Elon Musk Nears Big Payout as Tesla's Market Cap Crosses $100 Billion

Shares have soared since last June but it's unclear if the gains can continue.
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Tesla shares hit a big milestone on Wednesday morning, rising more than 3% to hit a $100 billion market cap for the very first time. At its current share price of $566, Tesla is valued at $102 billion. 

The $100-billion valuation triggers an almost $350 million payout for Tesla CEO Elon Musk if it holds on an average basis for at least six months, the first in a series of potentially huge bonuses for Musk negotiated as part of a 2018 compensation package. Musk receives no other salary or compensation from Tesla other than these bonuses, which dictate further payouts tied to every $50 billion increase in Tesla’s valuation, in addition to meeting revenue and adjusted EBITDA targets and Musk remaining as CEO of the company. 

If Tesla ultimately achieves a valuation of $650 billion by 2028, Musk would be in line for a whopping $50 billion in incentive payments. Meanwhile, Musk's current 18.9% ownership stake in Tesla is now worth roughly $19.3 billion. 

But continued high growth in Tesla’s  (TSLA) - Get Report valuation is far from a sure thing.

“It you look back at when the stock hit bottom last June, at that point there was real liquidity risk, which they helped to alleviate through equity and debt offerings. They followed up with a solid second half of the year operationally, and that’s really helped,” said Garrett Nelson, automotive analyst at CFRA Research.

Tesla shares have tripled in value since it hit a 52-week low of $176.99 in June 2019, and accelerated dramatically after the carmaker posted a surprise profit for the third quarter of last year. News of Tesla’s China Gigafactory opening ahead of schedule, better-than-expected fourth quarter deliveries, a German factory in the works, and the impending launch of the Model Y in 2020 have fueled optimism around Tesla’s longer term prospects.

However, there are a few risks to watch out for in the current quarter and beyond. Tesla reports its full fourth quarter financial results on Jan. 29.

The majority of Tesla’s sales are domestic, Nelson pointed out. And in the U.S., the EV market is becoming a lot more competitive in 2020.

“In the U.S., where most of their sales come from, the [federal EV] tax credit went away at the end of last year, and right now it looks like there are going to be 19 EVs debuting in 2020, only one of which is the Model 7,” he added.

Investors may also find that the production ramp-up of the Shanghai factory weighs on margins for a time, as is often the case with automotive production facilities. Likewise, construction of a German factory -- which will likely be substantially more expensive than the China factory -- will eat into Tesla’s free cash flow, potentially hurting its financial results.

Meanwhile, other analysts have cautioned in recent weeks that Tesla, which is currently worth more than General Motors  (GM) - Get Report and Ford  (F) - Get Report combined, could be viewed more like a traditional automaker over the long term, potentially capping its growth. 

For now, though, investors clearly like what they're seeing.