Tesla Says Musk Pay Ruling Could Hit Earnings for Years

Tesla is facing a potentially multi-year impact on its reported earnings as the Delaware Supreme Court weighs whether to reinstate or permanently void CEO Elon Musk’s 2018 compensation package. If Tesla loses the appeal, the company will be required to recognize a replacement stock-based compensation plan valued between US$23.7 billion and US$26 billion, according to company filings and independent financial analyses. The accounting charge would be recognized over multiple quarters and could push Tesla’s GAAP earnings into negative territory through mid-2027.

The legal dispute stems from a Delaware judge’s 2024 decision to invalidate the 2018 award, ruling that the package was improperly negotiated due to “close personal ties” between Musk and certain Tesla board members. The judge found governance controls inadequate, leading to a shareholder lawsuit that nullified what had been the largest CEO pay package in US corporate history. Tesla appealed, and the Delaware Supreme Court heard oral arguments in late 2025. A final decision is expected between late 2025 and early 2026.

Anticipating a possible loss, Tesla’s board approved an “interim CEO award” in August 2025. The plan would take effect only if the 2018 package is not reinstated. Under US accounting rules, the interim award is treated as a new grant, meaning Tesla must recognize its full value as an expense once the court issues its final ruling.

Reuters reported that the resulting charge could “wipe out years of Tesla profits,” given its magnitude. Tesla has also warned in its disclosures that an unfavorable ruling could have “a material adverse impact on our business and reported earnings.”

If Tesla prevails, the 2018 package would be reinstated with no new expense because the company already recognized its cost. That award, tied to performance milestones met by 2022, had a grant-date accounting value of US$2.3 billion. Due to Tesla’s share-price appreciation, the options were worth US$56 billion when milestones were reached and an estimated US$116 billion today.

Compensation experts note that while the accounting treatment does not involve a cash outlay, it does require Tesla to recognize the opportunity cost of issuing new shares. Brian Dunn, director of the Institute for Compensation Studies at Cornell University, said stock-based compensation “will not hurt cash flow, and shareholders may brush it off as just accounting”.  Still, he added that such an outcome signals that Tesla’s board is not adhering to “reasonable fiduciary practices.”