Does Tesla Become More Valuable for Investors When Elon Musk Gets Richer?
Tesla CEO Elon Musk, among many other things, is famous for being the wealthiest human being on Earth. Currently, Musk’s estimated net worth runs between a staggering $400 billion and $425 billion –that’s almost twice the wealth of the next-richest person in the world, Mark Zuckerberg.
A great deal of Musk’s wealth stems from Tesla, the automotive company he invested in in 2004 and later became CEO of. Musk owned 20% of Tesla stock in late 2020, when the car company’s valuation skyrocketed, thus creating 75% of Musk’s now incredible wealth, per The Guardian. As such, Musk’s wealth is irrevocably intertwined with Tesla’s value.
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That doesn’t mean that Tesla becomes more valuable for its investors when Elon Musk gets richer, though; rather, the inverse is true.
According to The Verge, Musk has a compensation plan with Tesla that forgoes an annual salary; instead, Musk’s compensation is generated by Tesla’s profits and stock values — the billionaire only receives payment if Tesla hits specific stock market heights. This means that the more Tesla’s stock rises, the richer Elon Musk becomes. Tesla does not become more valuable for investors when Musk gets richer, instead, Musk gets richer when Tesla becomes more valuable for investors. In that way, Musk is somewhat like the average Tesla stockholder himself — he profits when the company does well (he is, however, unlike most investors in that he makes millions upon millions in this scenario).
Even though Musk’s wealth can’t increase the value of Tesla for stockholders, the world’s richest man does have the power to influence the company’s value. Musk, in addition to being the richest person on Earth, is also one of the most famous, with his every move under seemingly endless scrutiny. He has the ability to change and impact Tesla’s valuation, profits and momentum via his public behavior. For instance, his controversial involvement with the second Trump administration (including DOGE) drew harsh criticism, which led to steep declines in Tesla stock and value. Additionally, his subsequent exit from the Trump administration led to an uptick in Tesla stock, which increased Musk’s considerable wealth.
Bottom line: When Musk gets richer, that is usually a good thing for Tesla investors, as it’s a sign they’ll be getting richer, too. It’s just that his wealth isn’t the source of their success, it’s merely a large result of it.
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This article originally appeared on GOBankingRates.com: Does Tesla Become More Valuable for Investors When Elon Musk Gets Richer?