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Tesla's Musk approaches $750 million pay-day options ahead of results

Image:-Elon Musk, Chief Executive of Tesla Inc

Elon Musk, Chief Executive of Tesla Inc, is on the cusp of a payday of about $750 million as the stock of the electric carmaker recovers from a slump caused by the coronavirus that led the company to close its factories and furlough workers.

Tesla's shares rose 10 per cent on Monday ahead of the company's quarterly report this week, and it could soon reopen its Fremont plant, California, after it was shuttered due to the pandemic.

The rally on Monday put the market capitalisation of Tesla at $145 billion. Significant for Musk, its stock market value reached an average of $96 billion in six months. Hitting an average of $100 billion for six months would trigger the vesting of the first of twelve tranches of options granted to the billionaire to buy Tesla stock as part of his two-year pay package.

Each tranche gives Musk the option of buying 1.69 million shares in Tesla at $350.02 each. Taking Tesla's closing stock price of $798.75 on Monday as an example, Musk could sell those shares for $758 million in profit.

Graphic-Payout options for Elon Musk: Musk does not receive any salary or cash bonus here, only options that are based on Tesla's market cap and income and profit growth milestones. Musk has already struck a growth target necessary for the first vesting options.

A full payoff for Musk, who is also the SpaceX rocket maker's majority owner and CEO, would outstrip anything previously granted to U.S. executives.

When Tesla unveiled the package for Musk in 2018, it said that if no new shares were issued, he could theoretically reap as much as $55.8 billion. Since then, however, Tesla has issued shares to compensate employees and sold $2.7 billion in shareholdings and convertible bonds last year.

The potential payout for Musk comes after Tesla said this month that due to the coronavirus outbreak it would furlough all non-essential workers and implement wage cuts during a shutdown of its U.S. manufacturing facilities. The pandemic has slashed US demand for automobiles and forced several other automakers to furlough U.S. workers as well.

Tesla's quarterly report after Wednesday's bell will show the damage the pandemic has done to global demand and the extent to which a recovery from the coronavirus in China and a return to production at its Shanghai plant help the U.S. carmaker.

Baird analyst Ben Kallo wrote in a client note last week that investors will also focus on Tesla's cash burn associated with its interrupted manufacturing and sales, and on Musk's expectations for consumer demand in a potential long-term global recession. The closure of the Fremont plant came just as Tesla's new Model Y sport utility vehicle increased production.

Analysts on average expect revenue from the March quarter to jump 30 per cent to $5.9 billion, Refinitiv said. That estimate of consensus revenue is down from $6.7bn in early February. On average analysts expect a non-GAAP loss of 36 cents per share.

When shareholders approved the pay package for Musk, Tesla was valued at about $53 billion and faced a cash crunch, production delays and increased rival competition. The pay deal was considered massively ambitious because it implied that the value of the company could increase as much as tenfold in 10 years, and its potentially huge size led some shareholders to oppose it.

Tesla's market capitalization has since expanded to almost three times that of General Motors and Ford Motor's combined values.

Musk's subsequent options tranches would cost Tesla $50 billion in market capitalization increases over the 10-year period of the agreement, with the billionaire earning the entire package if Tesla's market capitalization reaches $650 billion and the high-tech vehicle manufacturer achieves several revenue and profit targets.