Runarbt
Active Member
what would be cool was if tesla by then chose not to issue new stock for elon, but instead had cash enough to do some buyback.. and put extra pressure on shorts. ;-)
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what would be cool was if tesla by then chose not to issue new stock for elon, but instead had cash enough to do some buyback.. and put extra pressure on shorts. ;-)
Yes you’re correct. Thanks! I’ll go ahead and correct this.
I don’t understand the problem with the non market cap goals being low. If Tesla reaches the market cap goals, does it matter that they have lower revenue and profit than expected?
Not really, so you may have a good point. By then the share price should be far more a reflection of current revenue and profit than it is today. Therefore as a shareholder I would not have found it necessary to add metrics beyond market capitalization as goals. I suspect they were included as assurances to value oriented analysts and investment bankers.
Also worth bearing in mind that he doesn't have to exercise them straight away, or incur the tax straight away. Typically one has some number of years to do the exercise before losing them. So if I was Elon and confident that the stock price would continue to rise, I'd just sit on them until they were about to expire (or I lost confidence). Being an officer of the company he also has to have a plan in place to exercise/sell, he can't just do it on a whim.
I created a public google spreadsheet to try to figure out how much this stock incentive plan is ultimately worth to Elon.
Tesla CEO stock incentive plan 2018
It's public and I made it editable by anyone.
I'm needing help to double check my numbers and also to figure out what exactly is Elon's tax rate when he exercises these options. (maybe look at his past exercises?)
Tesla CEO stock incentive plan 2018
It's public and I made it editable by anyone.
I'm needing help to double check my numbers and also to figure out what exactly is Elon's tax rate when he exercises these options. (maybe look at his past exercises?)
So, some additional language from the 14A:
"The term of the CEO Performance Award is 10 years from the date of the grant, unless Mr. Musk’s employment with Tesla is terminated prior to such date. Accordingly, Mr. Musk has until January 20, 2028 to exercise any portion of the CEO Performance Award that has vested on or prior to such date, provided that he remains employed at Tesla."
So let's say Elon meets Tranche #1 by Jan 1, 2019, if I reading correctly he doesn't need to exercise those shares until January 20, 2028.
Also, it says:
"Mr. Musk must hold shares that he acquires upon exercise of the CEO Performance Award for five years post-exercise (except for shares used to pay exercise price and tax withholdings, or in certain other limited circumstances described further below)."
So upon exercise he can sell shares to pay for taxes.
So, will Elon just wait until close to January 20, 2028 to exercise all his options? Or will there be any benefit for him to do so earlier?
"The term of the CEO Performance Award is 10 years from the date of the grant, unless Mr. Musk’s employment with Tesla is terminated prior to such date. Accordingly, Mr. Musk has until January 20, 2028 to exercise any portion of the CEO Performance Award that has vested on or prior to such date, provided that he remains employed at Tesla."
So let's say Elon meets Tranche #1 by Jan 1, 2019, if I reading correctly he doesn't need to exercise those shares until January 20, 2028.
Also, it says:
"Mr. Musk must hold shares that he acquires upon exercise of the CEO Performance Award for five years post-exercise (except for shares used to pay exercise price and tax withholdings, or in certain other limited circumstances described further below)."
So upon exercise he can sell shares to pay for taxes.
So, will Elon just wait until close to January 20, 2028 to exercise all his options? Or will there be any benefit for him to do so earlier?
As many of us likely thought, it looks like we had a major short/bear attack today. I imagine once the early morning volume dried up, the shorts went to work. They traded almost 61% of the shares today! On the good news front, even though they drove the stock down from its morning highs, they did not succeed in getting the stock to close in the red.
I suspect as much as anything, the structure of Elon's new compensation plan was designed to do what the media almost never does... shine a light on repetitive false bear narratives, and highlight how highly improbable other bear repetitive narratives about the future are by unveiling this striking bet against those narratives. That is, just as the Semi/Roadster reveal was about, as Elon put it, a hard smackdown on ICE vehicles, this announcement is something of a smackdown, on the oft repeated, and rarely challenged bear assertions that...
- Tesla is just a story/cult stock... there are no financial metrics to make a rational case as a long, just a bunch of blind faith
- Elon only cares about enriching himself by milking government programs
- Tesla loses money on every additional car they sell
- All of Tesla's future products are just vaporware/distractions to keep naive people giving them cash in capital raises, despite not being able to do mass manufacturing
- Tesla killers everywhere about to overwhelm Tesla
- Elon is going to sell to Apple/whoever on the cheap due to insufficient funds/ability to survive independently
- Tesla/Elon never meet any of their milestones
- Tesla, like every other venture by Musk, never has made a dime, and never will
- Barring some new breakthrough, EVs are just a niche
- Tesla should be valued by the same low multiples as the rest of the auto industry (i.e., this is belied by the compensation structure highlighting Tesla's growth rate, ~10X, the rest of the industry)
To be clear, I'm not saying this is the only thing the structure of the plan is about, but, I do think it is a big part of it.
- Tesla is just a story/cult stock... there are no financial metrics to make a rational case as a long, just a bunch of blind faith
- Elon only cares about enriching himself by milking government programs
- Tesla loses money on every additional car they sell
- All of Tesla's future products are just vaporware/distractions to keep naive people giving them cash in capital raises, despite not being able to do mass manufacturing
- Tesla killers everywhere about to overwhelm Tesla
- Elon is going to sell to Apple/whoever on the cheap due to insufficient funds/ability to survive independently
- Tesla/Elon never meet any of their milestones
- Tesla, like every other venture by Musk, never has made a dime, and never will
- Barring some new breakthrough, EVs are just a niche
- Tesla should be valued by the same low multiples as the rest of the auto industry (i.e., this is belied by the compensation structure highlighting Tesla's growth rate, ~10X, the rest of the industry)
To be clear, I'm not saying this is the only thing the structure of the plan is about, but, I do think it is a big part of it.
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Alright, I made some major adjustments to the spreadsheet. Here's how it looks like if Elon waits until Jan 2028 to exercise all 12 stock option awards.
assumptions:
1. outstanding shares go up 3M from current 169M by time Tranche 1 is met
2. outstanding shares go up by 4M between tranches (includes Elon's stock option grant, employee stock plans, and cap raises)
3. Tax rate is 50%. Assuming taxed as income and includes federal and california state taxes.
4. Elon's "net" is value of stock received because he has required 5 year holding period after exercising option
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He might decide to start that 5 year clock before 2028 if he anticipates a need for liquid funds before 2033. He did say in the NYT article this morning that his interplanetary plans will take a ton of money, but who knows the timing and amounts this early in that game.
Esme Es Mejor
Member
This is not my area of expertise, but I think Musk would pay a lot less in taxes by exercising the options immediately. I believe the difference between the stock price and the strike price would be treated as regular income, and taxed at 50% or so. Any asset appreciation after Musk acquires the shares wouldn’t be taxed until he sells them— and then, would only be taxed at 20%.
For example, if he exercises the 1st tranche at $600, Musk would pay 50% on the gap between $350 and $600 ($125 tax/share). If the share price goes to $2600, he would pay 20% on the gap between $600 and $26000 ($400 tax/share). This path would result in $525 of taxes per share.
If, instead, Musk didn’t exercise until the share price reaches $2600, I believe he’d pay 50% on the gap between $350 and $2600, or $1125 of taxes per share.
Again, not my area of expertise, so please correct any misunderstandings on my part.
Edit: fixed a typo
Reciprocity
Active Member
I agree 100% with this. It seems almost perfectly crafted to reassure the market. As other have stated, Elon cares more about control then about a specific monetary goal. I think he knows its critical to be success for 100 reasons and if he is, the money will rain down in such volumes that no one could spend it, even trying to go Mars. There just arnt enough rocket engineers to hire to spend hundreds of billions as fast as Elon can make them.
Some have speculated a cap raise is incoming. I am torn on whether that's a good thing or not. In one way, it could mean they need to cash to survive, but I dont believe that is the case. It would be great if they needed the cash to start expanding Fremont for the second model 3 line based on a timeline that would allow them to complete the line in time to ramp from 5k - 10k late this year. Or even GF3,4,5. I would be very happy if that was the case, but I dont think they will want to distract from the Model 3 ramp with how much is riding on it.
Looking at it closely from my naive eyes, this is really a softball for Elon. I think the Model 3 ramp and a fully functional GF1 and GF2 could very well get him half way to the goal or more by 2021. To me, its almost to easy and the reason I think that is that the key is the Model 3 ramp. Once they can ramp to 5k/w and start working towards 10k/w, they can make the modifications they need for Model Y (based on Model 3) and accelerate that ramp when compared to the model 3 production hell. That doesnt mean it will be easy, just that it will be based on a known formula, though I assume Elon/Tesla will find a way to complicate it by trying to make it faster and more efficient.
Overall, its a good deal for Tesla and stockholders and it gives Elon more control. All things I am onboard with. I agree with @DaveT that they could have made it a good deal harder, but I dont think that was the point. Elon doesnt need a challenge to get motivated and he will deserve what he earns as the mastermind and force of nature drives the machine forward.
On a side note. I am convinced that the aspiration goals that Elon always goes to that upsets so many when he doesnt deliver is an elaborate recruiting tool for both employees and investors. If I am a hot engineer, I want to go where I can make the biggest impact and I dont want to be toiling on ancient crap, I want to be on the cutting edge. That's SpaceX and Tesla right now and even OpenAI. Yes, its a story stock and Elon can have a bit of hubris, but professional investors and institutional investors should understand that and frankly, its better that us retail investors are duped by Elon then by some bitcoin fishing scam.
Krugerrand
Meow
Now getting flack for under promising and over delivering?
Thumper
Active Member
I could see Elon funding some sort of endowment with this wealth stream. The endowment would pay to send loads of freight to mars at regular intervals even without Elon's presence.
Krugerrand
Meow
In the context of Elon's holdings, that seems like a superfluous, boiler-plate restriction.
"As of December 31, 2017, Mr. Musk beneficially owned 37,853,041 shares of Tesla’s common stock, including 33,632,421 shares held of record by the Elon Musk Revocable Trust dated July 22, 2003 and 4,220,620 shares issuable to Mr. Musk upon exercise of options exercisable within 60 days after December 31, 2017."
Shares are fungible. It's not just the 33.6 million shares held out-right, which can be sold or donated anytime. All but 700 of those 4,220,620 vested options have a strike price of $31.37 and expire on August 13, 2022.
Elon is not going to sell shares any time soon, other than to pay employment and income taxes on option exercises (and then likely only in the year the grants expire.)
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