By Tim Higgins
Elon Musk has navigated Tesla Inc. into new territory, as the
electric-car maker's market value topped $100 billion Wednesday
morning and overtook Volkswagen AG as the world's No. 2 most
valuable auto maker.
Tesla shares traded 6.25% higher early on Wednesday, lifting its
market cap to $104.8 billion. Crossing the $100 billion threshold
could start unlocking a more than $50 billion pay package for Mr.
Musk. Volkswagen shares fell 1.19% in late German trading, putting
its market cap around 90 billion euros ($99.7 billion).
Tesla shareholders almost two years ago approved an incentive
package for Mr. Musk considered one of the most lucrative for any
chief executive. The first tranche of options under that
arrangement nominally would net $346 million if immediately sold at
today's price.
It doesn't vest immediately. Tesla's value needs to remain above
$100 billion for some time and the company has to achieve $20
billion in annual sales or $1.5 billion in earnings before
interest, taxes, depreciation and amortization, after adjusting for
stock compensation before Mr. Musk is entitled to the payout. Tesla
reached both of those two earnings metrics in 2018.
Tesla, when it reports 2019 earnings in the coming days, is
expected to post $2.6 billion in earnings by that measure and
$24.19 billion in sales, according to analysts surveyed by
FactSet.
For Mr. Musk to receive the first tranche, Tesla must sustain
the market value on average for a trailing six-month period as well
as on average for 30 calendar days. There are 11 other tranches of
potential payments.
Tesla shares have risen sharply in recent months after the
company surprised investors with strong third-quarter results last
year. The rally has continued after the Silicon Valley auto maker
in recent weeks said it had begun deliveries from its factory in
China and met 2019 delivery guidance.
It's a stunning turn from a year ago. At that time, investors
soured on Tesla, questioned if demand for its electric vehicles had
peaked and wondered if it had enough cash to keep going.
President Trump marveled at the change in fortunes during a
Wednesday interview with CNBC. He praised Mr. Musk and said he
recently spoke with the CEO, suggesting the auto maker planned
further expansion in the U.S.
"Shocking how well, how it's come so fast," Mr. Trump said of
Tesla's turnaround. "You go back a year and they were talking about
the end of the company and now all of a sudden they are talking
about these great things. He's going to be building a very big
plant in the United States. He has to because we help him so he has
to help us."
Tesla hasn't announced any plans for a new U.S. assembly plant.
The company is working on setting up one in Germany, outside
Berlin.
On Wednesday, Tesla was greeted with more good news. The state
of Michigan announced a deal to settle a lawsuit with the auto
maker over a years-long dispute that prevented the company from
selling directly to customers in the state.
As part of the deal, Tesla will be able deliver cars and service
them for customers in Michigan, something it previously was barred
from doing. Under the compromise, the transaction to buy the
vehicles still needs to be processed outside state lines. It's
similar to an approach Tesla has used in other states, such as
Texas, where local laws prohibit car manufacturers from selling
directly to buyers as part of efforts to protect third-party
franchise dealers. Tesla doesn't have franchised dealers and has
fought such prohibitions from its early days.
Tesla's stock is up more than 200% since last year's closing low
of $178.97 in June.
Since then, the shares have hit several milestones. They have
raced past $420, a symbolic threshold at which Mr. Musk, in 2018,
said he wanted to take the electric-vehicle maker private. Tesla
this month became the most valuable U.S. auto maker of all time
when it topped the historic high Ford Motor Co. hit in 1999.
The stock's rally means Tesla is second only to Toyota Motor
Corp. in valuation, even though it builds far fewer cars than its
main U.S., European and Japanese rivals.
Volkswagen said it delivered almost 11 million vehicles last
year, including cars made by other brands its owns such as Audi and
Porsche. Tesla delivered 367,500 cars last year.
VW Chairman Herbert Diess has been frustrated by the company's
low valuation. In a presentation this month, Mr. Diess laid out
VW's accomplishments, including meeting financial targets.
"However, our company valuation is not where it should be!," one of
his slides said.
Tesla is being valued as a tech company, VW as a car maker, Mr.
Diess said earlier this month. As cars become more connected, VW is
striving to be revalued higher, too, he said.
As part of its efforts to fight back, Volkswagen plans several
new electric-vehicle launches. Its ID.3 compact electric car will
go on sale in the summer, the car maker has said.
--Nora Naughton contributed to this article.
Write to Tim Higgins at Tim.Higgins@WSJ.com
(END) Dow Jones Newswires
January 22, 2020 16:33 ET (21:33 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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