Elon’s insane stock incentive plan

Ross Gerber of Gerber Kawasaki via Twitter:

The Tesla comp package is insane. Elon makes nothing unless the stock almost doubles and he reaches $20 bil in rev or $1.5 bil in EBITA. If he does he makes like $400 mil in option gains. Then goes up in $50 bil increments of market cap. I like it! His strike is $350

I think Elon’s stock incentive plan will easily pass shareholder voting since ultimately I think it’s aligned with shareholder interest.

The chairman of Zhejiang Geely Holding Group Co. has recently acquired a 9.7% stake in Daimler.

Geely Automotive Holding Ltd is a massive and growing automobile holding company.  Their main brand/company is Geely, where in China it’s experiencing massive growth and is a dominant player.

William Boston via MarketWatch:

Back in China, Geely Automotive has become the top domestic brand in the country. Instead of turning out cheap and undependable models, it began drawing Chinese customers away from some of the big Western brands that had set up shop in China.

More recently, Geely put its overseas ambitions into high gear. In May 2017, it agreed to buy a 51% stake in British sports-car brand Lotus and a 49.9% stake in struggling Malaysian car maker Proton Holdings Bhd. In December, Geely acquired 8.2% of Volvo AB, the Swedish truck maker.

Geely also was able to turn around Volvo after buying it from Ford (via MarketWatch):

After years of heavy investment from Geely, Volvo is now a thriving — if still small — high-end car maker. More recently, Volvo and Geely have pushed aggressively into electric-car development. Volvo promised last year to roll out electric or hybrid-electric engines in all its new models starting in 2019. Geely Holding in 2013 bought London Taxi, which makes electric-utility vehicles and taxis.

Here’s Geely’s growth in auto sales.  Last year it sold 1.2M cars, up over 100% from just two years ago (via carsalesbase):

Geely  (All Models)
2017 1.251.656 5,16%
2016 778.896 3,30%
2015 532.384 2,64%
2014 425.773 2,31%
2013 549.393 3,37%
2012 491.445 3,72%
2011 432.752 3,52%
2010 414.465 3,70%
2009 329.018 3,98%
2008 221.786 4,08%
2007 219.512 4,16%
2006 205.346 4,89%
2005 143.279 4,45%
2004 98.283 3,99%
2003 73.779 3,44%

As a result, Geely’s stock price has shot through the roof.  It’s up almost 10x in just 2 years.

Geely’s investment in Daimler is already concerning to the German government.

But if Daimler is unable to successfully take advantage of the transition to EVs, it will suffer.  And with a suffering Daimler, it can be a takeover target by a company like Geely if Geely continues to grow in value (currently Geely’s market cap is about $30B so they would need to grow substantially to be able to afford Daimler).

If Geely did take over Daimler, their game plan would be to leverage the Mercedes brand and push it to toward electrification.  And Daimler would probably have a good chance at it, under Geely’s leadership.

What does this all mean to Tesla and Tesla shareholders.  Well, it means that Tesla’s biggest competition might not be coming from the typical automakers that we all know about.  But it may be coming from China, as China’s huge market provides opportunities for China’s domestic auto companies to experience rapid growth and growing profits, which in turn they can use to buy premium auto brands.   The reason they’d like to buy premium auto brands is because a premium auto brand like Mercedes is extremely difficult to build from scratch.  It takes decades of reliability, safety and happy customers for people to trust your brand as a luxury brand.  But Geely is bullish on the future of cars, and with their investment and focus, I think they think there’s a lot of untapped potential with the Mercedes brand.

Will Tesla and SpaceX merge?

Romit Shah, an analyst with Nomura Instinet, asserted in a video on Bloomberg today that he in convinced that Tesla and SpaceX will merge.  His main reasoning is that Tesla and SpaceX have a lot of commonality, especially interest in AI in manufacturing.

I have mixed feelings and thoughts about SpaceX and Tesla merging.  I do think that ultimately it may happen, perhaps by 2030, when both companies are mature and there could be growing synergies attained by combining the two companies.  Perhaps when SpaceX is able to grow their BFR Earth to Earth plans (transporting people anywhere on earth in less than an hour) then there could be added advantage in bringing Tesla and SpaceX together as the ultimate transportation company for earth and beyond.  However, I do think it will take quite some years before SpaceX even has the ability to test their BFR earth to earth flights.

Another reason to merge Tesla and SpaceX is simply because this would allow Elon Musk to focus his energy all under one company and would allow him to potentially launch even bigger ventures and new investments under the umbrella company.  Currently, Elon has launched separate companies for the Boring Company and Neuralink, but over time I think the increased overhead incurred by having separate companies could be taxing for Elon in terms of his time and commitment.  If Tesla (and SpaceX) can be profitable enough on a sustained consistent basis, that could provide Elon with enough capital to try new ideas and ventures within his umbrella holding company and reduce fragmentation of having to maintain various separate companies.  One small example is if SpaceX goes public, Elon would then have to be available for two sets of quarterly conference calls and shareholder meetings, etc.  There are many more examples of how having two separate public companies could be more of a headache for Elon.  Currently, with SpaceX being private he’s able to shield SpaceX from much of the scrutiny and volatility of the public markets.  However, I’m not sure how long SpaceX can remain and will remain private.  Elon has stated his desire to keep SpaceX private, but also I’ve heard from SpaceX’s President her desire to take the company public.

Tesla will just be entering their groove later this year as they ramp Model 3 production, and they’ve guided for sustained quarterly profit to start by the end of this year.  For SpaceX, they’ve been a tight run operation with revenue largely covering launch expenses.  But they have large capital needs for their BFR rocket and their internet satellite constellation.  SpaceX won’t have sustained quarterly profits until they can get their internet satellite constellation up and running, and if they can do so they have potential to be lucratively profitable, or should I say ludicrously profitable.  As long as both Tesla and SpaceX are very profitable, I would imagine a merger would make more sense for both companies as each company would be past the riskiest phases in their businesses.

Even if Tesla and SpaceX do merge, I imagine the new company would be an umbrella holding company of sorts.  Tesla and SpaceX would run relatively independent of each other with separate structures for most everything.  However, public reporting would be simplified as one company and it would make things more manageable for Elon (vs running two public companies).  The other advantage would be the possibility of raising large amounts of capital based on the market cap of the new holding company to go into large arenas of business that could create massive shareholder value.

In conclusion, I think it’s too earlier to be talking about a Tesla and SpaceX merger as it won’t make sense until much later when both companies are running sustainable quarterly profits.