This article was written on July 2, 2020 and was published on one of my social media account. Some of the targets written here have been achieved while some haven’t, and some may deem the things written here is still relevant. So take this with a grain of salt, and do your own analysis. For perspective, the price of the stock when I wrote this was $223.8/share ($1119 pre-split).
As a disclaimer, this is neither an investment advice nor a buy signal. I am also not a financial analyst, but I am long $TSLA.
July 2, 2020
Tesla IPO’ed 10 years ago at $3.84/share (or $17/share pre-split) and I thought I will share some of my perspectives on both of the growth of the stocks and Tesla itself.
Introduction
As we know, Tesla started off as a car company, but now if you think Tesla as an automotive company, you’re definitely missing the point. Tesla is currently disrupting the clean energy, technology, engineering, and sciences (teaming up with CureVac) sectors, all-in-one.
- Clean energy — Selling Tesla solar along with its Powerwall
- Technology, engineering — Tesla created their own ‘robots’ to build cars with as much automation, acquired Grohmann and Maxwell, making their own computers for their Full Self Driving (FSD) features
- Sciences — Building RNA micro factories for CureVac and possibly others at Tesla Grohmann
and we might see some addition to the list in the coming years, as Tesla never stops to disrupt markets.
Space for Stock Growth
Tesla introduced a 10-year CEO performance award back in 2018, which gives a 100% pay-for-performance structure for Elon Musk (Tesla CEO). 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. 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.
(TLDR: Elon won’t get paid if Tesla doesn’t perform well)
… I still don’t understand, how does it work?
There are 12 tranches of stock options, which in vesting each of them, 1 additional market-capitalization milestone + 1 operating milestone is needed.
The estimated calculation can be seen below. (Thanks to Business Insider!)
Therefore, Elon needs to work hard even though he doesn’t get paid by Tesla, because when the stock price goes up, he is getting paid too (note: I’m quite sure he actually doesn’t really care about money for his personal use but he might need it to re-invest that back in for SpaceX purposes)
So, in order to fully vest this options, from the market-capitalization calculation, the stock needs to reach $701 (or $3506 pre-split). This valuation also needed to be maintained for six months before Musk’s option vest.
The operational goals are based on the company dramatically improving sales and profits and are tied to increasing levels of top-line revenue and bottom-line earnings before interest, taxes, and depreciation (EBITDA). I do believe strongly that Tesla revenue and adjusted EBITDA value will follows as Tesla is continuing on their expansion.
Isn’t $700 too hard to be reached?
Nope, not at all! Especially if you put 5–10 years into perspective.
Tesla still has a lot on their plate to go!
- All energy will possibly be generated from renewable energies (and sun is free ☀️)
- Tesla Robotaxi fleets
- Tesla battery (Maxwell acquisition) and their own AI/ML software
- Expansion of Tesla delivery and production to new countries
- Tesla Insurance
- Giga Texas
- Autopilot (AP) and Level 5 Full Self Driving (FSD) software
- Creating more of their own computer and chips
- Expansion of Tesla solar and Powerwall sector
In addition, The Times said in May 2019 that the compensation plan was intended to ensure Musk’s long-term dedication to Tesla’s growth and profitability, quoting the company’s announcement that said it would “incentivize and motivate Mr. Musk to continue to not only lead Tesla over the long-term, but particularly in light of his other business interests, to devote his time and energy in doing so.” Therefore, I do believe that Elon will still stay quite long at Tesla, and these said targets can be reached as it is not a secret anymore that Elon is the face of Tesla.
Honest takeaways
I love Tesla, I love their innovations and they seem to disrupt every industry that they’re in. I don’t think $700 is hard to be reached, as they have a lot on their plate to go, and those stock compensation package kinda ‘ensures and guarantees’ that the stock will reach $700 in the future. However, I know that Tesla haven’t really posted a consecutive profits, which makes sparks a question like “Is investing at Tesla good for investment?”. However, as the point that I have mentioned above, and the performance award that ‘binds’ Elon to Tesla to a certain degree, I still think that Tesla is still good for investment, despite a strong growth right after the March 2020 dip.
