Tesla-SpaceX Merger Would Erase Targets Behind Musk's $824 Billion Payday

A clause in Tesla's $1 trillion CEO pay package would erase half of Elon Musk's performance targets if SpaceX acquires the automaker, potentially delivering up to 424 million shares worth about $824 billion.

"This $1 trillion—that was supposed to be a stretch," said Mary Ellen Carter, an accounting professor at Boston College who studies executive pay. "It turns out it isn't really that hard. All you have to do is be bought."

Tesla shareholders approved the award last fall. Under ordinary circumstances, it would deliver as many as 423.7 million shares if Tesla hits 12 market-value targets and 12 cash-flow and operating goals, including delivering its 20-millionth vehicle, selling one million robots and putting one million robotaxis on the street. Yet a single sentence on page five of the 16-page 2025 CEO Performance Award Agreement declares half those targets as good as accomplished if Tesla is acquired or taken over.

That leaves only market-value targets to determine Musk's shares, based on the final deal price or Tesla's market capitalization before closing, whichever is higher. Every $500 billion added to the deal price delivers more shares, up to $7.5 trillion. An $8.5 trillion acquisition—more than six times Tesla's recent market value—would deliver the full 424 million shares.

The record-setting award was "designed to align extraordinary long-term shareholder value with incentives that will drive peak performance from our visionary leader," Tesla Chair Robyn Denholm told shareholders at the time. Musk, SpaceX and Tesla didn't respond to requests for comment.

Musk has considerable say over any offer SpaceX makes for Tesla. His holdings of SpaceX Class A shares, with one vote apiece, and Class B, with 10, give him about 86% of any SpaceX vote needed to approve a deal. By controlling most B shares, he also can appoint a majority of the company's board, which oversees deals.

The company's legal home of Texas largely protects SpaceX from shareholder lawsuits over any Tesla acquisition, unless plaintiffs own at least 3% of the company. "Legally, he has the power to do whatever," said Ann Lipton, a University of Colorado law professor specializing in corporate law.

Shareholders would have to bless any deal at Tesla, where Musk now holds just under 20% of the vote. Although Tesla is also in Texas, disgruntled shareholders there would have a clearer path to suing, raising the importance of getting investors on board, Lipton said. "He needs to persuade the Tesla shareholders."

What a $2 Trillion Bid Would Look Like

If SpaceX were to buy Tesla for $2 trillion, that would equal $506 a share at pre-deal share prices and shares outstanding. But that price would first deliver 35 million shares to Musk, lowering the per-share price received by all Tesla investors to about $502. In an all-stock deal, each Tesla share would yield 3.8 shares in the combined company, with current Tesla investors owning most of it. Musk would own about 32% of the combined company, mostly through Class B shares that carry 10 times the voting power of Class A shares, giving him control of about 73% of the combined company's voting power.

SpaceX's Nonvoting Shares Offer a Third Path

There are other possible scenarios. SpaceX has a third, nonvoting class of shares but hasn't issued any yet. Using those to acquire Tesla could avoid or reduce diluting the votes of existing SpaceX shareholders, albeit at the risk of resistance from Tesla investors.

Potential complications lurk, too. Musk might want to keep acquisition costs down to avoid cutting too deeply into the ownership and voting power, however limited, of existing SpaceX shareholders. Many are longtime supporters who signed on with the company's initial public offering just weeks ago.

"Tesla shareholders could think it's terrible and the Tesla price drops" ahead of any deal, Carter said. "But it's whatever SpaceX is willing to offer."

A Tesla-SpaceX combination would rank among the largest corporate transactions in history, reshaping both the electric-vehicle and space industries while concentrating unprecedented voting power in Musk's hands. For Tesla shareholders beyond Musk, the deal's outcome hinges on whether SpaceX's offer price clears the market-value thresholds that would trigger the full payout—a dynamic that gives Musk, who controls both sides of the negotiation, an unusual degree of leverage over the final terms.

This article is for informational purposes only and does not constitute investment advice.