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.
entrepreneur daily
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

Related Topics

Growing a Business

Why Startups Should Invest in Public Relations Right Now

Should you wait until you fundraise to invest in PR? The short answer is a resounding no. Here's why.

Growing a Business

The Owners of This Texas Farmers Market Took a Big Gamble. Here's How It Paid Off Bigger Than They Dreamed.

A Texas farmers market educates customers about the importance of shopping local for a healthy lifestyle and an even healthier small business community.

Business News

Woman Allegedly Fired for 'Theft' After Eating a Sandwich That Was Leftover From a Meeting

Gabriela Rodriguez worked as a cleaner at Devonshires Solicitors in London for two years.

Business News

A 29-Year-Old CEO Quit Microsoft To Build His Startup — And Just Scored A Deal on Shark Tank

Aabesh De tapped into a niche need during the pandemic and founded Flora, a houseplant care startup.

Business News

A Billion Dollar Startup Is Trying To Resurrect A Woolly Mammoth — And You Can Watch It Happen

Filmmakers will go behind the scenes of billion-dollar startup Colossal Biosciences, which uses genetic engineering for de-extinction projects.