Tesla's New Strategy Includes 'Not Paying' Elon Musk and an Astronomical Share Price
Tesla Motors has announced that its CEO, Elon Musk, won’t be paid unless its already high stock valuation blasts into the stratosphere. The executive’s compensation is now tied to a dozen operational milestones. The first of these requires bringing the company’s current market cap to $100 billion, followed by 11 more set at $50 billion increments.
Agreeing to the program, Musk now has to stay with Tesla until 2028 as both its executive chair and product officer. While this does allow him to bring in another CEO sometime in the future, the company is likely hoping to dispel any speculation that he would abandon the position. It’s good to see Musk putting some serious skin into the game but, as a multi-billionaire, his not being paid unless Tesla’s stock valuation climbs isn’t the biggest threat to his financial security.
He’ll also be able to fall back on minimum wage if everything falls apart, as Californian law stipulates all employees must be paid something. However, whether or not Musk decides to cash those modest checks is entirely up to him. Otherwise, his entire payment is linked to the aforementioned 10-year grant of stock options that are directly linked to Tesla’s valuation milestones. For each one met, the CEO gets another 1.69 million shares (about 1 percent of Tesla’s current total outstanding shares).
“For Elon to fully vest in the award, Tesla’s market cap must increase to $650 billion,” the automaker said.
That’s a lot of money and none of it has to do with the company’s production or profitability. Still, if Tesla didn’t bolster its current output, it’s difficult to imagine the company ever achieving those share price milestones. The company’s current valuation sits just shy of $60 billion.
Elon is already Tesla’s largest shareholder, owning 20 percent of the company, so the incentives for him to jack up its stock value are already in place. That makes this whole thing feel like publicity stunt aimed at psyching up investors, which we suppose is a sound enough strategy — especially considering this is extremely similar to how he already gets paid. Ultimately, the announcement seems like little more than a phenomenal way to make shareholders feel warm and fuzzy inside. But, no matter how you feel about Musk or his business, his commitment to the cause is genuine.
Were Tesla to achieve its proposed $650 billion valuation, it would become one of the largest corporate entities in the United States. Some financial experts are sure to scoff, however, it wasn’t all that long ago when the automaker was less than a tenth of its current size. But can Tesla continue to grow such a breakneck pace?
Musk certainly thinks so. Speaking with The New York Times, the CEO said, “I actually see the potential for Tesla to become a trillion-dollar company within a 10-year period.”
[Image: Tesla Motors]
A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.
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The way I see it, Musk imagines something, does the math in his head, and if he can't see a reason that absolutely prevents something from working, he tries it. That's pretty cool in and of itself. If he gets a handle on the whole distributed power generation thing before anybody else does, that part of Tesla's business will be larger than the transportation side. The intermodal transportation side of Tesla is not developed, but you can see where it is going. The Hyperloop isn't really designed to carry passengers. It is designed to carry cargo away from congested container ports to an intermodal transportation center for further distribution. Tesla's electric semis will be very useful for transportation in intermodal corridors. Tesla's solar roofing and powerwalls could be big after a few iterations. Tesla is rapidly gaining the know-how for large-scale solar power-generation plants. In the next few years, I can see Tesla powering past General Electric (now worth $146 b market cap), the company founded by Nikola Tesla's rival and one-time employer, Thomas Edison.
Mr. Musk, I don't use the word 'hero' lightly, but you are the greatest hero in American history.