Tesla (TSLA) is working to make a massive payment to CEO Elon Musk. The electric vehicle maker's board of directors is evaluating how it could compensate Musk for his work since 2018 after a Delaware court in 2024 denied Musk the ability to cash in on a then-$56 billion options package. This development may be good news for investors, who have enjoyed strong gains on the stock while Musk has been at the helm, especially in the wake of rumors that the board wanted to replace him.

According to the Financial Times, Tesla formed a two-member special committee, including Tesla's chair and an independent director, to evaluate how the company could compensate Musk if an upcoming appeal to the Delaware Supreme Court does not reverse the prior ruling and reinstate Musk's massive compensation package. The disputed pay included 304 million stock options. The value of the options has swelled to more than $100 billion at a stock price of $350.

Tesla's stock has been on a run over the past month, rising by more than 50 percent from recent lows. This performance followed a period since December where it lost over 50 percent of its value, as poor first-quarter sales, tariffs and consumer backlash captured the headlines.

The dour sales news came amid a vocal backlash, particularly in Europe, against Musk's involvement in President Donald Trump's administration, and may have longer-lasting effects on the Tesla brand. Tesla's sales figures in Europe continued to look outrageously poor in April -- think declines in the high double digits - even as consumers flocked to other electric vehicles.

But keeping Musk on at Tesla is probably a net positive, despite the key-man risks he presents.

Show me the incentives at Tesla

To see why Musk may be so valuable to Tesla's investors, it's important to look at his incentives. The legendary investor Charlie Munger was a huge believer in the power of incentives to shape behavior, and once stated, "Show me the incentives and I will show you the outcome."

Munger's wisdom applies especially to Musk, who's acted as the EV maker's biggest cheerleader since the disputed compensation package was struck back in 2018. And it's a good reason why Tesla investors may continue to want Musk at the helm for many years yet.

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Musk has always been big on promises, but the massive pay package -- again, 304 million stock options -- gave him plenty of reason to hype Tesla to the moon. Every dollar that the stock rises, Musk puts another $304 million in his pocket -- presenting a lot of incentive to turn up the noise on Tesla. He's been touting a fleet of robo-taxis since what seems like forever, while promising that a full-self-driving Tesla model is just around the bend. More recently, the hype has included humanoid robots. But regardless of the promises and their actual timeline, Musk has kept investors' dollars flowing to Tesla, keeping the stock up, even if it has slipped from time to time (as is the case for any stock). The shares are off their all-time high of nearly $490, which they hit just five months ago.

So this hype has been incredibly rewarding to Tesla investors, particularly as sales growth has slowed. In 2024, sales climbed just 1 percent, compared to nearly 19 percent growth in 2023. As mentioned, Tesla's first-quarter sales were miserable, declining by more than 9 percent year over year, with the EV maker missing delivery estimates by a whopping 14 percent.

Despite that lackluster performance -- and the real potential for more -- Tesla retains not just a premium multiple on its stock but a superpremium one. By some basic measures, the stock would need to fall 90 percent before its price-to-earnings ratio -- a common measure of a stock's valuation -- looked comparable to peers'. With the Musk hype machine at the helm of Tesla, Tesla will remain a "story stock," or one that's priced on its potential rather than its current results.

If you subscribe to the belief that there's no such thing as bad publicity, every mention of Musk in the news is inherently an ad for Tesla, making Musk one of Tesla's key assets, even if he's also a key risk. And that's plenty of incentive for Musk to keep making news any way he can.

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