General Discussion: 2018 Investor Roundtable

[NateB]

Ignoring dilution and starting at 59B: With the 10 year limit on the plan, a rate of 5% would only get Tesla to 96 billion and Elon would not get any bonus.To get to 100B will take a minimum 7% growth. To hit 650B will take an annualized growth rate of 27%.

Wait, why 7%? 5.5% per year for 10 years should get us to $100 billion.

59*1.055^10=100.8

But I don't think we should ignore dilution either. Stock-based compensation for a wide range of employees is a part of Tesla's strategy. And further dilution is possible, although I don't know how likey.

 

[mongo]

He wouldn't get 1 billion.

With Tesla valued at $100B, that would be TSLA at 591, assuming no more dilution. Musk would pay $350/share and would have a profit of $241/share. That's $407M, not $1B.

True, but the soonest he can sell is 5 years after grant (other than covering costs of exercising), so his profit is extremely variable. Easier to speak in terms of cost to Tesla/ shareholders (dilution of 11% due to 12% increase in number of shares in higher growth case) .

 

[mongo]

Wait, why 7%? 5.5% per year for 10 years should get us to $100 billion.

59*1.055^10=100.8

But I don't think we should ignore dilution either. Stock-based compensation for a wide range of employees is a part of Tesla's strategy. And further dilution is possible, although I don't know how likey.

You're right, I left old number from when I errantly used 12 units (levels) instead of 10 units (years). had a wrong number
Thanks for the correction!

Edit: (wan't 10 vs 12, was 50 vs 59)

 

[Krugerrand]

My understanding is that he will get billions even if he never "grows the company up to 13 fold," but not the full grant.

So I disagree with your characterization.

None of that matters simply because any money he does receive he’ll use to continue his plans for humanity. He’s not going to take any money and hoard it, buy an island, buy a yacht, buy Kobe beef, etc...

Everybody on the planet should be saying take my money, Elon, and do what you do.

 

[scaesare]

None of that matters simply because any money he does receive he’ll use to continue his plans for humanity. He’s not going to take any money and hoard it, buy an island, buy a yacht, buy Kobe beef, etc...

Everybody on the planet should be saying take my money, Elon, and do what you do.

Although he may plunk cash down for a Volcano Lair

 

[Yggdrasill]

True, but the soonest he can sell is 5 years after grant (other than covering costs of exercising), so his profit is extremely variable. Easier to speak in terms of cost to Tesla/ shareholders (dilution of 11% due to 12% increase in number of shares in higher growth case) .

Yes. But Tesla would also get $7.1B in cash for those 11% dilution. That cash could be used for an additional Gigafactory, and still have some change left over. I wouldn't disregard this. It offsets the dilution.

 

[mongo]

Yes. But Tesla would also get $5.9B in cash for those 11% dilution. That cash could be used for an additional Gigafactory, and still have some change left over. I wouldn't disregard this. It offsets the dilution.

Is that accurate based on how the accounting works? The dilution doesn't happen now (since it may never happen), but it gets valued based on SP now. In the future, when a target is hit, there is a dilution of ~2 million shares when option is exercised effective dilution dependent on share outstanding at the time, so it will likely be less than $5.9B back calculated.

 

[mongo]

Although he may plunk cash down for a Volcano Lair

Prime real estate, just needs some tunnels:
Largest volcano in Solar System

 

[Zaxxon]

No, it that specific case, they lose due to now having dealerships, legacy vehicles/ plants/ people.

Aquisitions would count in general.

They count, but the targets get automatically adjusted in the event of acquisitions or divestments.

Market Capitalization and Operational Milestone Adjustments. In the event that Tesla acquires a business with a purchase price of more than $1 billion, any then-unachieved Market Capitalization Milestones will be increased by the purchase price of such acquisition. Similarly, if the target of an acquisition transaction has revenue or adjusted EBITDA (based on cumulative four consecutive quarters prior to the transaction) of more than $500 million and $100 million, respectively, the then-unachieved Revenue or Adjusted EBITDA Milestones (as applicable) will be increased by such Target’s revenue or adjusted EBITDA (as applicable). This feature o theCEO Performance Award is intended to prevent achievement of milestones based on acquisition activity that could be considered material to the achievement of those milestones.
Likewise, in the event that Tesla enters into a transaction constituting a split-up, spin-off or divestiture that has a value over $1 billion, any then-unachieved Market Capitalization Milestones will be decreased by the value ofsuch transaction. Also, if an entity with more than $500 million or $100 million of revenue or adjusted EBITDA, respectively, is divested by Tesla, the then-unachieved Revenue or Adjusted EBITDA Milestones (as applicable will be decreased by the amount of revenue or adjusted EBITDA (as applicable) divested in such a
transaction.

 

[Reciprocity]

first, BMW makes more than 2M vehicles per year... the majority is NOT minis. I typically round down during these conversations because of the mini.

second, there's a thing that makes the car move forward... in an EV it's called a battery, in a non-ev it's called an engine. both are highly automated. so, you're comparing apples to apples. (except that today it costs more to build a car with a battery than an engine).

so, last, what's your point? why go down a battery conversation at all? my question was, why does Tesla expect massive market cap expansion from here and your reply is, they can be 1/4th the size of BMW and their market cap will explode because they use batteries?

let me guess, I'm missing the big picture here... right?... I just don't understand. Tesla will be 4x what BMW is today in market cap when they're 1/4th the size of BMW because "it's the future", right?... which is code for Tesla will replace "all" the auto companies. just say it. I think that's what you're getting at there. there's no other auto company that will exist because they don't have a gigafactory... right? because if we were talking about GM, F, Toyota, whatever, this would be your same argument.

so, in essence, you guys are still on board with the idea that Tesla will dominate the world. so therefore the stock will go up.

Because petrol is on its way to becoming illegal. So, BMW better get working on a different fuel type. So batteries matter. Not only that, BMW themselves have announced a electrification of their models, what ever that means because they have not been clear. Which tells me they really dont have a plan.

Edit: Diesel first then Gas. I have no idea why I put petrol..lol.

 

[Lessmog]

And "essence", in French, is in essence petrol in British English, gasoline in American, Benzin in German etc. That was just a whiff of fumes in the general direction of an in essence unseen entity.

 

[avoigt]

Thank you for the clarification.

Then the question becomes, "Are you okay with handing EM $1B if the company only gets to $100B market cap and stays there?"

Did Tim Cook get 1% of the company when AAPL’s market cap doubled in the last 18 months?

If you say Tim Cook would be benefiting from the moat Steve Jobs built, that is also true here: Future Elon Musk will be benefiting from the moat built by Past Elon Musk, who already got paid with the first comp plan.

My answer is: yes!

I get your point about its high comp versus "just" doubling the market cap however I only can repeat that I don't have any issue with how many billions he earns if the growth and profit targets are met.

In you scenario Tesla grows slowly to 100bn and EM gets still his 1% may look not justified. Lets assume he needs 10 years to grow it to 100bn which I don't imagine to happen (will be way faster). His compensation AND full salary would be then .1% p.a.. Fully okay for me.

Not sure why it matters who build the moat or benefitted from it. What matters for me is the growth and profit a company is making now. Building a moat is critical but executing and defending it also. All competitors are trying to bridge the moat and if you don't continue building its just a question of time until they make it.

Lets also realize he cannot sell any shares for additional 5 years. So we have a situation where for many years we have a long term shareholder that won't sell a single stock. Many other positives with that comp plan but I find it hard to identify negatives.

I always appreciate investors with other opinions but don't expect that others do share my view though...

 

[Yggdrasill]

Is that accurate based on how the accounting works? The dilution doesn't happen now (since it may never happen), but it gets valued based on SP now. In the future, when a target is hit, there is a dilution of ~2 million shares when option is exercised effective dilution dependent on share outstanding at the time, so it will likely be less than $5.9B back calculated.

I corrected it to $7.1B (10 vs 12...), but the number of shares is already defined, at 1% of the current outstanding shares, or ~1.69 million shares.

 

[DurandalAI]

Each week I see reference to the automation of battery pack assembly being an advantage for Tesla, which I generally agree with but I do not believe it to be as big of an advantage as others might think.

Tesla is the only manufacturer selling BEVs or PHEVs in the US to my knowledge that uses small format cells to make its battery packs. The Volt, Bolt, Leaf, etc use large cells. My Leaf has these large plate cells, and there are only 96 (IIRC) in the pack. These cells are assembled into packs, but the assembly process isn’t as involved as it is with Tesla packs. Tesla requires the high automation due to the cell type it uses.

That said, there are advantages to the small cell type as opposed to the large format, for instance in the case of cell failure, one can fail in a Telsa and you won’t even notice. In a Leaf, it can be crippling at a lower SOC. The smaller cells are easier to manufacture as well.

TLDR; While it is an advantage, I don’t think it’s a huge of a deal as some here make it out to be. The major difference will be sourcing batteries at all, I don’t think other car OEMs are seriously ready for the volume they COULD ship if they were sufficiently prepared, and that will hurt them in the long run.

 

[mongo]

Each week I see reference to the automation of battery pack assembly being an advantage for Tesla, which I generally agree with but I do not believe it to be as big of an advantage as others might think.

Tesla is the only manufacturer selling BEVs or PHEVs in the US to my knowledge that uses small format cells to make its battery packs. The Volt, Bolt, Leaf, etc use large cells. My Leaf has these large plate cells, and there are only 96 (IIRC) in the pack. These cells are assembled into packs, but the assembly process isn’t as involved as it is with Tesla packs. Tesla requires the high automation due to the cell type it uses.

That said, there are advantages to the small cell type as opposed to the large format, for instance in the case of cell failure, one can fail in a Telsa and you won’t even notice. In a Leaf, it can be crippling at a lower SOC. The smaller cells are easier to manufacture as well.

TLDR; While it is an advantage, I don’t think it’s a huge of a deal as some here make it out to be. The major difference will be sourcing batteries at all, I don’t think other car OEMs are seriously ready for the volume they COULD ship if they were sufficiently prepared, and that will hurt them in the long run.

I'm thinking of the entire cell/ pack ecosystem. Being in Tesla's building is minimizing Panasonics's cost, so Tesla is getting a great price on cells. They also keep all the markup on the module/ pack assembly along with zero transport costs.

 

[Chickenlittle]

You may be confusing me with @MitchJi

Yes very sorry

 

[ValueAnalyst]

None of that matters simply because any money he does receive he’ll use to continue his plans for humanity. He’s not going to take any money and hoard it, buy an island, buy a yacht, buy Kobe beef, etc...

Everybody on the planet should be saying take my money, Elon, and do what you do.

I appreciate that none that matters to you, and that you have a personal opinion shared by many here that "everybody on the planet should be saying take the money, Elon, and do what you do."

This, however, is not the view of all Tesla investors, and I think it's reasonable for at least some investors to question CEO pay. I hope you also appreciate that.

 

[elasalle]

With current market cap and current SP. If market cap goes to 100B and EM gets another 1%, what will the SP be after dilution?

 

[Krugerrand]

I appreciate that none that matters to you, and that you have a personal opinion shared by many here that "everybody on the planet should be saying take the money, Elon, and do what you do."

This, however, is not the view of all Tesla investors, and I think it's reasonable for at least some investors to question CEO pay. I hope you also appreciate that.

If there’s an opinion other than, then not enough research has been done on the human involved, who is controlling the elephant nuts, making the numbers being overvalued and the human under valued.

Think on that for a second. If Elon stops being Elon then you have a point, but if he continues being Elon then you’re wracking your brain running numbers and wasting energy because it then matters not. There’s no indication that Elon will break away from his human nature.

Of course you are free to wring your hands, pound away at the irrelevancy of the numbers etc... I was simply trying to help save you and others the wasted angst (just as I did during the end of the world Solar City meltdown), but you’re also tied tightly to your human nature-so thanks for supporting my point that we should all just hand Elon the money and let him do his thing for all our benefits.

 

[landis]

Think on that for a second. If Elon stops being Elon then you have a point, but if he continues being Elon

Exactly.
In general I am a critic of excess CxO compensation, but in this case I am all in for funding transportation to Mars. ;-)