk will actually get the whole trillion dollars from this package. I spoke to Tesla's board chair, Robin Denholm, about this. She emphasized that these are moonshot goals. They're meant to be very difficult. And, you know, she said people are talking about it as if he's going to succeed, but like she doesn't know that he will succeed.
--:-- Becky Peterson: And if Musk isn't able to hit the milestones, what does that mean for Tesla? It's a smaller company. $8.5 trillion market cap is still extraordinary. Yeah, it's a big number. I think NVIDIA just hit five trillion. It's a big number. Like they could land, as they say with moonshots, they could land among the stars and still have grown quite a bit.
--:-- Becky Peterson: After the meeting, Musk posted on X, quote, time to pull a lot of rabbits out of the hat. What do you take that to mean?
--:-- Becky Peterson: Oh no, he doesn't think he can do it? It's funny to me because I listen to him talk every quarter. He paints a picture and he sells shareholders on a vision of the future. And it always seems like he can't do it. And then, oh my God, suddenly he does it. Amazing. Where he gets credit is for like coming up with the vision and for encouraging people to help his companies actually reach these unbelievable goals.
--:-- Becky Peterson: So this is another example of that. These goals would be transformational for Tesla. There's no guarantees, but now he's incentivized to try.
--:-- Jessica Mendoza: Thank you, Becky. Our engineers are Griffin Tanner, Nathan Singapok, and Peter Leonard. Our theme music is by So Wiley. Additional music this week from Catherine Anderson, Peter Leonard, Bobby Lord, Emma Munger, Nathan Singapok, and Blue Dot Sessions. Fact-checking this week by Mary Mathis. Thanks for listening. See you on Monday.
