Only Six Milestones Stand In Way Of Elon Musk’s $1.4 Billion Payout

7 months ago by Steven Loveday 43

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

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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43 responses to "Only Six Milestones Stand In Way Of Elon Musk’s $1.4 Billion Payout"

  1. Nelson says:

    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).

    Wouldn’t the market value be easier to maintain if the stock split 2 for 1 bringing the price per stock lower with more room to grow?

    NPNS! SBF!
    Volt#671

    1. Mad says:

      I personally doubt they’ll do a split until detractors stop shorting them.

  2. JazzTazz says:

    Is he worth that kind of money? In my opinion, no one is. But, what do I know? I’m a little old retired guy living out his last years on a pension and social security, which Trump and the Republicans are trying hard to kill. Greed is alive and well among the Republican 1%.

    1. Tom says:

      I think you found the wrong forum. You’re looking for the angry old man forum that thinks changing the world is not as important as you getting attention.

      1. MikeM says:

        Now, now Tom!

        A bit of respect for your elders please.
        BTW, do you have the URL for that angry-old-man forum?
        I could use it. Lots of stuff to unload about you uppity youngsters!

        1. jamcl3 says:

          That might be the forum I started, but I can’t remember… Hey, which way to the bathroom?

    2. Cavaron says:

      “Is he worth it” is a strange question. We don’t know where Tesla would be without him, but probably the company would have done the “normal” business thing and stayed in the profitable luxury car segment. No Model 3, Powewalls or Solar Roofs.

      And Mr. Musk is known to use his money to fund his space travel plans. So it is money well used if you ask me.

    3. Rob Stark says:

      Turning a garage company into a $50B corporation all the while becoming the tip of the spear to transition the world to sustainable transportation makes Elon worth at least twice that amount.

      1. Rich says:

        Agreed. I can’t think of anyone that deserves it more.

    4. John M says:

      Major League players are only marginally better than AAA but, salaries are way different. As in many things, worth is identified by how much others are willing to pay.

    5. Stimpacker says:

      Not my money…. check
      Not taxpayer’s dollars…. check

      Not the right forum, but I do want to gripe about those with excessive pensions, guaranteed cost-of-living increases, double-dipping, etc.

      1. Philip Reeve says:

        You’re talking about politicians I think, Stimpacker.

    6. Pushmi-Pullyu says:

      Well said, JazzTazz.

      I admire and respect Elon for his vision, his dedication, his tireless efforts, and his willingness to put his money where his mouth is.

      But nobody, and I do mean nobody, deserves to be paid billions just for running a company. The literally obscene levels of salaries and other compensation given to top American executives is one of the ways in which the richest 1% hog almost all newly created wealth to themselves.

      Elon refusing to take a salary, or taking only a token salary (which is it?), makes him look like one of the good guys. But these billions of dollars — literally billions! — in stock options put the lie to his pretended modesty in how much he pays himself.

      1. Chris O says:

        Such nonsense. Without Elon Musk’s money and vision Tesla would have folded many years ago. He gets paid a part of the value that would never have even existed without his contribution. Nothing immoral going on here, people are entitled to what they create (minus taxes…) and if they have the talent to create an obscene amount of value than that is what they are entitled to.

      2. SparkEV says:

        Your argument that Musk doesn’t “deserve” is ridiculous. People voluntarily give him money, there’s nothing wrong with that. He’s not putting guns to people and demand payment.

        You probably live above poverty level, why do you deserve that? It’s because you entered into contract with your employer voluntarily, even if you think it’s undeservedly high.

        In fact, everyone who get their money via voluntarily entering into contract in free market deserve every last penny. Free market is all about voluntary trade, no one’s putting a gun to anyone’s head to hand over money.

        Only groups of people who do not deserve their money are policy makers (lawmakers, bureaucrats). They force you to pay them via taxes, and you go to jail if you don’t. If private citizens did this, they’d call it extortion. Bernie Sanders, the extortionist.

    7. Someone out there says:

      Well, how much is it worth to give 30000 people a job? I’d say it’s worth quite a bit.

  3. Nix says:

    “and even borrows money from his established lenders on a fairly regular basis”

    This is done for tax reasons, not because he needs the money.

  4. Boris says:

    That 30% gross margin, they haven’t been able to deliver that with S and X, curious how they’ll do it with Model 3. Exciting times however, let’s see what happens…

    1. Roy_H says:

      Yeah, that will be the hardest one. Not as long as they are putting every cent back into building superchargers, expanding gigafactory(s) and increasing automation.

      1. agzand says:

        Those expenses should not affect gross margins. Gross margin is mainly affected by what material and labor they directly put into each car (Cost of Goods Sold) and what they sell for.

        http://www.investopedia.com/terms/c/cogs.asp

    2. Nix says:

      I see that goal as bonus points, that likely won’t be accomplished. But since the payout is per goal, and not all-or-nothing, Elon will likely collect 90% of the $1.4 billion.

    3. Pushmi-Pullyu says:

      Boris said:

      “That 30% gross margin, they haven’t been able to deliver that with S and X, curious how they’ll do it with Model 3.”

      There seem to be contradictory signals coming from Tesla (or Elon) about that. A year or two ago, a Tesla spokesman (likely Elon) said that Tesla is not expecting to make as high a gross profit margin on the Model 3 as they are for the MS, and was aiming for a 15% profit margin. That is what we would expect from a higher volume, lower cost car, isn’t it? In theory at least, an auto maker should be able to more than make up in volume what it loses with a lower per-unit profit margin, for a car that sells much better than its other models.

      But just the other day, Elon said or Tweeted that Tesla hopes to increase the M3’s profit margin to eventually match the MS.

      Color me confused!

      1. Boris says:

        I wasn’t able to find that tweet, but if it is the case, I take it. With 20% net margins and selling millions of cars, I can see the trillion dollar market cap on the horizon 🙂

  5. Mister G says:

    Wow those are lofty goals, most CEO’s wouldn’t sign up for this…but Elon is the MAN

    Cult member # 273838

  6. Driverguy01 says:

    So, if the stock price starts going down too much, does that mean he has every interest to jump on twitter and announce… anything to prop the stock up?
    If so, waiting for the stock to go down for investing is a difficult game to manage.
    it always is but this info makes it even harder to make a move…

    1. Tom says:

      Ummm…no. Twitter maybe can send stock in a direction for a couple days but these are 6 month targets. Stock can’t sustain that kind of value for that period of time without some fundamentals.

  7. Kosh says:

    Wait… so Tesla has the criteria to start phasing out the fed incentives?

    1. Kosh says:

      Or is that worldwide?

    2. Paul says:

      They’ve sold ~200k worldwide. The fed incentives start phasing out when they reach 200k of US sales. I think they are somewhere around 100k US sales at this point.

  8. georgeS says:

    At some point you have so much money it just becomes a meaningless parameter.

    Then other things become more interesting.

    Other things like his latest movie star squeeze Amber Heard. (Johnny Depp’s Ex!!)

    http://www.maxim.com/women/amber-heard-elon-musk-instagram-official-2017-4

    1. Someone out there says:

      That money will come in handy when he starts his next venture, just like his Paypal money was handy for developing Tesla.

      1. SparkEV says:

        Yup. All the crying about “rich people” is nonsense. They don’t keep their money under mattress; they invest their money, which creates jobs and innovation. Government doesn’t create jobs, rich people do.

        And they won’t be able to take their money with them when they go. What will happen is a) give to their kids who squander all of it, b) give to their kids who create even more jobs (like Prez Dump until he got elected), c) donate to charity like many billionaires do.

        The best thing to do in life other than taking care of your kids is to amass as much money (productivity) as possible in free market. This is how you leave the world better than when you found it (born).

        1. Get Real says:

          Your statement Sparky does not differentiate between the awesome job creators like Elon Musk who is constantly reinvesting his personal wealth back into his companies or starting new ones versus the 1% who use their money to buy politicians and even entire political parties to rig the rules and system to benefit themselves.

          Because of what I described, the US has been becoming a defacto Oligarchy and now under the Trumpsters this process is on steroids.

  9. agzand says:

    Gross margin of 30% should be tough to achieve considering Model 3 will have a much lower ASP.

    1. Pushmi-Pullyu says:

      Yeah. Various reports I’ve seen on the Model S’s profit margin have been between 25% and ~20-22%. Hard to see how the higher volume, lower cost Model 3 is going to have a fatter profit margin!

      Isn’t the rule of thumb that high volume, lower cost products have a slimmer profit margin, and that the manufacturer makes up (more than makes up) in volume what they lose in per-unit profits?

      I don’t see how Tesla could turn that on its head. Not unless Elon can turn his vision into reality; his vision of radically changing manufacturing techniques to lower costs, using basic physics principles.

      I regard that as an aspirational goal rather than a realistic one, in that sense akin to Elon’s plan to put a colony on Mars. But who knows? Elon, Tesla, and SpaceX have surprised me before, more than once; maybe they will again!

      1. Karsten Nyblad says:

        I have only seen one quarterly report, and it said that the gross margin of the car section of Tesla was 29.7%. The gross margin of the whole Tesla was lower.

  10. TM says:

    I don’t think Musk is worth he 1.4 billion, that is selling him short. Without Musk, there is no Tesla. (or SpaceX). He is a national treasure. Just glad he got here before immigration became harder.

    1. TM says:

      To be clear, I think he is worth a lot more.

  11. Don Zenga says:

    Hello Jay Cole and Everyone

    I sent an email to the contact in fueleconomy.gov requesting them to include the 5.3 cu. ft. of Frunk (Frontal Trunk) of Model-S in their info.

    And after couple of days, they came up with this info.

    “Hello Don,

    With regard to the inclusion of the “frunk” in the cargo space measurement for the Model S, Tesla responded to the EPA with the following:
    ********************************************
    The Front trunk (“frunk”) volume is not included in the cargo volume calculations for Model S.

    For EPA vehicle classification, we followed 40 CFR 600.315-08, which references the 1973 version of the SAE1100. This regulation details the method for calculating passenger and cargo volume. We considered Model S to be a hatchback body style, so cargo volume numbers only include the space above the load floor behind the 2nd-row seat. “Frunk” volume is separate.
    ********************************************

    We appreciate you taking the time to ask the question. It is useful for us to know Tesla’s position on this.

    Sincerely,

    http://www.fueleconomy.gov

    1. Steven Loveday says:

      Very interesting, Don. Thanks for sharing!

    2. Mister G says:

      LOL we’re in 2017 not 1973, sometimes government agencies need to be criticized in order to change with the technology.

  12. Four Electrics says:

    I notice that quality and veracity are non-goals. That explains a lot.

    1. Pants on fire says:

      The fact that such things are not required to post here explains why you’re still around…