Published on January 24th, 2018 | by Steve Hanley0
Elon Musk’s Tesla Income Proposal Fully Tied To Tesla Market Cap
January 24th, 2018 by Steve Hanley
If everything goes according to plan, in 10 years, Elon Musk will be worth approximately $6.5 billion more. What does that mean to you? Before we get to that, let’s take a look at Musk’s new income plan.
The Man With A Plan
The plan is set out in a 68 page proxy statement filed with the Securities and Exchange Commission this week. Boiled down, it says within 10 years Tesla will be valued at $650 billion — roughly 10 times its market capitalization today. If that happens, it will be right up there with Amazon and Apple as one of the most valuable corporations in the world and Elon will be entitled to stock options equivalent to 1% of that valuation.
The pay plan is audacious for several reasons. First, according to The Verge, it anticipates the company will grow by a factor of 10 in the next decade. That’s unheard of and unprecedented. Second, the boss gets no other compensation. This is an “all or nothing” deal. If Musk doesn’t hit the targets, he gets zero — no salary, no bonuses, and no stock options. (California and Palo Alto law require he be paid minimum wage — about $32,000 a year.) “If all that happens over the next 10 years is that Tesla’s value grows by 80 or 90 percent, then my amount of compensation would be zero,” Musk tells the New York Times.
The first step in the process is for the company to be valued at $100 billion. After that, the targets ratchet up in $50 billion increments until reaching a maximum of $650 billion. The compensation package was put together by the board without input from Elon. It still needs shareholder approval, which will come up for a vote at a meeting in February. Musk will abstain from voting.
The deal is intended in part to quell fears that the peripatetic Musk will go off to slay other dragons — via SpaceX, The Boring Company, or building colonies on Mars — and lose focus on running Tesla. “None of it is intended for dynastic wealth creation,” he says. “The reason that it’s important to me personally is that there’s some pretty big things that I want to do.” But they will have to wait, at least for the time being.
In the SEC filing, the company explains why it believes this extraordinary compensation package is to its advantage.
As you know, we are more than a car company. We are the world’s first vertically integrated sustainable energy company, with a wide variety of products, from generation to storage to consumption. As we described in Master Plan, Part Deux, the next phase of our development involves a number of exciting plans that will further accelerate the inevitable shift toward a sustainable energy future. These include expanding solar energy generation through Solar Roof and other solar products and seamlessly integrating them with battery storage, building out our vehicle product line to cover all major forms of terrestrial transport, continuing to advance autonomous technology to create a fully-self driving future, and enabling sharing so that your car can make money for you when you are not using it.
On The Other Hand …
Perennial automotive gadfly Bob Lutz has his doubts. In Scottsdale this week for a classic car auction, he told the Los Angeles Times, Elon Musk “hasn’t figured out the revenues have to be greater than costs … when you are perennially running out of cash you are just not running a good automobile company. I don’t see anything on the horizon that’s going to fix that, so those of you who are interested in collector cars may I suggest buying a Tesla Model S while they’re still available. Twenty-five years from now, [the Model S] will be remembered as the first really good-looking, fast electric car. People will say ‘Too bad they went broke.'” [Editor’s note: If you look through the CleanTechnica archives for Bob Lutz, you’ll find he’s been saying wild & crazy things about Tesla for years. Here’s one of my favorites:“The Model X appears to be unbuildable with those automatic gull-wing doors, which everyone in the industry always said were not going to work.”]
What Does Any Of This Mean To You?
The stock market runs on two things — fear and greed. Those who fear that Elon won’t deliver on his bold promises will sell their Tesla shares and head for the hills. Those who think he has proven himself will load up on Tesla stock and tuck it away for a decade, secure in the knowledge that it will be worth 10 times as much then as it is today. In trading since the announcement, Tesla’s share price and value haven’t change dramatically. How will that change in coming months. The choice is yours. Invest wisely and good luck! Of course, we make no recommendations.