The hurdles Elon Musk must clear to unlock $1 trillion in Tesla pay

Tesla’s longtime leader is already the company’s largest shareholder, with control over roughly 500 million shares, or a 15% stake. That includes interim shares he received in August but not options from a 2018 award that are held up in a court dispute.

Here is a snapshot of Musk’s current ownership in Tesla:

The proposed pay plan requires Tesla to hit a series of milestones to unlock 424 million more Tesla shares. The award is carved into 12 tranches of stock. To unlock each block, Tesla must hit both a market-cap milestone and achieve one of a dozen operational milestones.

The market-capitalization targets begin at $2 trillion and climb to $8.5 trillion. Tesla currently has a market cap of around $1.5 trillion. Half the new targets would put Tesla at or above $5 trillion—roughly the current market capitalization of chip maker Nvidia, the world’s most valuable company.

Four operational milestones are tied to existing and new Tesla products.

Musk could unlock two blocks of shares by continuing to sell millions of electric vehicles and adding self-driving subscriptions. The other two blocks would require Musk to succeed in shifting Tesla’s focus to developing robotaxis and humanoid robots.

Both of those efforts are nascent: Tesla released a restricted version of its Robotaxi ride-hailing app in Austin, Texas, and the San Francisco Bay Area over the summer, though both locations have an employee in a front seat. The company is developing humanoids it calls Optimus, but it doesn’t yet have a commercially viable product.

Eight more operational milestones are tied to a measure of adjusted profit based on Tesla’s earnings before interest, taxes, depreciation and amortization, or Ebitda.

Tesla would need to reach a trailing 12-month adjusted Ebitda of $50 billion for Musk to receive the first tranche of shares tied to these milestones—and ultimately sustain $400 billion a year to unlock the full award.

Last year, Tesla posted adjusted Ebitda of $16 billion, down from a peak of $19 billion in 2022. By comparison in their last fiscal years, General Motors reported Ebitda of $18.7 billion and Apple, the most profitable U.S. company, reported nearly $145 billion.

For each tranche he unlocks, Musk would receive equity equivalent to about 1% of Tesla’s current shares. At that point, he could vote those shares but wouldn’t be able to sell them until they vest, in either 7½ years or 10 years.

Musk is already the world’s richest person, thanks in large part to his personal stakes in Tesla and privately held SpaceX. His net worth has eclipsed $450 billion, according to Altrata, a wealth-intelligence company, more than $100 billion ahead of No. 2 Jeff Bezos.

Write to Theo Francis at theo.francis@wsj.com and Becky Peterson at becky.peterson@wsj.com