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Top of the world

1 Jul 2020 By Antony Currie

Tesla’s electrifying rise claimed its biggest victim yet. During morning trading on Wednesday, shares in the Silicon Valley upstart rose some 5% to briefly hit a market value of $210 billion, overtaking Toyota Motor as the world’s largest carmaker by market worth. Undeserved as that may be, it shifts Chief Executive Elon Musk’s performance bonus into overdrive.

The maker of the Model 3 has long traded on a far higher multiple of earnings than its traditional, internal combustion engine-focused rivals. But after a 400% share-price turbo boost over the past 12 months – lapping Ford Motor, then General Motors then Volkswagen – Tesla now trades at 69 times estimated 2022 earnings, according to Refinitiv data. Toyota, by contrast, trades just below 10 times earnings for that calendar year.

Tesla’s current price requires the utmost faith in Elon Musk’s ability either to deliver millions more vehicles a year than the 400,000 he managed last year, or to roll out a large fleet of cheap-to-run robo-taxis. Neither looks likely any time soon.

But the valuation also starts the clock on another huge payout for Musk. Shareholders two years ago approved a 10-year performance package that allows the boss to be given shares equal to 12% of the amount outstanding, worth in total as much as $60 billion. Getting them requires hitting both a market value target as well as either a revenue or adjusted EBITDA goal.

He was awarded the first of the 12 possible tranches a little over a month ago, based on a $100 billion market value and $20 billion of annual revenue. The shares had already zoomed past the second market-value target – $150 billion – on the way to its current level, though Musk has to wait for that to register on a six-month average basis.

Revenue and EBITDA targets might be hit this year, based on estimates collected by Refinitiv, but have been muddied by the effect of Covid-19 lockdowns on sales. Any delay to the next payout would at least give investors a bit of insurance against getting ahead of themselves.


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