Tesla shares surged toward the $500 mark on Monday after the Delaware Supreme Court overturned a lower court ruling that had voided CEO Elon Musk's 2018 compensation package. The decision clears the way for Musk to receive stock options potentially worth over $55 billion—the largest executive pay package in corporate history.

The Court Decision

The Delaware Supreme Court reversed Chancellor Kathaleen McCormick's January 2024 ruling that had found the pay package was the product of a flawed process. The lower court had concluded that Tesla's board, stacked with Musk allies, failed to negotiate the package at arm's length.

The Supreme Court disagreed, finding that shareholders had ratified the compensation plan with full knowledge of its terms and that the board process, while imperfect, met legal standards.

What Musk Gets

The 2018 compensation package grants Musk stock options that vest as Tesla hits specific market capitalization and operational milestones. Key details:

  • Total options: 303 million shares (adjusted for splits)
  • Exercise price: Roughly $23 per share (pre-split equivalent)
  • Current value: With Tesla near $500, the options are worth approximately $55 billion
  • Milestones: All tranches have vested based on Tesla achieving various market cap and revenue targets

Stock Reaction

Tesla shares rose 2% on Monday to approach $500—near all-time highs. The stock has been on a remarkable run in recent weeks:

  • 1-month gain: +15%
  • Year-to-date: +47%
  • Market cap: Approximately $1.5 trillion

The rally reflects multiple catalysts beyond the court ruling, including optimism about the incoming Trump administration's approach to autonomous vehicle regulation and Tesla's expanding AI capabilities.

Why It Matters

The pay package controversy had created uncertainty about Musk's commitment to Tesla. Critics argued that Tesla might need to renegotiate compensation to retain its CEO. The court decision removes that overhang.

For investors, the resolution is broadly positive: it eliminates uncertainty and keeps Musk incentivized to grow Tesla's value. The stock options only become more valuable as Tesla's share price rises, aligning Musk's interests with shareholders.

The Musk-Trump Connection

Tesla's recent surge also reflects Musk's close relationship with President-elect Trump. The Tesla CEO has been a prominent supporter and is expected to have significant influence on technology and regulatory policy. Potential benefits for Tesla include:

  • Autonomous driving: Faster federal approval for self-driving vehicles
  • Tax policy: Potential extension or expansion of EV tax credits
  • Regulatory relief: Reduced oversight burdens
  • Tariffs: Protection from Chinese EV competition

Valuation Considerations

At $500 per share and a $1.5 trillion market cap, Tesla trades at roughly 60x forward earnings—far above traditional automaker valuations. Bulls argue this reflects Tesla's AI, energy storage, and robotics optionality. Bears counter that competition in EVs is intensifying and margins are under pressure.

The stock's near-term direction likely depends more on sentiment around Musk's political influence and AI narrative than on traditional auto fundamentals.

What's Next

With the pay package dispute resolved, investor attention shifts to:

  • Q4 deliveries: Tesla's quarterly delivery numbers, due in early January
  • Full Self-Driving: Progress toward regulatory approval for autonomous driving
  • Robotaxi: Timeline for Tesla's autonomous vehicle service
  • Energy business: Growth in battery storage deployments

The Bottom Line

The reinstatement of Musk's pay package removes a legal cloud that had hung over Tesla for nearly a year. With the CEO's compensation secured and political tailwinds building, the stock is approaching $500—a level that seemed far-fetched just months ago. Whether Tesla can justify its lofty valuation depends on executing ambitious plans for AI and autonomy. For now, the market is giving Musk the benefit of the doubt.