Tesla Shareholders Confirm Musk's Money

Matt Posky
by Matt Posky

Tesla investors approved an incentive package on Wednesday that could ultimately net CEO Elon Musk around $56 billion. There is a catch, however. He has to elevate the company’s share price to almost comically high levels. Having already covered the deal, we noted some opposition from analysts, but not shareholders — all of whom seem overwhelmingly happy to oblige Musk if he improves their wealth, as well.

Investment advisor Glass Lewis & Co. said offering the CEO an additional 12 percent in stock options (currently valued at around $2.6 billion) was unnecessary since he is already a major shareholder and the move could dilute value for other investors. But most agreed Musk was too important to risk losing and agreed to the package to keep him in charge of the company, despite Musk stating this was his intent all along.

Whether or not Musk sees the big $55.8-billion payday is up to him and chance, however. He doesn’t reap the rewards of the package until Tesla nearly doubles its present market cap. After it hits the $100 billion mark, he becomes eligible for the stock options — which are split into 12 tranches separated by $50 billion. If Musk manages to elevate the market cap to the astronomical goal of $650 billion, he gets the whole hog. If he doesn’t break the initial barrier of $100 billion, he gets nothing.

According to Reuters, shareholders approved the compensation package on Wednesday during a special shareholder’s meeting in Fremont, California. As the final tally is not yet official, the source did not specify the number of votes for or against. But Tesla should make an announcement soon.

Is it a smart plan? We’re not day traders or market analysts, so we cannot say anything with supreme authority. But Musk has certainly been good for the company’s share price thus far. Under his leadership, its valuation has increased tenfold since 2013 and investors hope he can do the same over the next ten years. Still, a market cap of $650 billion would make Tesla one of the highest-valued companies in existence and might be unrealistic.

Ideally, Musk’s reward would be linked to a handful of reasonable production goals, too. Tesla is still having trouble meeting Model 3 volume targets and, while the automaker promises production will be on track before the end of the month, it’d be nice to have some assurance that it was a priority. Tesla is an innovative organization and great at grabbing attention, but its productivity (or lack thereof) will eventually influence its share price. The Model 3 has to nudge the company into profitability if Tesla wants 10 years of unbridled gains on Wall Street.

Then again, there are plenty of tech companies with ludicrously high stock valuations that only occasionally operate in the black (like Amazon) or hardly ever left the red (like Twitter). Furthermore, while overall profitability remains important for automakers, it isn’t like the old days. Making money isn’t enough; there’s also an increasing emphasis on bolstering a company’s share price.

If you don’t believe us, just ask Elon Musk or Mark Fields. The former runs a currently unprofitable business with a perpetually rising stock valuation while the latter oversaw a profitable automaker for three years and was fired because investors weren’t happy with the company’s declining share price.

[Image: OnInnovation/ Flickr ( CC BY-ND 2.0)]

Matt Posky
Matt Posky

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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  • Stuki Stuki on Mar 22, 2018

    Simpletonian hero worship is a common feature of all late stage financialized dystopias. As the ratio of money chasing paper to money chasing product get ever more lopsided, productivity related metrics, along with ability and competence in general, largely ceases to matter. To be replaced by familiar, well hyped faces. Which those whose sole qualification is closeness to the money printers, have been told are "good investments." Musk may well be a genius at auto making. Or he may be a dolt. Most likely he is, like most people, somewhere in the middle. None of which matters one whit. Like the Kardashians, he is famous for being famous. Only with a group of people who get their entertainment from buying and comparing paper, rather than booty and petty intrigues.

  • Ultraviolet Thunder Ultraviolet Thunder on Mar 22, 2018

    For someone who has taken $500 million in taxpayer money and has repeatedly promised the moon (or is that Mars) and delivered virtually nothing of note, this guy should be making $1 until he gets his company to produce. Right now his products are shoddy, expensive, and you can't buy what he promises.

    • See 1 previous
    • Highdesertcat Highdesertcat on Mar 23, 2018

      UT, money is fungible. Once he got it there's no tellin' where and how it was used, like maybe on other projects not involving EVs. Maybe all that cash was used to bolster more research on reusable rocketry. To me it would seem that the US gov't is more interested in what Space X can do for them than what EVs can do to drain the Treasury at $7500 a pop.

  • NJRide So this is an average age of car to be junked now and of course this is a lower end (and now semi-orphaned) product. But street examples seem to still be worth 2500? So are cars getting junked only coming in because of a traumatic repair? If not it seems a lot of cars being junked that would still possibly worth more than scrap.Also Murilee I remember your Taurus article way back what is the king of the junkyard in 2024?
  • AMcA I applaud Toyota for getting away from the TRD performance name. TuRD. This is another great example of "if they'd just thought to preview the name with a 13 year old boy."
  • Jeff Does this really surprise anyone? How about the shoes and the clothes you wear. Anything you can think of that is either directly made in China or has components made in China likely has some slave labor involved. The very smart phone, tablet, and laptop you are using probably has some component in it that is either mined or made by slave labor. Not endorsing slave labor just trying to be real.
  • Jeff Self-driving is still a far ways from being perfected. I would say at the present time if my car took over if I had a bad day I would have a much worse day. Would be better to get an Uber
  • 2manyvettes Time for me to take my 79 Corvette coupe out of the garage and drive if to foil the forces of evil. As long as I can get the 8 track player working...
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