Get All Access for $5/mo

Why Elon Musk's Battle With Delaware Is About More Than a $55 Billion Pay Package The lawsuit was led by an investor who held just nine Tesla shares.

By Hasan Chowdhury

Key Takeaways

  • Elon Musk just had his $55.8 billion Tesla pay package voided in a Delaware court ruling.
  • The decision, which Tesla can still appeal, goes beyond just damaging Musk's personal gain.
  • Musk's ambitions for Tesla and SpaceX were on the line, as was his confidence in the Diamond State.
Toby Melville - Pool | Getty Images via Business Insider
The decision to void Elon Musk's pay package may have far-reaching consequences.

This article originally appeared on Business Insider.

Elon Musk might be done with Delaware.

The Diamond State, which supposedly gained its moniker from Thomas Jefferson, has proven to be a very hospitable, low-tax home for thousands of corporations including Tesla.

But Musk will have found that famed hospitality to be missing this week after a Delaware judge voided his $55.8 billion compensation package that was granted by the Tesla board in 2018.

The lawsuit, led by Richard Tornetta — an investor who held just nine Tesla shares — has now nullified the payout that helped Musk become the world's richest person.

"The process leading to the approval of Musk's compensation plan was deeply flawed," Judge Kathaleen McCormick said in a 201-page opinion, which stated that Tesla's nine-person board at the time of the grant's approval was lacking any truly independent directors.

Musk's Tesla pay was structured without a salary to involve 12 stock option awards that would only be given once performance goals for each of them were met. Musk has met the goals for the awards but can only sell them after a certain period.

Though Musk can appeal the decision, there are signs that this battle is about more than just the massive pay package that has propelled him to a $205 billion fortune.

Musk's ambitions are on the line

A SpaceX Falcon Heavy rocket with the Psyche spacecraft launches from NASA's Kennedy Space Center in Cape Canaveral, Florida, on October 13, 2023. The spacecraft is bound for Psyche, an object 2.2 billion miles (3.5 billion kilometers) away that could offer clues about the interior of planets like Earth.

Musk's plans for SpaceX are somewhat tied to his ability to raise enormous personal wealth through Tesla. Chandan Khanna/Getty Images

As much as the Delaware court's decision is a hit to Musk's personal gain, it also risks being a hit to his ambitions with Tesla and SpaceX.

In Tesla's case, a failed appeal would mean Musk loses options on roughly 303 million Tesla shares, leaving him with just a 13% stake in the EV maker.

Is that enough? Apparently not.

Musk argued earlier this month that he needs 25% ownership of the company to give him the voting control needed to see through decision-making on key areas of innovation such as AI and robotics.

"Unless that is the case, I would prefer to build products outside of Tesla. You don't seem to understand that Tesla is not one startup, but a dozen. Simply look at the delta between what Tesla does and GM," he wrote on X.

In other words, failure to gain more control poses a possibility that Musk's focus could end up away from Tesla as he pursues AI and robotics ventures elsewhere.

It's a prospect that may give Tesla backers some pause. The carmaker is currently worth $600 billion, up from roughly $50 billion in 2018, when Musk received his pay plan. By comparison, Toyota, the second most valuable carmaker, is worth less than half of Tesla's value today.

Musk also claimed during the trial around his pay in November 2022 that his pay package would help finance his ambitions to create a multiplanetary species with SpaceX. "It's a way to get humanity to Mars," he said.

As Judge McCormick noted in her opinion on Tuesday, "colonizing Mars is an expensive endeavor." So it's reasonable to take Musk at face value when he says his Tesla pay, as McCormick put it, is a "means of bankrolling that mission."

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick

Starting a Business

I Left the Corporate World to Start a Chicken Coop Business — Here Are 3 Valuable Lessons I Learned Along the Way

Board meetings were traded for barnyards as a thriving new venture hatched.

Business News

'Passing By Wide Margins': Elon Musk Celebrates His 'Guaranteed Win' of the Highest Pay Package in U.S. Corporate History

Musk's Tesla pay package is almost 140 times higher than the annual pay of other high-performing CEOs.

Business News

Joey Chestnut Is Going From Nathan's to Netflix for a Competition 15 Years in the Making

Chestnut was banned from this year's Nathan's Hot Dog Eating Contest due to a "rival" contract. Now, he'll compete in a Netflix special instead.


Are Your Business's Local Listings Accurate and Up-to-Date? Here Are the Consequences You Could Face If Not.

Why accurate local listings are crucial for business success — and how to avoid the pitfalls of outdated information.

Money & Finance

Day Traders Often Ignore This One Topic At Their Peril

Boring things — like taxes — can sometimes be highly profitable.

Growing a Business

He Immigrated to the U.S. and Got a Job at McDonald's — Then His Aversion to Being 'Too Comfortable' Led to a Fast-Growing Company That's Hard to Miss

Voyo Popovic launched his moving and storage company in 2018 — and he's been innovating in the industry ever since.