Tesla Is Second Most Valuable Auto Maker, Elon Musk To Receive Billions In Pay

Tesla Inc. for the first time hit a market cap in excess of $100 billion -- $102.6 billion to be exact -- in trading Wednesday. This historic first saw it race past Volkswagen AG to become the world’s No. 2 most valuable auto maker and will unlock a hefty billion dollar pay package that will soon make Elon Musk the most highly paid CEO in history.

Toyota Motor Corporation with a market cap of $235.6 billion is the world's most valuable carmaker.

Tesla shares rose 4.1 percent to $569.56 -- the stock's all-time high -- lifting its market cap to $102.7 billion. It increased further to $572.00 in afterhours trading, up 0.43 percent. The stock closed Tuesday at $547.20. Musk is Tesla's largest shareholder.

Tesla's stock more than doubled in value, up 124 percent, over the past three months compared to the Dow Jones Industrial Average that gained a scant 9.4 in the same time frame.

Adding fuel to Tesla's historic Wednesday jump was a price target increase by Wedbush analyst Dan Ives, a known Tesla bull. It was also helped by Tesla settling a lawsuit that paves the way for it to open service centers in Michigan. Tesla sued Michigan in 2016 in a bold challenge to the state's 2014 law, which says carmakers can only sell through independent, franchised dealers and not directly to customers. The company called this law unconstitutional.

Crossing the $100 billion threshold will also place Musk in a direct line toward receiving a more than $50 billion pay package. Once fully realized, this generous package will see Musk earn billions of dollars in compensation annually, making him history's highest paid CEO bar none.

In March 2018, Tesla shareholders approved a pay package that stood to deliver more than $50 billion to Musk but tied his pay to ambitious goals for the company’s growth. Under the plan, Tesla’s market value needs to skyrocket to $650 billion over 10 years for all the options to vest.

Musk must also stay at Tesla, either as CEO or executive chairman and chief product officer to receive the package. This compensation scheme was initially valued at $2.6 billion but could yield him more than $50 billion when fully vested.

“The Board believes that the Award will continue to incentivize and motivate Elon to lead Tesla over the long-term, particularly in light of his other business interests,” said Tesla in a securities filing in March 2018.

The package doesn’t vest immediately, however. Tesla’s value needs to remain above $100 billion for some time. Tesla also 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 Musk is entitled to this massive payout. Tesla reached both of these two earnings metrics in 2018.

Musk will receive the first tranche only if Tesla sustains 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.