Why Tesla Stock Jumped Friday

Key Points

• Elon Musk's new proposed pay package could award him over 423 million more shares in Tesla.

• The plan has 12 tranches with very ambitious goals.

• Shareholders would see another $7.5 trillion in Tesla stock valuation if all goals are achieved.

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Tesla (NASDAQ: TSLA) stock has been treading water lately. Investors are waiting and anticipating news from the company surrounding robotaxis or even progress with its humanoid robots.

News about CEO Elon Musk has the stock jumping today, though. Shares popped more than 5% early this morning, and remained higher by 2.8% as of 11:46 a.m. ET.

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Image source: Tesla.

Elon Musk could earn $1 trillion -- or nothing

Today's move came after Tesla filed a new pay plan proposal for its CEO. The company wants Elon Musk to focus on Tesla and remain with the company for years to come. It included many incentives to accomplish that goal.

The proposed plan includes 12 tranches for various milestones. Targets include a cumulative 20 million electric vehicles delivered, 1 million robotaxis, and 1 million robots. Tesla has delivered about 7.5 million EVs to date, but no robotaxis or humanoid robots yet.

Musk would be awarded 35 million shares, or about 1% of total shares outstanding, by achieving each milestone. The first reward would take effect when Tesla's valuation hits $2 trillion. That would give investors about a double from recent levels. The next nine would each require an additional $500 billion in market capitalization. The last two tranches each require an additional $1 trillion in market cap.

Investors are buying shares today, recognizing that owning Tesla stock is a way to gain from Musk achieving the goals in his proposed pay package. From an investor perspective, the important point is that earning full compensation from the plan would require Musk to drive $7.5 trillion of value to shareholders. That would imply a stock price of about $2,675 per share.

There are operational requirements as well. Those include earnings per share goals, 10 million active full self-driving (FSD) subscriptions, as well as the previously mentioned EV and robot goals.

Importantly, the operational and market cap milestones must both be achieved for each tranche to pay out. While the goals are quite aspirational, that potential payback has investors buying Tesla today.

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Howard Smith has positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.