Thread by @ReflexFunds

1) A thread on Elon’s stock comp bonus awards & why it has limited impact to $TSLA's P&L.

In March 2018 Elon was awarded 20.3 million stock options (with $350 strike price) to be released in 12 tranches after operational (revenue or EBITDA) & market cap goals are reached.

2) Tesla has set 16 operational Revenue and EBITDA targets and once each is achieved (up to a max 12) a tranche of options can be released subject to meeting further market cap criteria goals.

3) These market cap goals start at $100bn market cap increasing in $50bn increments up to a final $650bn target.
This market cap has to be achieved on average over the previous 6 months and 30 days.

4) Elon has to remain 1. CEO or 2. Executive Chairman and Chief Product Officer to be eligible for the awards.

Post exercise, Elon still has to hold the stock for another 5 years.

5) The maximum total P&L cost of the options was fixed on award date in March 2018. This cost is based on options model pricing to set the fair value of the 20.3m options on this date.
ir.tesla.com/static-files/5…

6) This cost was fixed at $2,283m. So this is the total cost that will ever hit the P&L even though at $650m market cap Elon’s 20m bonus shares could be worth over $30bn.

7) How much of this $2,283m is booked to P&L each quarter is decided solely on how many operational goals are currently expected to be achieved.
Current share price and market cap do not impact the P&L.

8) Once a Revenue/EBITDA goal is considered probable, Tesla starts booking P&L costs for this option tranche - with the value of the tranche distributed in the P&L over the longer of the expected achievement period for either the market capitalization or operational milestone.

9) Tesla initially expected to meet 3 of the operational goals so since 1Q18 has been expensing for the first 3 tranches of the the stock awards at a cost of $56m per quarter.

10) The change in Q4 was that a 4th performance goal is now expected to be achieved and cumulative cost of this fourth tranche since the grant date in March 2018 had to be booked for $72m. So this $72m for tranche 4 was 1.75 years worth of catch up - or $10m per quarter.

11) So Q120 should return to an Elon bonus expense of $56m for the first three tranches plus $10m for the fourth tranche - a total $66m (down from $128m in 4Q19).

12) However it is also possible Tesla decides a 5th operational goal is likely in Q1 and if this is the case one off catch up cost should be another ~$70m and overall Elon bonus cost should be up ~$10-20m QoQ to ~$138-148m.

13) I'm not sure if the 4th operational milestone which triggered in Q4 was $35bn revenue or $4.5bn EBITDA, but ideally $35bn revenue, $4.5bn EBITDA and $6.0bn EBITDA will all be considered likely by the end of 2020.

14) If these two extra milestones are booked in 2020, one off catch up cost should be $120-140m and run rate cost should increase to $80-85m. Overall it looks like a maximum of ~$480m Elon bonus cost booked in 2020 vs $295m in 2019.

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