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The Tesla (NASDAQ: TSLA) share price has gained ahead of the company’s annual shareholder meeting on Thursday (6 November). Topping the bill is CEO Elon Musk’s proposed pay package, worth up to $1trn.
It isn’t just about whether he gets the money. It’s about fears he’ll walk away if the deal isn’t approved.
Musk wants to be in control: “My fundamental concern … if I go ahead and build this enormous robot army, can I just be ousted at some point in the future?“
What it means
It’s not a case of handing over huge amounts of cash. It’s all about a stock package, which would only be worth the headline figures if Musk can meet a number of stretching performance goals for Tesla.
If he hits his targets within the next 10 years, the Tesla market cap would rise to $8.5trn. That’s more than five-and-a-half times the current $1.5trn value of the company. And a number of stockholders reckon that if Musk can push the Tesla share price up so high in that timescale, it’ll be worth it.
Ark Invest CEO Cathie Wood is among them. She famously put a $2,600 price target on Tesla by 2029. And that’s pretty much bang in line with the market cap target.
Other major investors oppose the proposal, including Norway’s sovereign wealth fund, which holds 1.2% of the car maker… I mean the robotics developer. Or do I mean the global AI pioneer?
What is it?
That’s the key question. What actually is Tesla and how should it be valued? OK, two questions — but they’re closely related.
The BBC quotes Ross Gerber, CEO of Gerber Kawasaki, saying: “What’s amazing to me is a company struggling to sell cars spends money on advertising to sell a pay package.” He added Tesla “needs to change the focus of the company back to its core – to selling EVs again.”
If Tesla is really just an electric car company, why would it be worth a forward price-to-earnings (P/E) ratio of 360? If Tesla can grow its value to $8.4trn in the next decade, it would also need to multiply its profits around 5.5 times just to maintain that P/E — never mind reduce it.
Can it do that just selling cars? China’s BYD, which sells more EVs globally than Tesla, has a P/E of 21 on the Hong Kong exchange. General Motors commands a multiple of only eight.
The real value?
Looking further, Tesla is one of only two companies with active robotaxis. Some analysts have put the potential value of the autonomous driving market in the trillions of dollars. Tesla is also pioneering multiple related technologies — including batteries and charging, and putting AI into real-world applications outside of just the internet.
Cars are, hopefully, just a stepping stone to those.
High-risk stocks like Tesla don’t fit my strategy. But it has to be worth considering for the potential transformation it could bring to our lives. And the Musk pay deal? Mostly a distraction, in my view.
