DOVER, Delaware: As attention fixates on Elon Musk's newly approved trillion-dollar compensation package, a separate, older pay deal still tied up in court represents the more immediate financial threat to Tesla, one that could wipe out years of the company's profits.

The Delaware Supreme Court is preparing to decide whether to reinstate or permanently void Musk's massive 2018 compensation package, which a lower court struck down earlier this year. If Tesla loses its appeal, the company would have to account for a US$26 billion stock-compensation charge over two years for a replacement package awarded at today's far higher share price.

That figure alone equals more than half of Tesla's total net income since it first became profitable in 2019.

Even if Tesla prevails, the company could still face steep earnings pressure over the next decade. Musk's new trillion-dollar pay package triggers multibillion-dollar payouts as performance milestones are met. Each one would require Tesla to book significant stock-compensation expenses, further squeezing profits.

Compensation experts say such scenarios are rare. CEO pay at the most prominent public companies typically amounts to hundreds of millions, not tens or hundreds of billions. Musk's supersized awards create risks that most firms never confront, especially at a time when Tesla's earnings are weakening due to falling vehicle sales, reduced EV subsidies, and rising costs tied to speculative ventures like humanoid robots.

Stock-compensation expenses do not affect cash flow, but they do slash reported net income. That can raise governance questions.

"They're backdooring a massive transfer of wealth from the shareholders to the single largest shareholder," said Brian Dunn of Cornell University. He argued that dramatic earnings swings tied to CEO pay show Tesla's board is not exercising "reasonable fiduciary practices."

Tesla's directors, however, defend the payouts as tied to what they call "Mars-shot milestones", extraordinarily ambitious profit targets. If Tesla hits those goals, the company says Musk's compensation would consume a smaller share of earnings.

The biggest near-term issue is the Delaware court's review of Musk's 2018 pay. The lower-court judge who voided the plan ruled that Musk's influence over Tesla's board compromised the negotiation process. If the Supreme Court reverses that decision, Musk keeps the original stock options, worth $56 billion when he achieved their targets in 2022, and they are now valued at $116 billion.

If the ruling stands, Musk's replacement award would contain far fewer shares but cost Tesla far more than the original $2.3 billion package. Accounting rules require it to be valued at the stock price in August, when Tesla's board granted it, for a total of $26 billion. Tesla would need to record the full charge by August 2027, when Musk becomes eligible to collect the shares.

Spread over eight quarters, the charge would hit earnings by $3.25 billion per quarter — a sum larger than Tesla's quarterly net income in 21 of its last 25 quarters.

Tesla warned in a regulatory filing that an unsuccessful appeal would have "a material adverse impact on our business and reported earnings." It also argued that failing to replace the 2018 award could prompt Musk to leave the company.

Although Tesla could issue new shares rather than pay cash, the dilution would reduce existing investors' voting power and economic stake.

"Without question, you are hurting the shareholders," said Schuyler Moore, a corporate finance attorney.

In a typical company, such a hit might send the stock crashing. But Tesla's valuation has long moved more on Musk's promises from robotaxis to humanoid robots than on profit fundamentals.

In Tesla's case, Moore said, "nobody seems to care, because this company is in fantasy-land."