Credit Dominik Asbach/Laif, via Redux
Tesla’s board of directors is driving executive pay into electric dreamland. The board unveiled a pay deal for Elon Musk, the chief executive, on Tuesday that will make him nearly $60 billion if he hits new targets by 2028. That’s on top of the $100 billion gain the electric-car pioneer would make on his existing stake.
Mr. Musk’s new targets are even more ambitious than the 10-year goals from 2012 that he blew through years early. The potential value of share grants totaling 12 percent of the company is vast, but at least the Tesla board has done much more than the usual lip service in setting a serious challenge.
It involves Mr. Musk hitting two sets of metrics. First, Tesla’s market capitalization has to reach $650 billion — more than 10 times its current level and a valuation that would be fourth among today’s publicly listed companies behind Apple, Alphabet and Microsoft, and just ahead of Amazon.
Second, he must turbocharge Tesla’s financial performance. That requires either growing annual revenue to $175 billion, almost 15 times 2017’s expected top line, or making $14 billion in earnings before interest, taxes, depreciation and amortization, a figure that may come in at just over $500 million for last year. There are 12 steps along the route to the maximum payout.
Reaching the revenue target could mean selling well over 2 million of Tesla’s current and planned vehicles, Breakingviews calculates. That level of sales would be in the same ballpark as BMW — and last year’s total for Tesla was barely over 100,000 vehicles. That doesn’t allow for any surge in the company’s solar-panel and electric-storage business, which at present contributes a single-digit percentage to the top line. Still, to get close would require Tesla to dominate the market for electric cars even as General Motors, Nissan and others ramp up their efforts.
One model for Musk could be Amazon, whose $177 billion of expected 2017 revenue would mark a 12-fold increase from 2007. Founder Jeff Bezos’s stock has surged to 18 times its value a decade ago. Yet at the level that Mr. Musk is now aiming for, financial incentives can lose meaning. With a 20 percent stake already worth $12 billion, hitting his targets may motivate the entrepreneur more powerfully than money.