Musk's asset accrual and paying for Mars

[FutureSpaceTourist]

Tesla (TSLA): Elon Musk secures more stock to finance SpaceX’s Mars colonization plan
Fred Lambert - Jul. 21st 2020 11:14 pm ET

Elon Musk has secured the second tranche of his stock compensation plan as Tesla CEO worth over $2 billion in TSLA stock, which he eventually plans to use for his plan to colonize Mars.

https://electrek.co/2020/07/21/tesla-tsla-elon-musk-stocks-to-finance-mars-colonization-plan/

[M.E.T.]

Tesla (TSLA): Elon Musk secures more stock to finance SpaceX’s Mars colonization plan
Fred Lambert - Jul. 21st 2020 11:14 pm ET

Elon Musk has secured the second tranche of his stock compensation plan as Tesla CEO worth over $2 billion in TSLA stock, which he eventually plans to use for his plan to colonize Mars.

https://electrek.co/2020/07/21/tesla-tsla-elon-musk-stocks-to-finance-mars-colonization-plan/

This article writer is somewhat confused, thinking that these share tranches will translate into cash for Elon in the short term. In fact, the opposite seems likely. Elon has repeatedly demonstrated that he has no intention of reducing his stake in Tesla. Instead he will probably use these bonus share options to increase his Tesla stake - eventually to around 30% compared to the current 20%. To do this he will need cash, to exercise the share options.

So far from freeing up cash to spend on Mars he will probably need to borrow more to buy these Tesla shares. Which is probably why he has been letting his SpaceX stake dilute instead of keeping it above 50%.

It is only in the long term that this will translate into actual cash for Mars.

[Robotbeat]

He can already buy shares. What this does is allow him to buy shares at a super deep discount. He can and does borrow against his shares.

[M.E.T.]

He can already buy shares. What this does is allow him to buy shares at a super deep discount. He can and does borrow against his shares.

These share options reduce his cash position - unless he sells the new shares, which I am pointing out he is unlikely to do. His cash position is reduced because firstly he has to spend money to buy the shares, albeit at a discounted rate, and secondly because he has to pay tax on the capital gains.

Either way, he is clearly not in a position like Jeff Bezos to pour a billion (or even a few hundred million) a year into SpaceX - else he would be doing that rather than diluting his SpaceX shareholding through repeated capital raises to fund Starship and Starlink.

Personally I would be quite happy if Elon disposed of Tesla shares to fund SpaceX, but it would seem that he values Tesla ownership quite highly - to the point of allowing his SpaceX stake to drop below 50%.

[oldAtlas_Eguy]

5 years ago 1 Jul 2015 the Tesla stock price was $265. Ay a discount rate for a stock option of 75% and a possible stock option price of $200/share. This is how a stock option exercise can go down. The number of share to = $2B in current stock value is 1.25 million shares. The amount of cash to exercise the option would take $250M. To recover the cash used to exercise the option would require the sale of ~150 thousand shares at current prices. Leaving Musk with fully owned without restrictions 1.1 million shares or $1.75B in current value. He just neted $1.75B in real disposable personal wealth. Also he only has to pay long term capital gains tax on the shares he just sold or an amount of ~$32M. By holding the majority of shares and not selling them he avoids capital gains tax for now.

If each year he can exercise a stock option of 1.25 million shares priced at until this year at $200/share. Such that until after Jul 2024 he can repeat this scenario each year for the next 4 years. For a total of $8.75B in wealth gain.

What can he do with $8.75B?

Added: Supposedly he has $20B worth in current stock prices stock options. This would equate to every 6 months being awarded a stock option of 1.25 million shares. So if he also does this every 1 Jan by 1 Jan 2025 he nets $17.5B.

WHAT CAN HE DO WITH  $17.5B BY JAN 2025?

[OTV Booster]

5 years ago 1 Jul 2015 the Tesla stock price was $265. Ay a discount rate for a stock option of 75% and a possible stock option price of $200/share. This is how a stock option exercise can go down. The number of share to = $2B in current stock value is 1.25 million shares. The amount of cash to exercise the option would take $250M. To recover the cash used to exercise the option would require the sale of ~150 thousand shares at current prices. Leaving Musk with fully owned without restrictions 1.1 million shares or $1.75B in current value. He just neted $1.75B in real disposable personal wealth. Also he only has to pay long term capital gains tax on the shares he just sold or an amount of ~$32M. By holding the majority of shares and not selling them he avoids capital gains tax for now.

If each year he can exercise a stock option of 1.25 million shares priced at until this year at $200/share. Such that until after Jul 2024 he can repeat this scenario each year for the next 4 years. For a total of $8.75B in wealth gain.

What can he do with $8.75B?

Added: Supposedly he has $20B worth in current stock prices stock options. This would equate to every 6 months being awarded a stock option of 1.25 million shares. So if he also does this every 1 Jan by 1 Jan 2025 he nets $17.5B.

WHAT CAN HE DO WITH  $17.5B BY JAN 2025?

As an added attraction, every time he sells a block it helps drive the stock price down a bit. Every time he turns the cash over into stock option purchases it drive it up a bit more than it went down.


IANASM (I Am Not A Stock Maven) but I think the SEC might look askance at this

[Robotbeat]

Why? I don’t think there’s anything particularly weird about that when it’s a fairly normal practice to compensate executives with stock options and similar situations would arise.

[anof]

I believe that executives of public companies have to file with the SEC when they are going to sell shares.

[Robotbeat]

I believe that executives of public companies have to file with the SEC when they are going to sell shares.

Correct. Elon already has to and does do that. Nothing new.

[OTV Booster]

Why? I don’t think there’s anything particularly weird about that when it’s a fairly normal practice to compensate executives with stock options and similar situations would arise.

If it were done as a single transaction, from Elon's point of view, with Tesla eating the difference between the cheap option price and the high market price it would probably be ok.


If Elon were to work it as two separate transactions on the open market, selling expensive then buying at option price at a later date, it could be looked at as manipulation, even if properly reported.


I'm not sure how this is normally done but Elon is a bit in the crosshairs. IANASM.


phil

[oldAtlas_Eguy]

I think we are wandering a little bit to wide afield.

But the point is that Musk at this time as as much cash as needed for 2021 all by himself to fund both Starlink and Starship. In actuality most of the funds would go toward Starlink and if Starship starts doing a few operational launches of Starlink sats then the funding that would have paid for F9 launches would then pay for the developmental, manufacture and launch testing of Starship. This is a value of up to $500M. Starlink would need ~$1.5B and Starship $500M but if Starship is doing the launches for Starlink the $500M needed for Starship disappears and is paid out of the $1.5B for Starlink. Starlink has to spend $500M for launch which can be on F9 or Starship. If Starship, the funding does double duty and generally saves SpaceX a lot of money. The longer Starship operational mission capability is delayed the more funds are needed to do the development work as well as the launches of Starlink on F9.

The hypothesis is that Musk gets or got 2.5 million share options a year for him to have the reported $20B in options un-executed in today's stock value. That means that each year Musk can tap (if the stock price remains as elevated as  it is now) up to a resulting $3.5B in what amounts to a Bonus when he executes the options. At the time these options were given the Bonus would have been a value of ~$160M. So last year the execution of stock options would not have yielded much because the option price and the Stock price were close to being the same an estimate of ~$100/share different. (Speculations because the details of the stock option contract and the option price discount % as well as other thing such as the vesting period make for anything but precise). Only generalizations and the fact that the stock price now is >5X what is was for the last 5 years. A variance up and down between ~$250 and $350. The variance at most would affect the "Bonus" realized by only a couple +-$100M at most.

[Robotbeat]

It's insane, but Tesla now has a market cap of over $300 billion in after-hours trading after a surprise non-GAAP profit in Q2. Elon Musk is now the fifth richest person.

[Zed_Noir]

It's insane, but Tesla now has a market cap of over $300 billion in after-hours trading after a surprise non-GAAP profit in Q2. Elon Musk is now the fifth richest person.

There is also the announcement of the selection of Austin TX as the Gigafactory site for making the Cybertruck, the Tesla Semi and the Model Y. With Model Y from the Austin Gigafactory for Eastern North America customers. So there will be more Tesla vehicles available in the future to fulfilled demand. Along with no real competitors to the Tesla vehicles (S3XY) available now.

Fun factoid. The Tesla Cybertruck is outpacing the Model 3 in pre-orders at the same point in the production cycle. Most of the pre-orders are for the dual motor and triple motor Cybertruck variants. The single motor Cybertruck variant with less than 10% of the pre-orders might be cancel due to low demand! So only the higher margin dual and triple motor will be available.

Finally there is the remark/threat from Elon during the earnings call that Tesla will eventually produced a compact car for the market tier below the Model 3/Y price point.

[TGebs15]

It's insane, but Tesla now has a market cap of over $300 billion in after-hours trading after a surprise non-GAAP profit in Q2. Elon Musk is now the fifth richest person.

There is also the announcement of the selection of Austin TX as the Gigafactory site for making the Cybertruck, the Tesla Semi and the Model Y. With Model Y from the Austin Gigafactory for Eastern North America customers. So there will be more Tesla vehicles available in the future to fulfilled demand. Along with no real competitors to the Tesla vehicles (S3XY) available now.

Fun factoid. The Tesla Cybertruck is outpacing the Model 3 in pre-orders at the same point in the production cycle. Most of the pre-orders are for the dual motor and triple motor Cybertruck variants. The single motor Cybertruck variant with less than 10% of the pre-orders might be cancel due to low demand! So only the higher margin dual and triple motor will be available.

Finally there is the remark/threat from Elon during the earnings call that Tesla will eventually produced a compact car for the market tier below the Model 3/Y price point.

Excited to see how the Cybertruck turns out as well being it adds a whole new vehicle market to Tesla's lineup but you can't compare the pre-orders for Cybertruck with other pre-orders since it is only $100 and refundable so there isn't any risk involved with placing a pre-order.

[Hog]

It's insane, but Tesla now has a market cap of over $300 billion in after-hours trading after a surprise non-GAAP profit in Q2. Elon Musk is now the fifth richest person.

There is also the announcement of the selection of Austin TX as the Gigafactory site for making the Cybertruck, the Tesla Semi and the Model Y. With Model Y from the Austin Gigafactory for Eastern North America customers. So there will be more Tesla vehicles available in the future to fulfilled demand. Along with no real competitors to the Tesla vehicles (S3XY) available now.

Fun factoid. The Tesla Cybertruck is outpacing the Model 3 in pre-orders at the same point in the production cycle. Most of the pre-orders are for the dual motor and triple motor Cybertruck variants. The single motor Cybertruck variant with less than 10% of the pre-orders might be cancel due to low demand! So only the higher margin dual and triple motor will be available.

Finally there is the remark/threat from Elon during the earnings call that Tesla will eventually produced a compact car for the market tier below the Model 3/Y price point.

Excited to see how the Cybertruck turns out as well being it adds a whole new vehicle market to Tesla's lineup but you can't compare the pre-orders for Cybertruck with other pre-orders since it is only $100 and refundable so there isn't any risk involved with placing a pre-order.

$100 for a pre-order AND it's refundable?  That's laughable.

[docmordrid]

>
$100 for a pre-order AND it's refundable?  That's laughable.

The Ford Mustang Mach-E  is  $500 and refundable.

[ncb1397]

It's insane, but Tesla now has a market cap of over $300 billion in after-hours trading after a surprise non-GAAP profit in Q2. Elon Musk is now the fifth richest person.

After market didn't stick. It is down .14% from 7/22 close. There is a lot of resistance at $1600 and $300 billion when you are seeing earnings beat and revenue beat and it doesn't actually move.

So there will be more Tesla vehicles available in the future to fulfilled demand. Along with no real competitors to the Tesla vehicles (S3XY) available now.

Sort of an absurd statement?

[dondar]

5 years ago 1 Jul 2015 the Tesla stock price was $265. Ay a discount rate for a stock option of 75% and a possible stock option price of $200/share. This is how a stock option exercise can go down. The number of share to = $2B in current stock value is 1.25 million shares. The amount of cash to exercise the option would take $250M. To recover the cash used to exercise the option would require the sale of ~150 thousand shares at current prices. Leaving Musk with fully owned without restrictions 1.1 million shares or $1.75B in current value. He just neted $1.75B in real disposable personal wealth. Also he only has to pay long term capital gains tax on the shares he just sold or an amount of ~$32M. By holding the majority of shares and not selling them he avoids capital gains tax for now.

If each year he can exercise a stock option of 1.25 million shares priced at until this year at $200/share. Such that until after Jul 2024 he can repeat this scenario each year for the next 4 years. For a total of $8.75B in wealth gain.

What can he do with $8.75B?

Added: Supposedly he has $20B worth in current stock prices stock options. This would equate to every 6 months being awarded a stock option of 1.25 million shares. So if he also does this every 1 Jan by 1 Jan 2025 he nets $17.5B.

WHAT CAN HE DO WITH  $17.5B BY JAN 2025?

what is the need to invent, fantasize or imagine in the situation which is clear and simple as a financial legal document can be?
the award description can be found here
https://ir.tesla.com/static-files/55362f0a-ee8a-4fcc-ba11-cc09194974b6
(there is final identical legal variant on sec.gov).
key quote:

Post-Exercise Holding Period. Mr. Musk must hold shares that he acquires upon exercise of the CEO
Performance Award for five years post-exercise (except for shares used to pay exercise price and tax
withholdings, or in certain other limited circumstances described further below)."

Total number of awards he can collect is 12.
The final awards are at 650bil capitalization (the easiest milestone apparently) and 175bil revenue. (there are also operational milestones concerning net income to stockholders but I don't think they are going to be anyhow relevant for another 2 years).
The employment contract which is simultaneously a deadline for this scheme was for 10 years and ends in 2028. (the date Musk takes most probably very seriously). By this date he wants to collect enough wealth to finance Mars city and to build it within another 5-10 years.
I hope he will be more open about such things so we don't have to "analyze" or speculate.

[oldAtlas_Eguy]

Thanks for the details.

But back to the main point. With total current assets >$70B. Freeing up the ~$2B to fund work on both Starlink and Starship for 2021 and any funds they may need to finish 2020 is likely not much of a problem.

If Starlink is successful in matter of 2 years it will become self fundable in its expansion and then producing significant profits. The whole key is having the funds now in order to keep pressing ahead prior to Starlink and Starship get to an operational profitable position. For both that may be as few as 3 years from now. With also additional outside funding for even faster expansion and for "side" projects like Mars habitat, ISRU and other equipment to be sent to Mars in as early as 2024 or 2026. Also extra funds to more rapidly design, produce, test and certify a manned Starship by 2025 would also be helpful. But all of this external funding investments into SpaceX through to 2025 is likely to be no more than $10B. Greater amounts of money would likely not make much of an impact for how soon things would be available.In 2028 if all the Starship goals are met sending a Starship to Mars would cost likely ~$500M for all 8+ launches. $10B would outfit and fill with equipment ~10 Starships, Manned and Cargo, all sent to Mars in 2028.

[Robotbeat]

If all the goals are met, then sending a Starship to Mars would cost no more than, say, $160 million (including the cost of the sent Starship which could be recovered once ISRU is set up).