New York (CNN Business)Elon Musk just became the fourth-richest man in the world, according to Bloomberg. He’s about to get a lot richer.
The Tesla CEO takes no regular salary, but in 2018 shareholders approved a pay package that could eventually give him 20.3 million stock options, paid in 12 equal tranches, potentially making him the richest person in the world. Thanks to the tremendous run-up in Tesla shares, Musk has qualified for two blocks of options, which on paper are worth about $2.8 billion each after he pays the exercise price.Now he’s weeks away from qualifying for the third tranche of options, worth an additional $2.8 billion.
Musk will be awarded the options as the company hits a series of targets both for financial results and market value. One of the two milestones that must be hit for those options to be exercised is that Tesla (TSLA) shares, which were valued at $372 billion at Monday’s close, must maintain a $200 billion average market value over the prior six months, a target it hit over the course of the last five months. So even if Tesla shares lose nearly half their current value over the next month, they’d still have a six-month average of $200 billion or greater.Read MoreThe other milestone is based upon Tesla’s revenue or profit performance. And if analysts’ forecasts are right, Tesla should be able to do that in the current quarter. The measure of profits used to judge success must be $4.5 billion over a 12-month period. The company nearly reached that over the 12 months ending in June, when it earned $4.4 billion. Its third-quarter forecast is for earnings of $1.4 billion, up about a third from what it earned on that basis a year ago.If he does get the options, Musk won’t actually own the shares. He has yet to exercise any of the options he received this year or most of what he was awarded in prior years (He did not not receive any options in 2018 or 2019.) Typically, options are exercised only when the investor holding them is ready to sell the shares, or if they are due to expire.No matter how many options Musk gets this year, they will be only a fraction of his current Tesla stockholdings. He owns 34 million shares of the stock, a stake equal to about 18% of the company, which is valued $68 billion.
Tesla has soared 50% since announcing its stock split — last weekMusk qualified in May for the first tranche of options under his current pay package. At that time the options were worth about $770 million. He qualified for the second earlier this month when the company’s stock price lifted the value of that block of options to $2.1 billion.
As the stock continues to rise, so does the potential value of the options, which is why the two earlier blocks of options are now worth a total of $5.6 billion, while the next block would be worth $2.8 billion, at current prices.Tesla is about to execute a five-for-one stock split. Although that split will change the total number of shares and options held and outstanding, it won’t change the value of Musk’s holdings.
Source: edition.cnn.com
