- 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 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.
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.
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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