Elon Musk could pocket another $3 billion if Tesla hits earnings goals

Elon Musk
  • Tesla CEO Elon Musk could pocket another $3 billion in compensation if the electric vehicle company hits specific revenue or profit goals in its upcoming third quarter earnings report.
  • This would be Musk’s fourth of 12 tranches of awarded Tesla options, which is part of his 2018 incentive pay package.
  • The pay package is based on two criteria: operational goals and market capitalization milestones.
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The meteoric and sustained rise of Tesla has catapulted its CEO, Elon Musk, to potentially receiving his fourth of 12 option tranches related to his 2018 compensation package.

The compensation awards are based on two criteria: Tesla’s operational goals, related to revenue and profits, and its market capitalization.

The first criterion for the fourth tranche, a six-month average market capitalization of $250 billion, has been achieved, according to data from YCharts.com.

Tesla’s market value was $391 billion on Tuesday. The company breached the $250 billion market cap threshold for the first time in July. 

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The compensation package Musk is entitled to is made up of a series of Tesla options awards, allowing him to buy a fixed amount of Tesla shares at a discount to the current stock price.

Each tranche qualifies Musk to purchase 8.44 million shares at $70 per share. Based off of Tuesday’s closing price, the fourth tranche of Musk’s pay package would be worth $3.5 billion, and cost him only $591 million. If Musk turned around and immediately sold his shares in the open market, he would pocket $3 billion in profit.

Whether he gets the fourth tranche will now be based on Tesla’s upcoming earnings report. The company would have to hit trailing 12-month adjusted Ebitda of $4.5 billion to unlock the payment award. 

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In the trailing 12 months through June, Tesla hit $4.42 billion in adjusted Ebitda, just shy of the $4.5 billion target.

According to a bearish JPMorgan note published on Monday on Tesla, analysts at the firm expect Tesla to record third quarter adjusted Ebitda of $1.183 billion, which would raise its trailing 12-month adjusted Ebitda to just above the $4.5 billion target.

Tesla is still $10 billion short of hitting Musk’s trailing 12-month revenue target of $35 billion, which would unlock an additional payment tranche.

Here is a breakdown of Elon Musk’s compensation incentive package, which includes all 12 tranche requirements.

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