Tesla's Latest Stock Surge Raises its Market Value Higher Than Rivals GM & Ford Combined
Shares of electric automaker Tesla have surged since the beginning of the year, boosted by strong demand for the Model 3 and the start of production at the company's new Shanghai gigafactory. Tesla's latest stock suge might also result in a big payday for its Chief Executive Elon Musk.
The rise in the automaker's share price means that Musk is coming close to earning the first $346 million tranche of options, giving mercurial CEO a record payday.
Its been an amazing run for the electric automaker to close out the final quarter of 2019. Tesla's stock more than doubled in the last three months alone. On May 24, 2019, Tesla shares fell to $190.63 and now its stock price is well over $500.
On Monday, shares of Tesla surged 9% to a record high, closing at $547.41, boosting the automaker's market cap to nearly $97 billion.
Last week, Tesla's stock market value hit nearly $89 billion, eclipsing the sum of U.S. automakers General Motors and Ford Motor Co for the first time ever. General Motors has a market cap of just over $50 billion while rival Ford is valued at just under $37 billion.
The turnaround began after Tesla reported an unexpected third-quarter profit, rapid construction pace of its factory in China, as well as better-than-expected car deliveries in the fourth quarter due to high demand for the Model 3, the automaker's first mass-market car.
Tesla's Shanghai gigafactory was constructed a rapid pace and is already building the Model 3 for the China market, less than a year after the official groundbreaking ceremony in January, 2019. The factory allows Tesla to tap into the world's biggest auto market without being subjected to steep import tariffs.
Tesla Shanghai gigafactory is also the first auto factory in China wholly-owned by a foreign automaker, after the Chinese government relaxed rules that limited foreign automakers to own no more than 50% of their joint ventures with Chinese partners.
If Tesla shares rise another 7%, Tesla's stock market value will reach $100 billion. If the company manages to sustain that level for both a one-month and six-month average, it will trigger the vesting of the first of 12 tranches of options granted to Musk to buy Tesla stock.
Musk has already hit an operational target that is also necessary for the options to vest.
For Musk's subsequent tranches to vest under the terms of the 2018 package, the company's market cap would have to continue to sustainably rise by $50 billion increments over the agreement's 10-year period, with the billionaire earning the full package if Tesla's market capitalization reaches $650 billion and the electric car maker achieves several revenue and profit targets.
Musk receives no salary or cash bonus for his role, only options that vest based on Tesla's market cap and milestones for growth. Last year Musk hit two operational milestones, pulling in revenue above $20 billion and adjusted earnings before interest, tax, depreciation and amortization of $1.5 billion over four straight quarters.
Tesla's "adjusted" EBITDA excludes stock-based compensation, which in the first nine months of 2019 reached $617 million.
Musk currently owns about 34 million Tesla shares, equivalent to 19% of the company. His compensation package would let him buy another 20.3 million shares if all of his options vest.
"This is the very definition of pay for performance," said Ian Keas to Reuters. Keas is senior director at Longnecker & Associates, an executive compensation consulting firm. "But is he the only individual that could serve in that seat as CEO and deliver that value to shareholders? That's the billion dollar question."
Tesla was valued at about $53 billion, around $3 billion more than GM, when shareholders approved Musk's pay package in January 2018. At the time Tesla was running short on cash while fighting production delays and increasing competition from its rivals.
At the time, Musk's pay package seemed unattainable since it would require Tesla's value to grow as much as ten-fold over a ten year span.
When Tesla first unveiled Musk's package in 2018, it said Musk could in theory reap as much as $55.8 billion if no new shares were issued. Tesla has since awarded stock to employees and last year sold $2.7 billion in shares and convertible bonds.
Tesla's market potential is still not fully tested. The company is getting ready to start building the new Model Y crossover, which could become another big hit for the electric automaker. Sales of small SUVs and crossovers dominate the U.S. auto market and a more affordable electric version could become the most popular vehicle Tesla has ever made.
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