Tesla's Elon Musk Is Close to Getting a $350M Payout

The incentive payout pales in comparison to the more than $9 billion Musk has made based on the appreciation of his stake in Tesla over the last six months alone.
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Tesla CEO Elon Musk could be coming into (more) money soon, if all continues to go well with the electric carmaker’s share price.

Owing to a 2018 incentive package tied to Tesla’s valuation, Musk is looking at a payout of $346 million if its valuation reaches $100 billion and holds that figure for six months. The agreement would also pay out much, much more if the stock continues to see significant growth over the next few years. Tesla (TSLA) - Get Report shares were up 2.81% on Tuesday to $539.62 as Jefferies became the second bank in two days to raise its price target on Tesla to $600 or higher on optimism about its 2020 prospects. 

Tesla’s current valuation of around $97 billion means that if the share price rises roughly 3% to just under $555 and stays at, or exceeds, that level on an average basis for the next six months, Musk will receive the nine-figure payday. However, the initial $346 million tranche represents a small slice of the potential payout -- the incentive plan also dictates further payouts tied to increases in Tesla’s valuation in $50 billion increments, and on the condition that Musk remain CEO.

For now, that almost $350 million payout pales in comparison to how much Musk has made on the recent big gains in Tesla's stock, given that he owns 18.91% of the company's shares, according to FactSet. That stake has more than doubled in worth over the last six months from roughly $8.6 billion then to $18.3 billion today. 

Bloomberg currently estimates Musk’s total net worth at about $31 billion, making him the 28th wealthiest person in the world. However, in Musk’s recent defamation trial against British cave diver Vern Unsworth, he testified that most of his fortune is in non-liquid assets rather than cash.

"I have stock in SpaceX and Tesla, and debt against that," he said at the time.

Musk's incentive plan, which covers a 10-year period, was approved by Tesla’s board in 2018. The company issued a statement at the time comparing the incentives to an earlier award put into place in 2012, “which helped bring about a more than 17-fold increase in Tesla's market cap in the five years after it was put in place.” Musk receives no salary or cash bonuses from Tesla. 

The performance award consists of 12 total tranches, and is tied to market cap and operational goals, Tesla said. For the remaining 11 milestones after the $346 million payout, Tesla's market cap must continue to grow in additional $50 billion increments and ultimately reach $650 billion for the award to fully kick in. Beyond valuation, Tesla must also meet escalating revenue and adjusted EBITDA targets. In total, if the milestones are met and Musk is still CEO in 2028, the award could exceed a whopping $50 billion. 

The performance awards come in Tesla shares, not cash -- for each of the milestones, Musk receives 1% of total outstanding shares. Musk must remain either CEO or both executive chairman and chief product officer, according to the original agreement. Musk was prohibited from serving as chairman of Tesla under a Sept. 2018 settlement with the SEC over fraud charges. 

Tesla has seen a historic run-up in recent months, following a surprise profit in the third quarter of last year and a series of positive reports on vehicle deliveries and its Shanghai Gigafactory.

A handful of analysts have advised caution on Tesla’s surging valuation, pointing out that its current level places it significantly above established automakers that sell substantially more vehicles.

Baird analyst and longtime Tesla bull Ben Kallo recommended ”profit taking” on Tesla shares last week, cutting Tesla’s rating but also raising its 12-month price target to $525.

Likewise, Morgan Stanley analyst Adam Jones wrote in late December that while a continued surge in positive sentiment is possible through the first quarter, Tesla may be viewed more like a traditional automaker over time, putting its valuation at risk.