TLDR
- Tesla stock declined 13% through November with retail investors buying shares during the downturn
- Delaware Supreme Court will decide if Musk’s replacement pay package triggers a $26 billion accounting charge
- The potential expense would exceed Tesla’s quarterly profits in 21 of the past 25 quarters
- Tesla trades at 180 times forward earnings while major tech companies average 25 times earnings
- Retail money flowed into Tesla this week before Thursday’s sharp market reversal
Tesla stock continued its November decline as retail investors absorbed losses from buying shares during recent dips. The electric vehicle maker closed Thursday at $395.04 after touching $428.94 earlier in the session.
The stock has fallen roughly 13% during November. Year to date through Friday, Tesla shares were down about 2%.
Data from JPMorgan shows retail investors actively purchased Tesla stock throughout the week. They moved capital out of defensive sectors like healthcare and staples into technology names.
This buying pattern has generated positive returns for most of 2025. Thursday’s reversal changed that dynamic quickly.
Legal Decision Carries Financial Weight
Tesla confronts a substantial financial risk tied to executive compensation. The Delaware Supreme Court is preparing to rule on Musk’s 2018 pay package.
A judge invalidated that package in 2024. The ruling cited conflicts of interest involving board members who negotiated the deal.
Tesla must provide Musk with a replacement package if the appeal fails. The replacement would be valued at $26 billion based on current stock prices.
This charge represents over half of Tesla’s total profits since 2019. The company would need to recognize the expense by August 2027.
Breaking down the math reveals the scale of impact. A $26 billion charge over eight quarters equals $3.25 billion per quarter.
Tesla has only exceeded that profit level in four quarters since 2019. Most quarters would show the compensation expense exceeding actual earnings.
Stock Compensation Mechanics
Tesla can issue new shares rather than paying cash for Musk’s compensation. This approach preserves the company’s cash position.
Accounting regulations still require recognizing stock compensation as an expense. The rationale is that shares represent value Tesla could have captured through market sales.
Cornell University’s Brian Dunn called the arrangement a backdoor wealth transfer. He said it moves value from general shareholders to the company’s largest shareholder.
If Tesla wins its appeal, Musk retains his original 2018 stock options. The company would avoid any new accounting charges. Those options currently hold a value of $116 billion.
Tesla’s board argues the compensation only pays out if the company hits specific milestones. These targets include ambitious profit and revenue goals.
Valuation Premium Persists
Tesla maintains a significant valuation premium over industry peers. Shares trade at 180 times projected 2026 earnings.
Major technology companies trade much lower. Amazon, Microsoft, Alphabet, and Meta Platforms average 25 times forward earnings.
The valuation gap reflects investor expectations for Tesla’s AI initiatives. Self-driving technology and humanoid robots represent future revenue streams.
These products haven’t generated material revenue yet. Current business faces pressure from falling vehicle sales and reduced government subsidies.
Tesla warned in securities filings that losing the appeal could materially harm results. The board suggested Musk might depart if the replacement package isn’t approved.
Even if Tesla wins the court case, future compensation could still pressure profits. Musk’s newer pay package includes performance milestones that trigger additional payouts.
Each milestone achievement would create billions in accounting expenses. This dynamic could squeeze reported earnings throughout the next decade.
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