Tesla Model S
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  • Tesla Model S

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  • tesla model s

  • Tesla Model S
  • Tesla Model S

  • Tesla Model S
  • Tesla Model S

  • Tesla Model S
  • Tesla Model S

  • Tesla Model S
  • Tesla Model S

  • Tesla Model S
  • Tesla Model S

  • Tesla Model S
  • Tesla Model S

  • Tesla Model S
  • Tesla Model S

  • Image Credit: Tesla Motors
  • Image Credit: Tesla Motors
  • Image Credit: Tesla Motors
  • Image Credit: Tesla Motors
  • Image Credit: Tesla Motors
Depending on when Tesla Motors CEO Elon Musk is speaking, he's either pointing out that his electric vehicle company has a rough road ahead or that everything will be fine. Both lines can be kind of true, which is one reason that Tesla is such a fascinating company. It's also potentially a very profitable endeavor for Musk, depending.

Business Week is reporting that Musk's compensation package, designed "to keep him at the company," included an option to buy 5.27 million TSLA shares at $31.17 a share over the next ten years. That would cost $164 million and could be worth way more than his official $33,280 annual salary. Perhaps that's why he's already said he plans to stay at Tesla for "several more years." Right now, BW says, Musk controls 25.8 percent of Tesla and is the largest shareholder. TSLA shares are currently trading at $29.40.


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    • 1 Second Ago
  • 39 Comments
      oktrader
      • 2 Months Ago
      A couple of things: (1) If you are really interested in the structure of the Grant, look at the 10Q: p.77, Item 5. Other Information: CEO Stock Option Grant. Tesla published this on 2 August, so it puzzles me that it becomes news 2 weeks later. Yes, I know the Form 4 wasn't publicized until yesterday, but how the "business" press misses these things while tracking pretty much every single Musk tweet, I dunno. (Credit Musk with understanding that well to get his message out. Nobody has the attention span for reading actual, signed, official documentation.) (2) Stock option gains are all taxed as regular income, not capital gains.
      PR
      • 2 Months Ago
      Rotation -- Especially since the type of stock options that top executives typically get are completely different than what normal folks like you or I would get. They aren't taxed at all the same way as you talked about. See my post up higher about Nonqualified Stock Options vs. Incentive Stock Options.
      PR
      • 2 Months Ago
      oktrader -- Do you have a link on that? I can't seem to get my hands on the latest grant papers. All I can find is the 2009/10 papers that say ISO over and over: http://www.sec.gov/Archives/edgar/data/1318605/000119312510068933/dex103a.htm The other side of stock options is never selling the stocks. At which time you simply never pay even capital gains on them, or on the portion of the value that they increase since executing the option depending on the type of option. (There are ways to still have access to the value of those stocks without every selling them.) So taxes could be as low as 0%.
      kEiThZ
      • 2 Months Ago
      If Elon achieves what he thinks Tesla will achieve, those shares will be worth ten times what they are today and Elon will be a billionaire (if he isn't already) in a decade. I'm not even exaggerating. Do the math of what those shares will be worth if Tesla is successful and pumping out cars at NUMMI's max capacity. I look forward to Tesla stock paying for my retirement in three decades.
        Grendal
        • 2 Months Ago
        @kEiThZ
        He's already a multi-billionaire.
        PR
        • 2 Months Ago
        @kEiThZ
        Forbes puts him at a billionaire twice-over with a net worth of $2 billion. The 224th most wealthy American, 634th in the world. http://www.forbes.com/profile/elon-musk/ That is why a lot of folks scoff at oktrader and others when he talks doom and gloom over Tesla going bankrupt because Tesla will likely get down below their last $100 million in cash reserves before turning the bend to profitability. Elon Musk is too vain to allow his name to be drug through the mud because of a bankruptcy due to a short-term cash crunch at "his" company.
          oktrader
          • 2 Months Ago
          @PR
          PR, supporters of the TSLA long position can call reading the company's own projections (e.g., negative gross margin, growing SG&A, etc. in Q3) "gloom and doom". Likewise, if it makes anyone feel better to project healthier cash flows from $65M in sales and >$100M in losses with the DoE loan down to $1.4M, please by all means do so. I'm not saying anyone should accept the analytics I'm showing you. But it's a matter of showing what the arithmetic reflects from the numbers we can know. Also no one should get wrapped up into whether I'm a long-term short (which I have clearly stated) or not. We have made PLENTY of money this year trading the runups in TSLA, including cheap puts during the last slump. But we are able to do this because we do not fall in love with anything, nor conversely do we hold a deep and abiding hatred for anything, either. [We took a long position last Thanksgiving in ANDE and carried it through late Spring to make a good return. We did this while each and every one of us despises corn ethanol, which we all agree will be viewed generations hence as The Great Stupidity. But there was money to be made.] Now, as for Musk's choices to fund the enterprise himself: I have stated already that it would be very easy for him to toss in $50-100M cash instantly, and that would bouy the operation significantly for a month or more. For that matter he could put $44M of cash into the corporation TODAY and pack a couple of trunkfuls of shares into his safe (unexercised grants from 2009 totaling 6.71 million shares w/ exercise price of $6.63). So forget my remark and raise that $50-100M up to $100-150M. Yes, he can ABSOLUTELY do that. In the meantime the company burns down money market funds and gets less favorable short-term borrowing for what reason? Letting the company get to its last few pennies before making an heroic entrance doesn't sound like a bright thing to do. I don't know why he hasn't taken a public step in the direction of carry-over funds from his own resources; the longer he waits the more confident I am in our early '13 puts. But you must surely know that I would not lose one minute of sleep if we thought it were smarter to cover now change our tune. I can't say it enough: I don't know the guy. I never will. I am not "working against him". His company takes wild value swings that are not backed by any fundamentals, so it's a good place to make money if you can understand them. The lack of fundamental valuation comes from outsized multples in every conceivable measurement, and extraordinarily unfavorable financials. We watch closely for anything that changes them either way. None of that is evil.
          Grendal
          • 2 Months Ago
          @PR
          Well said. Elon's ego will not let him allow his big idea to fail. He didn't spend the last six years building Tesla into the company that it is just to let it fade away. My current belief is he made the "graveyard" statement to light a fire under his peoples @ss to refocus them on the big goal. The only other thing that could bring him down is someone giving him unrealistic numbers so the profit he expected to see is not actually there. I put that as a very remote chance.
          PR
          • 2 Months Ago
          @PR
          oktrader, I respect the numbers you've provided here, and the potential cash crunch they represent. But I think if you read through your own post, I think you will see the answer to why many speculate that the cash crunch you've documented won't materialize as a show-stopper for Tesla. I respect that you are laser-focused on Q3-Q4, but there is Q1-Q2 and Q3-Q4 of next year that even your own numbers show will not have the same cash crunch if Tesla makes it past Q3-Q4 and hits their production targets. What numbers did you come up with for next year once Tesla eliminates $35K out of the $40K hit per unit due to the deposits, and once their cost per unit for production goes down to closer to their projected costs? The $40K+ deposits are only for roughly the first 500 cars, then that problem is gone. The higher per-unit production costs and high per-unit overhead that you talked about also goes away with higher volume. I have Tesla well into the positive after a successful transition out of the critical Q3-Q4 timeframe into full production. And as your own post rationalizes, it is highly likely that they will make it past Q3-Q4 for the reasons you posted.
      PR
      • 2 Months Ago
      Ever since capital gains taxes and "earned income" taxes stopped being the same, executive salaries have gone this direction. Does anyone know if Elon's stock options are Nonqualified Stock Options, or if they are Incentive Stock Options? Because that makes a huge difference on the tax implications. Smart Money explains it better than I can: http://www.smartmoney.com/personal-finance/taxes/taxes-on-incentive-stock-options-12196/ "If you play your cards right with Incentive Stock Options, or ISOs, you could protect a significant amount of your profit from the IRS, thanks to two important tax advantages. First of all, you don't have to pay taxes immediately when you exercise ISOs — as long as you don't sell the stock you receive. Second, while you will have to pay taxes when you sell, you can qualify for the 15% maximum rate on long-term capital gains (assuming the current capital gains rates apply in the year you sell). As we discuss in the other piece, with nonqualified options, you must pay income tax on the spread between the exercise price and the market price in the year you exercise. Then, when you sell the stock, you pay a separate tax on the spread between the market price at exercise and the price you eventually sell it for. With ISOs, all the taxes are paid when you sell the stock and it's all capital gains. The catch? This deal applies only if you sell the ISO shares more than two years after the option-grant date (the date you received the option) and more than one year after you actually bought the shares by exercising your ISO. (If you sell sooner than that on either front you have what the IRS calls a "disqualifying disposition" — more on that in a moment.)" _______________ There are also ways that Musk can actually never pay a penny of taxes on these stock options, if he is willing to keep them until he dies and use them for collateral on loans, or to run the shares through some shell companies. Details here: http://www.businessweek.com/articles/2012-04-17/how-to-pay-no-taxes-10-strategies-used-by-the-rich
        PR
        • 2 Months Ago
        @PR
        Elon's 2009/2010 stock option grant was "INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION" that appears to comply with the rules to qualify for 15% capital gains tax rates upon sale, and no taxes upon execution. http://www.sec.gov/Archives/edgar/data/1318605/000119312510068933/dex103a.htm For some reason I'm failing on finding the latest paperwork for this latest option grant. Anyone else have it?
      Mike G
      • 2 Months Ago
      In 2011 Warren Buffet made 65 million and had an effective tax rate of 11%. Buffett pays himself a salary of just $100,000 a year, most of his income comes from investments—long term capital gains and dividends–taxed at a special top rate of 15%. Mitt Romney comes in around 13.9%. Again, Elon shows how brilliant he is by structuring his salary to maximize his income and Tesla's success. http://www.forbes.com/sites/janetnovack/2011/10/12/warren-buffets-effective-federal-income-tax-rate-is-just-11/
      Mike G
      • 2 Months Ago
      why $33,280? Is there some significance to that number? Why not $10,000 or 100,000 or 45,235?
        Domenick
        • 2 Months Ago
        @Mike G
        I believe that's minimum wage in California.
          Anne
          • 2 Months Ago
          @Domenick
          Sorry, Musk *does* earns the minimum wage, since he must be working 80 hours a week: 80 * 52 * 8 = 33240.
          Anne
          • 2 Months Ago
          @Domenick
          Then it's exactly twice the minimum wage in California
          Joeviocoe
          • 2 Months Ago
          @Domenick
          Exactly twice the minimum wage
          PR
          • 2 Months Ago
          @Domenick
          Well, the minimum wage for California is 8 bucks an hour. 40 hours a week for 52 weeks will only get you $16,640/yr. So that's not it. (note to self: Wow, minimum wage really sucks!) The minimum salary for sheep herders is $1,422.52/month, which would make $33k really close to twice the minimum wage of a sheep herder. Maybe they consider his work to be like herding twice the number of sheep as a sheep herder would normally have to herd?
      Ryan
      • 2 Years Ago
      I would love to make $1 a year and get my salary in stock. You could wait a year and only have to pay 15% taxes. Add in some deductions and it could get it down to the single digits.
        Yarp
        • 2 Months Ago
        @Ryan
        Its very tough to get your taxes below 15% unless you're investing in government bonds. Single digits is pretty much not happening unless your income is low. There's very few deductions available to people who make over $250K a year; not enough to bring your overall tax rate down that much. Anyways, from the summary of the article, his options are underwater (the price he can buy them at is above the current market price) and worth exactly $0 right now. Tesla's stock price would have to increase in value (10%) before they're worth anything at all. (Option value = current market price - 'strike' price).
        christianii
        • 2 Months Ago
        @Ryan
        capitol gains tax is like 20%....right?
          Ryan
          • 2 Months Ago
          @christianii
          Short term(less than 1 year) is normal income tax rate (37.2% or so for that much money). But 366 days and it is 15% I believe, no matter how much $$$ it is.
          kEiThZ
          • 2 Months Ago
          @christianii
          Still lower than getting millions a year as salary.
      Rotation
      • 2 Months Ago
      oktrader: You may know trading, but you don't know how options grants work I guess. If you same-day sell your options, then you take regular income. But if you buy them and hold the shares, you pay long-term capital gains on the gains. You also will have a paper gain (subject to AMT) of the difference between your strike price and the market price. But that's only if there is a difference. If the company gives the options today and you exercise them and hold them, you don't have income today because you exercised them when market was the same as your strike price and then when the stock goes up if you wait long enough, you just take long-term gains. Honestly, options are out anyway due to the accounting on them. Companies just give stock grants, which means you take paper gain when you accept them and then when the stock goes up you pay long-term gains (assuming you held for a while) on the gains. Of course, all of this assumes the stock goes up, which isn't a given. But execs found plenty of ways in the .com boom to pump and dump their own stock. And if the stock goes down instead of up, they are given more grants to compensate anyway. So, yeah, execs are by and large getting big tax advantages by taking compensation in stock instead of cash.
      throwback
      • 2 Months Ago
      If he buys the stock and then sells it, he will be taxed at the capitol gains rate
      Letstakeawalk
      • 2 Months Ago
      If you are a Tesla fan, and you don't donate to this worthy cause, then Elon Musk will personally put your name on a "Do Not Sell to this Jerk" list. DONATE! http://theoatmeal.com/blog/tesla_museum (claims made in this post may not be valid - still, you should consider donating, because it will piss off the ghost of Edison, and we all know what a jerk he is) --------------------------------------------------------------------- UPDATE - Elon Musk is planning to contribute, because it's good to honor your heroes. http://jalopnik.com/5935362/elon-musk-pledges-to-support-nikola-tesla-museum-project
      christianii
      • 2 Months Ago
      that's a true ceo...weather he was making 1 million/yr or 33k... that's smart of him to not take money until the company is financially stable. he's got more than money to lose...Tesla is very synonomous with his name
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