It was a bit startling recently when we saq that Tesla is offering Elon Musk a pay package with a $1,000,000,000,000 target. That is right. If Tesla meets a specific set of goals over the next decade, Musk gets a trillion dollars! For those of us who live and invest in the real world the question is whether or not this will make Tesla a better, safer, and more profitable investment.
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Why Is the Tesla Board Trying to Bribe Musk With a Trillion Dollar Pay Package?
In an article about the $1,000,000,000,000 ransom that the Tesla board is offering Musk, Bloomberg notes that two issues detrimental to Musk are the flop of the cybertruck and the distraction and bad press with the electric vehicle buyer base caused by Musk’s involvement in politics and the efforts to cut “waste” in Washington. One might think that the huge bribe that Tesla’s board is offering Musk is meant to get his attention and get him to focus on the electric vehicle business in order to bring Tesla back to greater growth and profitability.
Will Musk Get His Payout?
The terms of the trillion dollar bribe are pretty severe. In order for Musk to get his payout, Tesla’s market cap needs to get to$8.5 Trillion and its adjusted Ebitda earnings need to reach $400 billion. The market cap target is twice that of Nvidia, the world’s most valuable company, up from $1.1 trillion where it stands today. In addition, the contact specifies targets for delivery of robots and robotaxis. This looks to us like a difficult set of goals to accomplish, which is perhaps why the Tesla board is willing to make the offer. Plus, if they get to an eight or nine trillion dollar market cap the pay package for Musk’s payout would be about 12% of the company’s value, equivalent to what he already has at the current stock price and market cap.
Will You Get Your Payout if Musk Succeeds?
Rather than being wowed by the Tesla contract with Musk, the mom and pop investor needs to look at what their stock shares will be worth if Musk succeeds in reaching the target and what they will be worth if Musk’s efforts are totally unsuccessful and the company crashes and burns. It interesting to look far afield for a fresh take on this issue which will tend to get caught up in the drama of the news cycle. In this regard we looked at what the Australian Broadcasting System had to say about the $1,000,000,000,000 payment package. The deal indicates the hold that Musk has over the board and tells us that Tesla going forward will split its focus, adding robotics and artificial intelligence to its offerings. Thus, this will not longer be the same Tesla that folks have invested in for years as electric vehicle company but rather another company with different goals moving in somewhat untested waters regarding profitability. As always with this company, stalwart investors trust Musk and are willing to throw money at the stock in the faith that whatever Musk has in mind will work out for them.
What Is Tesla’s Intrinsic Stock Value?
Based on discounted cash flow, the intrinsic value of Tesla falls anywhere from $45 to $150 a share. It current market price is $350 a share which gives you an idea of the premium that the market is paying for their belief in Musk as a miracle maker.
Should you buy into this belief of is it time to avoid or sell, if you already own Tesla. What would Benjamin Graham say? Graham is the father of rational stock investing based on cold and rational analysis of a company’s prospects. His approach was to base you assessment of what a stock should be selling for on forward looking earnings and not hype or blind faith. His approach was developed in the aftermath of the 1929 to 1933 stock market crashes that helped usher in the great depression.
Would an Economic Collapse Hurt Tesla?
Speaking of the Great Depression, the market collapse by itself did not cause the depression. Rather ill conceived tariffs began a trade war with US trading partners in Europe and elsewhere which hastened and sealed the economic decline. It is worrisome today that we are seeing massive tariffs which seem destined to drive trading partners into looking elsewhere for trade. (Witness the recent get together in China with Modi of India among other leaders rubbing shoulders with Putin and Xi. Out point regarding Tesla is that Musk could bring his focus back to Tesla and work miracles only to see it wiped out by another Great Depression!