Tesla’s share price on Friday plunged by 4.8% in the US stock market. This drop came just one day after the company’s shareholders voted to sanction a massive 10-year compensation package for CEO Elon Musk, which is worth approximately $1 trillion.
The shareholder meeting, which was held in Austin, Texas, on Thursday, November 6, ended with more than 75% shareholders voting “for” the pay plan. The sole reason behind this move is to keep Elon Musk focused on Tesla as it pushes to become a leader in artificial intelligence and robotics.
Why did the stock plummet?
Fear of dilution: To pay Elon Musk, Tesla would need to issue new company shares to him over the next decade. When a company creates more shares, it is like cutting a cake into more slices, where each existing slice (or share) can become slightly less valuable. This fear of “share dilution” likely caused many investors to sell.
Sell the news: At times, the share price surges in anticipation of good news. However, once the news becomes official, investors tend to sell a portion of their holdings to book the profit, leading to a temporary dip.
A pay package tied to massive goals
The $1 trillion package is not a simple cash bonus. It is a performance-based plan, meaning Musk only gets paid if he meets a series of incredibly ambitious goals over the next 10 years.
To receive the full payout, Musk must lead Tesla to grow its market value from its current $1.5 trillion to an astonishing $8.5 trillion. He should also fulfil new targets for Tesla’s latest projects, including delivering 20 million vehicles per year, putting 1 million self-driving “Robotaxis” on the road, and selling 1 million humanoid "Optimus" robots, according to Forbes reports.
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As per the Australian Broadcasting Corporation, after the vote, Musk told shareholders, “What we are about to embark upon is not merely a new chapter for Tesla, but a whole new book.” The vote locks in Musk’s leadership and confirms the company’s high-stakes pivot from being just a car company to an AI and robotics powerhouse.
