Elon Musk, chief executive of Tesla Inc., may perform another dance if the electric car manufacturer's shares go up a few dollars more and stay there for a while, as it will get stock options that could be worth hundreds of millions of dollars.
Under the Musk Bonus Package Agreement, as specified in Tesla's power of attorney with the Securities and Exchange Commission, Musk could be given options to purchase common stock when Tesla's market capitalization reaches certain milestones and starts at $ 100 billion.
When this first milestone is reached, options to purchase around 1.7 million shares will be offered
At an exercise price of $ 350.02, a share could be exercisable under certain conditions.
With 180.24 million shares outstanding, a market cap of $ 100 billion would be reached on October 21 at a share price of $ 554.80 or 3.1% above Tuesday's record closing price of $ 537.92. At that price, Musk could make a profit of around $ 346 million on exercising the options and immediately selling the stock.
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This market cap goal may seem like a no-brainer as Tesla's market value has increased more than $ 49 billion in the past three months as the stock more than doubled (up 106%). This is offset by a 10% rise in the S&P 500 index
SPX, + 0.12%
over the same time.
also read: Tesla stock targets $ 550.
But it is not that simple.
First, Tesla's board of directors must certify that its market cap has reached $ 100 billion. Second, the market capitalization threshold must be reached along with the operational milestones based on sales or profitability.
According to Tesla's proxy statement, the measurement of the market cap milestone is based on both the "six calendar month average of Tesla's share price" and the "30 calendar day average of Tesla's share price", each case based only on trading days.
On Wednesday, the Tesla share dropped 1% in midday trading, which corresponds to a market capitalization of USD 96.0 billion. The stock has broken a number of records since mid-December last Tuesday, when it closed at an all-time high of $ 537.92. It was trading at $ 547.41 on Tuesday, an intraday record.
And generally, Wall Street analysts don't expect the stock to do much better anytime soon. Of the 32 analysts surveyed by FactSet, only 3 targets have over $ 554.80. The average target is $ 375.01, 30% below the current level.
Sales milestones have started in the last four quarters with sales of $ 20 billion, followed by $ 35.0 billion.
The profitability milestone begins with adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $ 1.5 billion, a measure that is not recognized according to the principles of proper accounting (GAAP), as many do business associated costs are eliminated. The next milestone is adjusted EBITDA of $ 3.0 billion.
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In the last quarterly 10-Q filing with the SEC, Tesla said on September 30, the first two operational milestones had been reached and the next profitability milestone was considered "likely".
The next major event on investors' radar is the Tesla fourth quarter and full year earnings report. Tesla has not yet released the date of the report, but markets expect it in late January or early February.
FactSet analysts' average analyst estimates for 2019 are $ 24.19 billion in revenue and adjusted EBITDA of $ 2.67 billion, while the GAAP earnings estimate is a loss of $ 4.49 per share.