Elon compensation will impact TESLA accounting negatively

You know the big boss is a rich guy, dont you?

He is in top 10 of bilionaires of the planet thanks to you my friend; yes, you did speculate with his company stock and because he did negociate the biggest bonus on WallStreet ever with his board, he is very rich thanks to the stock price levels. For more, check here.

Now that all sounds very cool (for Elon), but whats the story with the TESLA books? Well, the package is quite large; and TESLA must pay for it.

In 2018, Tesla awarded Mr. Musk a pay package which includes stock options for more than 20 million shares that vest in 12 tranches.

 

The first such tranche paid out in May as Tesla reached and sustained $100 billion in market value, according to a securities filing. The company awarded Mr. Musk shares worth nearly $800 million at the time. Tesla stock has doubled since then, and it is highly likely that other tranches will vest this quarter, which would net Mr. Musk billions more.

Now what?

However Tesla decides to treat that in its pro forma results, those option grants need to be expensed according to generally accepted accounting principles. 

For instance, the company recorded an expense of $72 million in the fourth quarter of 2019. Tesla recorded $347 million in stock-based compensation expense in the most recent quarter, which was an increase from past periods but still low enough for the company to churn out a profit according to GAAP.

Any expenses not already booked are recognized as a tranche vests, the filing says. Back then, Tesla's market value was $145 billion. As of Thursday, its market value was around $350 billion, having reached as high as $463 billion in August.

That new expense threatens to put Tesla's streak of four consecutive quarters of GAAP profits in jeopardy. Over those four quarters, Tesla has averaged quarterly net profit of about $70 million.

A third-quarter net loss of just $226 million would put Tesla in the red over the past four quarters. Given the size of the options awards and the recent gains in Tesla's share price, a billion-dollar quarterly compensation expense is within the realm of possibility.

Source: WSJ

OK, so what's about?

Well, basically in the 3rd quarter the package TESLA must pay to Elon is so large it could impact its 3rd quarter profit. How large is the package? Maybe 1$ billion.

Are you happy with that? Not that it matters...