‘It’s a fairy tale’: How will Tesla reach $8.5 trillion valuation? Elon Musk’s trillion dollar pay on cards

Elon Musk’s Tesla may need to soar to a whopping $8.5 trillion valuation to justify the record-breaking pay package he secured last week. Achieving this target would require the electric vehicle giant to multiply its current value nearly eightfold over the next decade.

If successful, Musk, already the best paid CEO in the world, could receive up to 12% of Tesla’s stock, a stake worth $1.03 trillion, as per Reuters.

The package, awarded on 3 September, sets a maximum EBITDA target of $400 billion and a peak market capitalisation of $8.5 trillion, implying a multiple of 21.The question, however, is how the automaker will achieve the ambitious target within just ten years?Selling 100 million humanoid robots each year or building a robotaxi network ten times the size of Uber’s could make it possible.

At the same time, investor faith will also be crucial. Tesla’s board has tied Musk’s reward to 12 milestones based on profits, products and market capitalisation. The plan focuses on Optimus humanoid robots and a vast robotaxi service. Despite declining vehicle sales last year, Tesla continues to trade as a growth stock, valued at about 75 times its EBITDA.Musk’s bet on robotsIf Tesla plans to sell only Optimus, the company would need to sell a massive number of robots, potentially more than 100 million annually, to reach the top EBITDA profit target of $400 billion set in Musk’s pay package, as per Reuters calculations.

Optimus is expected to retail at around $25,000, and Tesla’s current EBITDA profit margin is roughly 15%. However, at double the margin, the company would need to sell only half as many units.‘It’s a fairy tale’The numbers are staggering. Gene Munster of Deepwater Asset Management said, “At the end of the day, the reason why this is going to work or not work really comes down to Optimus.”“It’s a fairy tale, but it’s one that could actually happen,” Munster told Reuters.Musk already has a test fleet of around three dozen robotaxis in Austin, Texas, with an early target of one million vehicles. ARK Invest, one of Tesla’s most enthusiastic supporters, has projected a valuation of $7 trillion to $10.9 trillion by 2029, with robotaxi revenue alone ranging from $603 billion to $951 billion annually. ARK believes Tesla could claim 40–60% of ride fares, double Uber’s share. Though it did not include a valuation for robots in its mode, it predicted that the market could be worth $24 trillion.Musk himself has declared that robots could eventually make up 80% of Tesla’s value. Morgan Stanley analysts described the $400 billion target as “materially more aggressive” than their forecasts for Tesla’s auto, energy, and robotaxi businesses, noting that it “would imply substantial contributions from Optimus and other AI robot end markets currently not in our forecasts.”Some investors welcomed the emphasis on new products, suggesting the proposed pay could help address current challenges facing the company.“There are big operational hurdles that Tesla does need to accomplish,” said Will Rhind, CEO of global ETF issuer GraniteShares. “There are things that clearly need to be reversed, such as declining sales, et cetera. So, why not tie the CEO's compensation to reversing some of those trends?” Reuters cited Rhind.