
Tesla’s Elon Musk May Have Boldest Pay Plan in Corporate History - dynofuz
https://www.nytimes.com/2018/01/23/business/dealbook/tesla-elon-musk-pay.html?mtrref=getpocket.com
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Aloha
I suspect I hold a minority opinion - but I think Tesla is woefully overvalued
for what it is, and what it sells - yes, it has interesting new technology,
but I have doubts about its ability to execute at the scale required to
dominate the market as they wish.

Tesla has a market cap of 56 billion dollars - compared to Ford at 45 billion,
and GM at 61 billion.

Tesla I believe sold around 100,000 cars in 2017, and 76,000 in 2016, in the
US alone Ford and GM sold 2.5 and 3 million respectively in 2016 - to give you
scale GM sold 10 million worldwide (again, in 2016).

Scaling manufacturing operations is one of the hardest things to do - so I
dont see it to be possible for Tesla to chase after the mass market, or do
anywhere near the sales of the other manufacturers.

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kumarvvr
Tesla has pretty big moats around it's business.

1\. Tesla can always enter into the ICE market with ease, not that they will
do it, but they can and probably will succeed. The big 3 have had a lot of
difficulty in getting into the EV market. Sure, they have competing vehicles,
but lack the marketing power of Tesla. 2\. Tesla is the new cool factor.
Undeniably. People get mocked for driving a Prius. Owning a Tesla evokes a
more positive response. 3\. Tesla has it's supercharging network, which I
think is a very smart move. That's a pretty big moat. 4\. Tesla's marketing
machine is immense and enormously efficient. I remember Elon writing a blog
article about a journalists negative review of their car and the discussion
about Tesla dominated social media for a few weeks. No one even bothers about
the management at the big 3, but Elon is a celebrity who is given geek god
like status.

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gamblor956
_1\. Tesla can always enter into the ICE market with ease, not that they will
do it, but they can and probably will succeed._ ICEs are much harder than
electric engines.

 _2\. Tesla is the new cool factor. Undeniably._ Tesla _had_ the cool factor.
Now they're 2 years away from being just another electric car.

 _4\. Tesla 's marketing machine is immense and enormously efficient. _

99% of car buyers don't pay attention to social media when buying a car. Tesla
has one of the smallest marketing machines in the industry; it's heavily
reliant on social media to bring in buyers, which limits its customer base.
Moreover, the reliance on social media is also its weakness, as it is subject
to the whims of the online mob.

 _I remember Elon writing a blog article about a journalists negative review
of their car and the discussion about Tesla dominated social media for a few
weeks. No one even bothers about the management at the big 3, but Elon is a
celebrity who is given geek god like status._

I remember that coverage as well. It was uniformly negative about Elon's
blustering response to the review, and raised significant concerns in the
market. If a single negative review is enough to tank Tesla, it's got no
chance of surviving Model 3 mass production.

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calvinbhai
Social media is good to generate and sustain hype, especially when Tesla
itself is unable deliver the number of vehicles that have already been
ordered.

Once Tesla has enough capacity to manufacture, more than what social media
presence can consume, that is when traditional marketing mechanisms will make
sense.

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rdlecler1
This is. win-win for Elon. He’s already a billionaire so salary doesn’t move
the needle. At the same time it sends a message of confidence to investors. If
his net worth was $5m would he make the same bet?

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olivermarks
"Even though Mr. Musk’s shares have vested, he has not sold them except to pay
the taxes on the grants. His current stake is worth $13 billion."

"Mr. Musk does not take a salary, although under California State law, Tesla
is required to pay him at least minimum wage."

" _To afford to live_ , Mr. Musk has borrowed against his shares, a practice
that some corporate executives have questioned"

All seems rather odd to me.

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twblalock
After a certain point, it's better to borrow against investments than to pay
cash for things. This is especially true when selling your investments would
trigger a capital gains tax, which would normally have a far higher rate than
a loan with your investments as collateral. Plus, your investments stay in the
market the whole time unless you default.

One of the life lessons I've learned from wealthy people is that they know how
to use debt as a tool to keep their investments in the market and avoid taxes.

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MarkMc
Similarly I did not want to sell my shares in Google to buy shares in the
Facebook IPO (even though I felt Facebook would generate better returns)
because I would have to pay capital gains tax.

This shows why a simple model for capital gains tax leads to inefficient
capital allocation.

Instead, the CGT rules should be cumulative like this: Let's say you buy at $1
million and then sell at $10 million after 10 years: That is an annual return
of 25.9%. If the annual capital gains tax rate is 20%, that would leave you
with a return of 20.7% per annum. So after 10 years your $1 million investment
is worth $6.56 million after tax. That is, you must pay $3.44 million in
capital gains tax.

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maehwasu
As someone in a similar situation, at much lower numbers, I can say this is
likely primarily about tax optimization, with the optics being a nice side
benefit.

If you're fairly liquid and decently bullish on your company, then holding off
and taking your income later as capital gains makes a lot of sense. And as
seen in the article, he can borrow against the shares to achieve as much
liquidity as he wants/needs for his lifestyle without having to pay ordinary
income taxes.

I guess I'm impressed by Elon that he can get such puff from the NYT for some
basic tax structuring.

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MarkMc
If it's primarily a tax dodge, why is it so uncommon? Seems that most CEOs get
paid very well even if they underperform but Musk will get paid nothing.

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mcot2
Tesla is not a car company. Here are some other markets they are in:

* Energy storage. See the giant battery in Australia.

* Residential solar and solar roof tiles. See Gigafactory 2 in Buffalo New York.

* Electric vehicle charging. See the supercharger network.

* Battery cell production. See Gigafactory 1 in Nevada.

They have also said they are exploring:

* Launching a ride sharing service using autonomous cars.

* Capitalzing on the supercharger network with retail and food.

* Moving into trucking and logistics with the semi project.

This is why people invest in Tesla.

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jameshart
A guy who plans to retire on Mars has a very different comp negotiation
strategy than the average ceo.

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brwnll
The interesting part is how this contradicts what Elon's original stated goal
of the company was.

I am a Musk believer, and when he started Tesla he stated his goal wasn't to
be a major car manufacturer but to be a proof of concept to push the major
players into the space. He demonstrated this by the open sourcing of EV
patents.

Tying compensation to cap value of Tesla means that he no longer believes the
major players will adapt (although there is strong evidence that his original
plan has worked and the other manufacturers are making much larger investments
in EV), or that the auto's segment will grow as a whole so significantly, that
Telsa, as a minority player, will still be able to reach a 10x size over the
next decade.

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andars
Or he plans on growth in other segments (solar, batteries, ?)

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cmsmith
>If Mr. Musk were somehow to increase the value of Tesla to $650 billion — a
figure many experts would contend is laughably impossible and would make Tesla
one of the five largest companies in the United States, based on current
valuations — his stock award could be worth as much as $55 billion

Except that as the article says, he already owns 20% of Tesla, so his current
shares would rise in value by $110B. He could fail to meet any of performance
targets and still be pulling in a billion dollars a year in capital gains.

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trafnar
Is this more bold than Steve Jobs' $1/year pay plan?

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ctdonath
Yes. There's actually a financial incentive, and pays out only if very
aggressive goals are reached.

Jobs wanted to make the very best computers.

Musk is trying to open Mars to humanity.

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c3534l
I believe in game theory this is called signalling. If you think he's full of
bluff and marketing, it certainly seems he believes it himself.

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j7ake
Bold would be if he would donate his entire net worth if Tesla fails to meet
goals. This is not bold because he would still be a billionaire if Tesla
failed.

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taeric
How is this bolder than what Steve Jobs did?

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andars
Jobs had a $1 salary and no bonuses. That doesn't say anything about stock
options, grants, etc. It sounds like Musk will get minimum wage and no stock
anything if Tesla doesn't meet the thresholds.

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taeric
I question if either was really bold. Neither man really needs the extra
income... So nothing at stake.

It is neat and getting good press, but bold?

