Despite being one of the newest players on the market, Tesla is also among the most influential in the automotive space. On Wednesday, the company wowed as it became the second most valuable carmaker in the world when its market cap crested $100 billion for the first time. For head honcho Elon Musk, this means the first installment of a rather huge payday could be on its way.
We're talking, of course, about Musk's controversial 10-year compensation package which was announced exactly two years ago Thursday. As part of the shareholder-approved agreement, Musk would forego a traditional C-level executive paycheck and instead bet it all on what the company calls a "100 percent at-risk performance award." Wednesday's market activity began the clock on the first chapter of this package, a $346-million payout should Tesla's stock maintain this average valuation over the next six months.
Tesla's stock has been rallying since its third-quarter earnings call on Oct. 23, 2019, ascending from $254.68 to $569.56—a gain of 124 percent—in just 92 days. This followed a 52-week historic low of $178.97, meaning that Tesla's value has more than tripled since June.
Wednesday's closing valuation of $102.7 billion makes Tesla the second most valuable automaker by market cap, bested only by Toyota. It's now worth more than General Motors and Ford combined, with enough wiggle room to squeeze in the value of Mitsubishi and Mazda while still having some spare change.
Perhaps most surprising is that Tesla beat out Volkswagen, a company that sold 6.3 million vehicles in 2019; that works out to about 17 automobiles for every one Tesla delivered in the same time period.
Musk's first tranche, if awarded, is just the tip of the CEO's proverbial cash-filled iceberg. Each time Tesla's market cap rises another $50 billion, Musk will receive the chance at yet another significant sum of money. Should the company's worth increase all the way to $650 billion (more than three times the value of Toyota), Musk could walk away with incentives worth around $50 billion.
It's not just about market caps, however. According to the company's filing with the United States Securities and Exchange Commission, the conditions for Musk's contract satisfy at least two company milestones—one being for market capitalization, the other being operational in nature.
As mentioned, Tesla's market cap must maintain its new value. The terms specifically note that the value must be supported over both a six-month and 30-day trailing average. The operational milestone can be satisfied by either fulfilling a revenue requirement, or by a set landmark for earnings before interest, tax, depreciation, and amortization (EBITDA). In short, Tesla must pair the sustained market cap with a total revenue of at least $20 billion or a profitability of $1.5 billion for Musk to receive the first tranche.
Should Musk be able to obtain all twelve payouts (20,264,042 shares), he could be in for quite the check. According to Forbes, Musk is currently worth $31.9 billion. Should his $50 billion compensation package be paid in full, the CEO's net worth could rival Warren Buffet, bringing him well into the world's top five richest people.
Tesla will report its fourth-quarter financial results closer to the end of January, a move that could either break momentum or continue to propel the company's value into the clouds.
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