Court Ruling on Musk's Pay Package Highlights Tesla's Valuation Disconnect

What happened

The Delaware Supreme Court reinstated Elon Musk's $139 billion stock option package, boosting his net worth to $749 billion and reinforcing his alignment with Tesla's stock performance. However, this occurs against a backdrop of deteriorating fundamentals, as detailed in recent SEC filings showing stagnating automotive volumes and compressing gross margins. Tesla's deliveries declined in 2024 while the global EV market expanded, indicating share loss and competitive pressure. Meanwhile, the stock trades at extreme multiples—approximately 290x P/E and 104x EV/EBITDA—implying investors are pricing in speculative success in AI and robotics, such as FSD and Robotaxis. The pay package reinstatement does not address these core operational challenges, keeping the focus on Tesla's high valuation versus its demonstrated financial performance.

Implication

The court ruling locks in Musk's incentive to drive Tesla's stock higher, potentially increasing short-term volatility but not altering the fundamental disconnect between price and earnings. Musk's heightened wealth concentration may exacerbate governance risks, as his divided focus across ventures could impact Tesla's strategic execution. Financially, Tesla faces headwinds with declining automotive margins, net income down year-over-year, and energy storage growth insufficient to justify its $1.5 trillion market cap. The market's reliance on unproven AI and robotics monetization adds substantial risk, with DCF analysis suggesting intrinsic value is over 30x lower than the current price. Therefore, this news reinforces the cautious stance, emphasizing that investors must prioritize monitoring core business trends over speculative developments.

Thesis delta

The DeepValue report's 'POTENTIAL SELL' thesis remains unchanged, as the pay package reinstatement does not improve Tesla's financial metrics or reduce its valuation premium. It highlights key-person dependence and incentive alignment but fails to address the core issues of stagnating growth, margin compression, and speculative overhang. No shift in investment recommendation is warranted; investors should remain focused on evidence of scalable profitability in autonomy or auto margin recovery before reconsidering the stance.