Payday is here for Elon Musk

Tesla’s CEO has cleared a milestone that will allow him to buy 1.7 million company shares at a much lower than market price, making a paper profit of more than $700 million.

Claudia Assis reported the news for MarketWatch:

Tesla Inc. Chief Executive Elon Musk has earned the first portion of a windfall payout tied to stock options, Tesla said in a filing late Thursday.

As part of a performance-award agreement in Musk’s 2018 compensation package, the CEO stood to receive options to purchase shares if Tesla TSLA, -1.75% reached certain benchmarks, an important one being a market capitalization averaging $100 billion for six months.

One of 12 tranches under that package “has vested and become exercisable,” Tesla said in the filing. That is now “subject to Mr. Musk’s payment of the exercise price of $350.02 per share and the minimum five-year holding period generally applicable to any shares he acquires upon exercise,” the company said.

At the end of the process, that would mean a paper profit around $775 million for Musk. Tesla shares ended Thursday at $805.81.

CNN’s Chris Isidore wrote:

Musk, who already owns about 20% of the company, doesn’t get a straight salary or bonuses. Under a stock compensation plan approved by shareholders in 2018, he can receive up to 20.3 million stock options by 2028 if the company hits various market value and operational goals.

It already hit the first two operational goals, but until now it had yet to reach the market value target of an average of $100 billion over a six-month period.

On Nov. 4 the company was worth $57 billion. But after years of losses, the company has at last proven it can be profitable on a sustained basis. In January, it posted its first annual profit, for 2019. And Tesla reported a profitable first quarter, rather than the loss forecast by analysts, even in the face of the global Covid-19 pandemic which shut down its production and limited sales.

Kirsten Korosec from TechCrunch noted:

When the board and shareholders approved the package, Musk was theoretically able to earn nearly $56 billion if no new shares were issued. However, last year Tesla sold $2.7 billion in shares and convertible bonds, Reuters reported at the time.

To access the first tranche of stock options, Tesla’s market value had to reach a six-month average of $100.2 billion and either $20 billion in annual revenue or $1.5 billion in adjusted EBITDA. To meet the next milestone, Tesla’s market cap must increase another $50 billion in value and $35 billion in revenue or $3 billion in adjusted EBITDA.

The board certified the market cap and revenue milestone. The other operational milestone relating to $1.5 billion adjusted EBITDA has been achieved but is subject to formal certification by the board, according to the SEC filing.