Tesla has unveiled an extraordinarily ambitious plan to become one of the biggest companies in the world, aiming to reach $US650 billion – $A812 billion – in market value within 10 years.
The target was revealed in a new 10-year performance plan for company founder, president and CEO Elon Musk, who stands to reap the word’s biggest ever pay-day – $US70 billion ($A87 billion) by some estimates – if he can deliver.
He will get no salary if he fails to reach any of the milestones, but if he does deliver his total stake in Tesla could rise to around 28 per cent, or $US181 billion ($A226 billion), making him the richest man in the world.
To put the ambition in some context, Tesla is now valued at around $US58 billion, putting it about level with General Motors, and ahead of Ford, as the most valuable car manufacturer in the US, despite only achieving a fraction of the sales.
To reach this new target, Tesla will need to overtake the current value of all companies in the world, with the exception of Apple, Amazon and Alphabet (Google), and add its current value to its stock every year for the next 10 years.
Important revenue and profitability goals would also have to be achieved.
Tesla hopes to do this through what it cutely calls the Master Plan “Part Deux” (no explanation for why it needs to use the French word for “two”), which aims to build the world’s first vertically-integrated sustainable energy company.
This will include generation, storage and consumption. The plans include expanding solar energy generation through the recently launched (but yet to take off) Solar Roof and other solar products and “seamlessly integrating them with battery storage”.
Tesla also proposes to build out its electric vehicle product line to cover “all major forms” of terrestrial transport, “continuing to advance autonomous technology to create a fully-self driving future, and enabling sharing so that your car can make money for you when you aren’t using it.”
The board, in a letter to shareholders, admitted that “our aspirations may appear ambitious to some, and impossible to others, and that is by design.
“We like setting challenging, hard-to-achieve goals for ourselves, and then focusing our efforts to make them happen. This is why we based this new award on stretch goals and why we gave Elon the ability to share in the upside in a way that is commensurate with the difficulty of achieving them.”
Tesla, of course, is yet to make a profit, and is often criticised for falling short of its own ambitious production goals, most recently for the delays in meeting production targets for the “mass-market Model 3 electric vehicle.
Despite this, Musk has turned the world of space travel, car travel and energy markets upside down through the launch of its SpaceX shuttles, its Model S, Model X and Model 3 electric vehicles, and its Powerwall and Powerpack battery storage products.
The installation of the world’s largest lithium-ion battery, the so-called Tesla big battery in South Australia, is causing the energy industry to start to rethink the way that energy markets and the delivery of electricity works.
Tesla said in a statement that the award is modeled after Musk’s 2012 performance award, which helped bring about a more than 17-fold increase in Tesla’s market cap in the five years after it was put in place.
“Elon will receive no guaranteed compensation of any kind – no salary, no cash bonuses, and no equity that vests simply by the passage of time,” the company said in a statement.
“Instead, Elon’s only compensation will be a 100% at-risk performance award, which ensures that he will be compensated only if Tesla and all of its shareholders do extraordinarily well.
“Because all Tesla employees are provided equity, this also means that Elon’s compensation is tied to the success of everyone at Tesla.”
Analysts said the “incremental value” of the long term bonus scheme could deliver up to $US70 billion to Musk, but given that he already owns a significant stake in the company, the package is more about attracting other talent.
“We see Elon Musk’s ambitious long-term awards plan as an aspirational marketing tool to attract talent and capital ahead of an upward inflection in competition for EVs and AVs,” Morgan Stanley analysts wrote.
“Elon Musk is already ‘all-in’ on Tesla, so the true marginal financial incentive for tranche vesting is open to debate,” the analysts wrote.
“While the numbers embedded in the incentive package imply incremental compensation of over $70bn, we view this incentive package as more important to investor confidence than to Musk financially.”
They said the package precedes what is expected to be an unprecedented era in the battle for capital and talent.
“For much of Tesla’s history as a public company, the company has all but monopolized the OEM investment debate for Auto 2.0. Over the next 12 months, we anticipate that Tesla’s scarcity value amongst entities vying for supremacy in the new ecosystem will be challenged.”
Musk’s performance award consists of a 10-year grant of stock options that vests in 12 tranches. Each of the 12 tranches vests only if a pair of milestones are both met.
The market cap milestones require Tesla’s current market cap to firstly increase to $US100 billion, and then add an additional $USUS50 billion in eleven increments.
To meet the operational milestones, Tesla must meet a set of escalating Revenue and Adjusted EBITDA (earnings before interest tax, depreciation and amortisation). They are designed to ensure that as Tesla’s market cap grows, the company is also executing well on both a top-line and bottom-line basis.
Of course, to receive the bonus, Musk must remain as Tesla’s CEO or serve as both Executive Chairman and Chief Product Officer, putting to rest speculation that he might step down or hand over the reigns.
“This ensures that Elon will continue to lead Tesla’s management over the long-term while also providing the flexibility to bring in another CEO who would report to Elon at some point in the future,” the company said.
“. Although there is no current intention for this to happen, it provides the flexibility as Tesla continues to grow to potentially allow Elon to focus more of his attention on the kinds of key product and strategic matters that most impact Tesla’s long-term growth and profitability.
The package will be put to a vote of Tesla’s shareholders in late March. Musk and his family members will not be able to vote on the package.
Giles Parkinson is a journalist of 30 years experience, a former Business Editor and Deputy Editor of the Financial Review, a columnist for The Bulletin magazine and The Australian, and the former editor of Climate Spectator.