Tesla valuation nears Elon Musk’s bonus trigger of $100bn

Tesla’s soaring share price has put Elon Musk within touching distance of the first tranche of a £50bn incentive package designed to keep him at the helm of the electric car maker. The company’s shares broke through £534[1] on Tuesday, valuing its equity at £96bn, a higher market value than Ford and General Motors combined. If the stock reaches £554.80, Tesla would hit a valuation of £100bn.

If it holds that level for six months, it would unlock the first of several potential share-based payments to Mr Musk, worth just under £350m. The award would count as one of the largest bonuses in the corporate world but is overshadowed by the increased value of Mr Musk’s 18.9 per cent stake in Tesla, which has doubled in six months to £18.3bn. The surge has been propelled by higher delivery numbers, positive profitability and a rising industry-wide acceptance of the need for electric vehicles[2] to meet emissions targets.

On Tuesday, investment bank Jefferies raised its target price on the company to £600, calling Tesla “the only carmaker engaged in a positive-sum game in EVs amid rising market acceptance”. Mr Musk’s potentially lavish rewards scheme[3] was put in place in 2018, replacing any regular salary, bonus or share scheme with the promise of ever-greater payouts if exceptionally stretching targets were hit. To unlock the full £50bn by 2028, Mr Musk would have to increase Tesla’s annual revenues to £175bn, from about £24bn today, as well as raise underlying earnings to £14bn, from about £2bn today, and its market cap to £650bn.

At the time the scheme was introduced, Tesla was valued at £59bn, and was barely profitable. The first payout, worth just under £350m, comes after the market cap reaches £100bn, and the business has either reported revenues of £20bn or adjusted earnings of £1.5bn. Another payment will come if the market value reaches £150bn, and again at every further £50bn up to £650bn, if additional financial targets of higher revenues or fatter profits are also hit.

To qualify, Mr Musk also has to remain as chief executive.

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Tesla is on an expansion drive, promising to build a factory and research centre in Berlin as well as its new Shanghai facility, while intending to broaden its product range to encompass a smaller sport utility vehicle called the Model Y, a full-sized haulage lorry and a pick-up truck. The company’s core car-selling business is also expected to turn profitable this year, Jefferies analysts said, even when the sale of environmental credits to rivals such as Fiat Chrysler is excluded. Tesla’s stock finished last year at £420, the price at which Mr Musk claimed through a tweet he intended to take the company private in the summer of 2018.

Although its equity value has surpassed the largest US carmakers, Tesla’s enterprise value of £105bn still trails Ford and GM by a significant margin owing to their greater levels of debt.

References

  1. ^ broke through £534 (www.ft.com)
  2. ^ need for electric vehicles (www.ft.com)
  3. ^ rewards scheme (ftalphaville.ft.com)

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