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Elon Musk’s holdings of Tesla inventory have misplaced about $30 billion this 12 months by way of January 24’s shut, because the inventory slid 12%
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It’s been a tough begin to 2022 for the world’s richest particular person. He’s not too frightened, although.
Elon Musk’s holdings of Tesla inventory have misplaced about $30 billion this 12 months by way of Monday’s shut, because the inventory slid 12%.However the subsequent 12 months may very well be probably the most profitable ever for Musk. If analysts are appropriate, Tesla will report sturdy monetary outcomes this 12 months that can web Musk billions of dollars in inventory awards.
Musk doesn’t obtain any base wage or money bonus from Tesla. As a substitute, he receives inventory choices primarily based on the corporate hitting sure monetary and market worth targets. His 2018 pay bundle allotted 101 million split-adjusted shares that might be awarded to Musk in 12 equal tranches, as the corporate hit these benchmarks.
The market worth benchmarks have all been achieved, though Tesla’s current slide has eliminated it from the listing of firms with a trillion-dollar market cap. And 7 of the monetary targets have been hit thus far, with two being reached in 2019, two extra in 2020, and three within the first 9 months of 2021. So he’s already obtained 59 million of the 101 million choices in that bundle.
Analysts anticipate Tesla to hit the remaining 5 monetary targets this 12 months to offer Musk all of the choices he probably may get underneath that 2018 bundle. In the event that they’re proper, he’ll qualify for 4 of the tranches this 12 months — a document for him — and yet one more in early 2023 as soon as fourth quarter 2022 outcomes are formally within the books.
“With Tesla’s development trajectory, I’d be stunned if he doesn’t get all 5 tranches this 12 months primarily based on hitting all of the triggers,” mentioned Dan Ives, tech analyst for Wedbush Securities.
Every of the tranches of choices would give him the precise to buy 8.4 million shares of inventory for the cut price worth of $70.01 a share — the worth of the inventory when the choices have been first granted in 2018. At Monday’s closing worth of $930, meaning every tranche of choices could be price $7.3 billion, and all 5 tranches would whole $36.3 billion.
He’s very more likely to qualify for at the very least one tranche of choices, maybe two, when Tesla stories fourth-quarter outcomes on Wednesday. He ought to have at the very least three tranches in hand as soon as the first-quarter outcomes are reported in April, and a fourth tranche by mid-year.
A giant tax invoice … in 2027
Nonetheless many choices Musk receives within the subsequent 12 months, he in all probability received’t should pay any taxes on them for about 5 years. That’s as a result of he’ll solely should pay taxes on the choices as soon as he workout routines the choices and buys extra shares. And he’s solely possible to do this when the choices are about to run out.
He did that final 12 months when he exercised 22.9 million choices that had been attributable to expire in August of 2022, leaving him with a document $11 billion tax invoice for final 12 months.
These newest choices received’t expire till January 2028, so he in all probability received’t train them till 2027. He hasn’t but needed to pay taxes on the 59 million choices he’s already obtained as a part of that 2018 pay bundle. And he possible received’t be paying taxes on any of the 42 million extra choices he's more likely to obtain over the course of the subsequent 12 months, irrespective of how a lot they're price.
Sinking inventory
The most important downside for Musk is that Tesla shares are having a very dangerous 12 months. He owns 177.7 million shares, along with the choices he already holds to purchase a further 59 million shares. That’s the explanation for the large hit to his web price in 2022. Nonetheless, Forbes’ actual time billionaire tracker places Musk’s web price at $241 billion.
Buyers have grown frightened about riskier tech shares, reminiscent of Tesla, because the Federal Reserve strikes to quash inflation with greater charges and fewer stimulus. Tesla is price greater than the ten largest automakers on the earth regardless of posting considerably smaller gross sales than every of them. That makes it the poster baby for a inventory with a questionable valuation.
“As you’re seeing buyers heading for the hills on threat, Tesla shares are caught in storm,” mentioned Ives.
Throughout a deep sell-off in US shares on Monday, Tesla shares have been down as a lot as 10% for the day at one level. However they rallied again together with the remainder of the market to shut down only one.5%. Nonetheless, that was sufficient to shave $3.3 billion off of Musk’s web price.
Many analysts see the current slide in Tesla shares as a short lived setback. Tesla shares reversed an identical slide in early 2021 to finish the 12 months up 50%. Of analysts surveyed by Refinitiv, 18 have a purchase or sturdy purchase advice on the shares, in comparison with 10 with a promote or sturdy promote advice.
Ives mentioned the current sell-off in Tesla shares, down 25% since its document excessive in early November, makes Wednesday’s earnings report notably necessary for buyers. They’ll need extra details about plans to ramp up manufacturing at two new factories and when it plans to roll out the Cybertruck, its pickup truck, which will probably be dealing with competitors from pickups provided by established automakers like Ford and an upstart EV maker, Rivian.
A disappointing report may feed into the sell-off, whereas a robust earnings report may flip round shares, Ives mentioned.
“We predict sturdy Tesla earnings may very well be a life raft for its shares,” he mentioned.
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