Tesla CEO Elon Musk

Tesla CEO Elon Musk

With the Tesla Model 3 nearing its production date, Tesla CEO Elon Musk moves closer to his ~$1.4 billion payout.

We know at this point that Musk doesn't accept his piddly salary at Tesla, and even borrows money from his established lenders on a fairly regular basis, to buy more stock. But, in 2012, as part of an agreement that came along with Musk's $5+ million stock options, he has a huge chunk of change coming his way. It may come soon, since most of the parameters are tied to the upcoming Model 3.

Tesla Model 3

Tesla Model 3

A total of twenty conditions must be satisfied for Musk to be able to cash in, and thus far, fourteen (fifteen?) have been met. Ten parameters are "operational goals," and the other ten deal with "market value." Musk has until 2022 to assure that everything is satisfied, but the Model 3 may bring him to the goals soon enough.

Every time Tesla hits an operational goal, plus a market value goal, Musk gets one-tenth of the options. Tesla just achieved another recently, and there's one more waiting on board confirmation. Tesla delivered 25,000 vehicles in this year's Q1, bringing the automaker to over 200,000 total, but the board hasn't yet verified the numbers.

Tesla's market value will have to stay above $43.2 billion for six months to satisfy one of the remaining milestones (this means stock needs to remain around $270 a share). The automaker also has to keep a gross margin of 30 percent or more for four consecutive quarters. Thus far, Tesla is hitting between 10 and 28 percent.

With Model 3 production in the forefront, and the company's continued goal of 500,000 vehicles by the end of 2018, the numbers shouldn't prove difficult to reach.

Musk's options vest gradually based on the paring of goals, as stated above. He would only get the full ~$1.4 billion if he exercised all $5+ million in options. At this point in time, he hasn't exercised any.

The remaining goals are as follows. As you can see, a few will satisfy quickly when the Model 3 hits production:

Operational Goals

  • Complete first Model 3 production vehicle
  • Gross Margin of over 30 percent for four consecutive quarters
  • Aggregate production of 200,000 vehicles (awaiting board verification)
  • Aggregate production of 300,000 vehicles

 Market Value (for six months)

  • $39.2 billion
  • $43.2 billion
Source: Bloomberg

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