Elon Musk’s Tesla stock holdings have lost about $30 billion this year through its close as the stock fell 12%. If the analysts are correct, Tesla will report strong financial results to net Musk billions of dollars in stock this year. However, the following 12 months could be the most lucrative for Elon Musk to gets richer further.
Musk does not get any base salary or cash bonus from Tesla. Instead, you receive stock options to reach certain financial and market value goals. His 2018 payout package allocated 101 million split-adjusted shares to Musk in 12 equal tranches, as the company hit those benchmarks.
All market value benchmarks have got hit, even though the recent decline of Telsa has removed it from the list of companies with a trillion-dollar market capitalization. And they have met seven of the financial targets so far. They achieved two in 2019, two in 2020, and three in the first nine months of 2021. Therefore, you have already received 59 million of the 101 million choices in that package.
Analysts expect Tesla to hit all five of the remaining financial targets this year to give Elon Musk every option to gets richer he could get under that 2018 package. If they’re right, he’ll qualify for four of the tranches this year, a record for him, and once more in early 2023 once Q4 2022 results are officially on the books.
Dan Ives, a technology analyst at Wedbush Securities, said that the growth trajectory of Tesla. He’d experience surprise if it doesn’t get all the five tranches this year based on pushing all the triggers.
Each option tranches would give you the right to buy 8.4 million shares for the bargain price of $70.01 per share, the share price when the options got first granted in 2018. The closing price of $930 means each option tranche would be worth $7.3 billion, and the five tranches would total $36.3 billion.
He’ll likely qualify for at least one option tranche, maybe two, when Tesla reports fourth-quarter results. It should have at least three tranches in hand, once publication of first-quarter results in April and the fourth tranche by mid-year.
No Surprise If He Pay Big Tax Bill in 2027
No matter how many choices Elon Musk to gets richer in the following 12 months, he probably need not pay any taxes on them for about five years. That is because he will only have to pay taxes once he exercises the options and buys additional shares. And, likely, he will only do it when they are about to expire.
He did so last year when he exercised 22.9 million options due to expire in August 2022, leaving him with a record $11 billion tax bill for last year.
These last options won’t expire until January 2028, so you probably won’t exercise them until 2027. You still haven’t had to pay taxes on the 59 million options you already received as part of that 2018 payout package. Pay no taxes on any additional 42 million options you’re likely to receive over the subsequent 12 months, no matter how much they are worth.
The biggest problem for Elon Musk is that Tesla stock is having a particularly bad year. He owns 177.7 million shares. In addition to the prospects, he already has to purchase a further 59 million shares. That’s the reason for the massive impact on his net worth in 2022. Still, Forbes’ real-time billionaire tracker puts Musk’s net worth at US$241 billion.
Investors have fretted over riskier tech stocks like Tesla as the Federal Reserve moves to stifle inflation with higher rates and less stimulus. Tesla is worth more than the world’s ten largest automakers despite posting significantly lower sales than each of them. That makes it an example of a stock with an uncertain valuation.
As you see investors heading for the hills of risk, Ives said that Tesla stock gets caught in a storm.
Tesla shares fell as much as 10% for the day at one point during a deep sell-off in US stocks. However, they rallied along with the leftovers of the market to close down @ just 1.5%. Still, that was sufficient to cut $3.3 billion from the net worth of Musk.
Many analysts see the recent decline in Tesla shares as a momentary reversal. Of the analysts surveyed by Refinitiv, 18 have a strong buy or buy recommendation on the stock, compared to 10 with a strong sell or sell recommendation. Tesla shares reversed a similar plunge earlier in 2021 to end the year up 50%.
Ives said that the recent ‘sell-off’ in Tesla shares, down 25% from its all-time high in early November, makes Wednesday’s earnings report particularly important to investors.
Ives said that a disappointing report could fuel a sell-off, while a strong earnings report could turn the stock around.
He also said that they think Tesla’s strong earnings could be a lifeline for its stock.