Tesla Chair Testifies in Elon Musk’s Compensation Trial in Delaware

Ms. Denholm, who testified remotely, was a Tesla board member at the time the compensation package was being considered but wasn’t yet chair. She called the goals tied to Mr. Musk’s grants “audacious” and characterized Tesla’s operational forecasting as ambitious.

Tesla, for example, might produce 100 semitrailer trucks this year, Ms. Denholm said, years behind schedule. Tesla revealed the truck in 2017 and Ms. Denholm said internal projections from early 2018 contemplated producing thousands of the trucks, which the company initially aimed to release in 2019. More recently, Mr. Musk said the company plans to deliver its first semitrailer trucks to

PepsiCo Inc.

next month.

The opening day centered on how much influence Mr. Musk, Tesla’s chief executive, had in determining his own compensation.

The first witness in the proceedings was

Ira Ehrenpreis,

who ran point for Tesla’s board in devising the plan. He testified Monday that the pay package featured “extraordinarily ambitious and difficult” hurdles and was meant to keep Mr. Musk, a serial entrepreneur, engaged in the car maker. Mr. Musk owned around 22% of Tesla at the time and had close ties to several directors.

Mr. Ehrenpreis, followed by

Todd Maron,

then Tesla’s general counsel, said Mr. Musk didn’t dictate the terms of the grant, which vests based on Tesla’s valuation and achievement of various milestones.

The plaintiff also alleges the deal was unnecessary to motivate Mr. Musk. A plaintiff’s attorney pointed to a May 2017 Tesla earnings call in which Mr. Musk said he planned to be actively involved in the company for the rest of his life.

Mr. Musk is expected to take the stand Wednesday. Also due to testify this week are former Chief Financial Officer

Deepak Ahuja,

board member

James Murdoch

and former board members

Antonio Gracias

and

Brad Buss.

Chancellor Kathaleen McCormick, the judge in the five-day, nonjury trial, isn’t expected to issue a verdict for months after the trial concludes. The judge also presided over Twitter Inc.’s lawsuit seeking to compel Mr. Musk to close his $44 billion deal for the social-media company. The transaction closed late last month, before the case went to trial.

A cross-examination of Mr. Ehrenpreis by a plaintiff’s attorney on Monday zeroed in on the extent to which the compensation plan aligned with what Mr. Musk sought. Mr. Ehrenpreis said board members considered multiple options before settling on the plan shareholders eventually endorsed.

Mr. Musk, who doesn’t accept a salary from Tesla, has secured all but one of the 12 tranches of options available under the grant based on Tesla’s having achieved various targets.

The company’s market capitalization has increased roughly 10-fold since shareholders signed off on the CEO’s pay package in March 2018, helping Tesla become the world’s most valuable car maker and Mr. Musk its wealthiest person.

The trial comes at a busy time for Mr. Musk, who has been making his mark on Twitter, laying off around 50% of its staff and implementing various product changes. He also runs rocket company SpaceX.

“I have too much work on my plate, that is for sure,” Mr. Musk said in a virtual appearance at a conference in Indonesia Monday.

Ms. Denholm said she’s focused on the results Mr. Musk is able to drive at Tesla, not the amount of time he dedicates to the company.

Write to Rebecca Elliott at [email protected] and Meghan Bobrowsky at [email protected]