Cleveland, Ohio – If you’re going to dream, dream big.
That’s the message Tesla’s board of directors seems to be sending CEO Elon Musk with a new compensation package that could make the electric car chief the richest man in the world by a massive margin.
The deal is fairly simple: Musk would have to boost the company’s market value from about $60 billion today to at least $650 billion by 2028. The package includes 12 valuation milestones. Musk would receive options for 1% of Tesla’s outstanding stock shares for hitting $100 billion in company market value and options for another 1% of shares for each $50 billion increase past that.
If Musk hits the full $650 billion target, Tesla would be the world's fourth largest company. Apple is No. 1 at $900 billion, Google comes in second at $808 billion, and Microsoft is No. 3 at $704 billion. Tesla would be ahead of current No. 4 Amazon: $640 billion in market value.
For further context, the seven largest automakers in the world have a combined market value of less than $575 billion today.
- Toyota: $206.8 billion
- Volkswagen: $114.7 billion
- Honda: $65.1 billion
- General Motors: $61.2 billion
- Ford: $47.4 billion
- Nissan: $41.8 billion
- Fiat Chrysler Automobiles (FCA): $37.8 billion
Tesla, a company that has never produced an annual profit and has a -13% profit margin, would have to hit a market value roughly equal to the gross domestic product (GDP) of Switzerland (the world’s 20th largest economy) to fully vest his shares.
Given that Musk already owns more than 20% of Tesla’s stock, that would give him a personal wealth of more than $200 billion. For context, when Amazon founder and CEO Jeff Bezos became the world’s richest man last year, the market value of his holdings was $90 billion.
That level of wealth would put Musk’s personal Tesla holdings at roughly the same value as the GDP or Israel or Iran.
In addition to the market-value measurements, Tesla would have to hit 16 profitability and revenue targets as well. But the board will have the freedom to pair those performance targets with the market capitalization goals – meaning Musk could miss all profitability and revenue targets and still receive 11 of the 12 stock awards, assuming the board chooses to match all revenue and earnings targets to the final market value goal.
During the next 10 years, Musk will not receive a salary or bonuses, deriving 100% of his compensation from the stock option program.
The following table shows a breakdown of how expensive Tesla’s stock would have to get to hit each of Musk’s 12 targets, how many shares he would own if he exercises all of his options, the cost of those exercises, and the impact those changing prices would have on his wealth.
|Tranche||Musk Shares||Stock price*||Cost of options||Musk TSLA stock holdings||TSLA Shares outstanding||Target Market Capitalization|
* The $350-per-share stock price is the current value of Tesla shares, as of Monday, Jan. 22, 2018. The stock prices listed for each award tranche is the value Tesla shares would have to reach to hit the market capitalization goals needed for each award.
About the author: Robert Schoenberger is the editor of Today's Motor Vehicles and a contributor to Today's Medical Developments and Aerospace Manufacturing and Design. He has written about the automotive industry for more than 17 years at The Plain Dealer in Cleveland, Ohio; The Courier-Journal in Louisville, Kentucky; and The Clarion-Ledger in Jackson, Mississippi.