Elon Musk has secured the second tranche of his stock compensation plan as Tesla CEO worth over $2 billion in TSLA stock, which he eventually plans to use for his plan to colonize Mars.
While Musk doesn’t accept a salary from Tesla, shareholders granted him a very generous and ambitious stock compensation plan in 2018.
The plan is linked to a significant increase in revenue, adjusted EBITDA, and a massive increase in Tesla’s market valuation.
After those milestones are achieved, each $50 billion increase in Tesla’s average market capitalization would result in Musk receiving 1.69 million shares at a set price of $350 a share.
The CEO would pocket the difference between $350 and whatever price Tesla’s stock trades at when he exercises the stock options.
Here are the main details of the compensation plan:
Back in May, Tesla confirmed that all the milestones for the first tranche of Musk’s compensation plan were achieved and they awarded the block of 1.69 million – though the CEO has yet to exercise them.
He has 5 years to do so.
But with the rapid increase in Tesla’s stock price, the next milestones have already been achieved just a few months after the first tranche.
As of today, Tesla’s average market valuation is high enough for the second tranche of Musk’s compensation plan to vest.
At the current stock price, the new tranche is worth close to $2.1 billion and since he hasn’t exercised his first tranche, he already has access to $4.2 billion in stock options from his current compensation plan.
Tesla’s board still has to approve the award for it to become official.
This is an insane amount of money and once Elon decides to exercise those options, things will go crazy.
First of all, there’s going to be a crazy amount of taxes to pay, but more interestingly, it might be what finances Elon’s plan for SpaceX to colonize Mars and make humans a multi-planetary species.
When Elon’s generous compensation plan was approved in 2018, the CEO said that he plans to sell s ‘major’ stake in Tesla in ‘about 20 years’ to finance SpaceX’s Mars plans.
He commented something similar again earlier this month:
Essentially. Long-term purpose of my Tesla stock is to help make life multiplanetary to ensure it’s continuance. The massive capital needs are in 10 to 20 years. By then, if we’re fortunate, Tesla’s goal of accelerating sustainable energy & autonomy will be mostly accomplished.
— Elon Musk (@elonmusk) July 7, 2020
Musk already owns a large 20% stake in Tesla, but those new stock options are going to go a long way in helping him finance those plans while still maintaining a stake in the company.
The CEO could also use dividends from Tesla to finance other projects if the automaker ever decides to go that route.
Currently, Tesla doesn’t pay a dividend and doesn’t plan to do so in the foreseeable future as it reinvests everything into growth, but it could be a different story in 10-20 years from now.
What do you think? Let us know in the comment section below.
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