Tesla's six-month average trailing market capitalization hit $150 billion on Tuesday after a four-month run up of the automaker's share price that theoretically unlocks a multi-billion-dollar vesting option for CEO Elon Musk.
Once Tesla hit the six-month average trailing market cap of $150 billion, which Reuters first reported, Musk became eligible to access the second of 12 levels of options granted to him in an unprecedented pay package approved by shareholders in 2018. The board must still certify the milestone before the vesting option is triggered.
The milestone was met the day before Tesla is scheduled to report its second-quarter earnings.
The compensation plan consists of 20.3 million stock option awards broken up into 12 tranches of 1.69 million shares. These options will vest in increments if Tesla hits specific milestones on market cap, revenue and adjusted earnings (excluding certain one-time charges such as stock compensation). Once the board certifies each milestone, Musk is able to buy the 1.69 million shares at a steeply discounted price of $350.02 per share.
Based on today's share price of $1,568.36, Musk could then sell 1.69 million shares for about $2.1 billion. Keep in mind that Tesla's board certified in May the first milestone, which unlocked the first tranche. So, combined, Musk would theoretically profit about $4.2 billion, based on today's share price. However, there is an important caveat to all of this. Musk must hold for at least five years post-exercise any shares that he acquires upon exercise of the 2018 CEO performance award.
Musk has yet to exercise any of these options, according to SEC filings.
To access the first tranche of stock options, Tesla’s market value had to reach a six-month average of $100.2 billion and either $20 billion in annual revenue or $1.5 billion in adjusted EBITDA. To meet the next milestone, Tesla’s market cap had to increase another $50 billion in value and $35 billion in revenue or $3 billion in adjusted EBITDA.
To qualify for the third tranche, Tesla's market value must reach a six-month average of $200 billion and either $55 billion in revenue or $4.5 billion in adjusted EBITDA.