Elon Musk qualifies for US$11 billion payout as Tesla profit beats forecasts

Electric carmaker Tesla marginally beat Wall Street expectations for first-quarter revenue on Monday boosted by a jump in environmental credit sales to other automakers and robust demand from China.

NEW YORK (REUTERS) - Tesla's quarterly report on Monday (April 26) hit targets qualifying chief executive Elon Musk for two options payouts worth a combined US$11 billion (S$14.6 billion).

The electric car maker beat Wall Street's expectations for first-quarter revenue and profit, boosted by record deliveries, robust demand from China and environmental credit sales.

It reported quarterly revenue of US$10.39 billion and adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) of US$1.84 billion, surpassing milestones that trigger the vesting of the fifth and sixth of 12 tranches of options granted to Mr Musk in his 2018 pay package to buy discounted Tesla shares.

Mr Musk, who is also a major shareholder and CEO of rocket maker SpaceX, receives no salary at Tesla. His pay package requires Tesla's market capitalisation and financial growth to hit a series of rising targets.

Adjusted profit of 93 cents per share topped Wall Street's consensus of 79 cents.

Despite production that is a fraction of that of Toyota Motor, Volkswagen or General Motors, Tesla has become by far the world's most valuable car maker, with a market capitalisation of US$700 billion, compared with Toyota's US$250 billion.

Tesla's shares have receded from record highs in 2021 after jumping more than eight-fold last year.

Each tranche gives Mr Musk the option to buy 8.4 million Tesla shares at US$70 each, a discount of more than 90 per cent from their current price. At Monday's price of US$722, the shares from four previous tranches, plus the fifth and sixth tranches, could generate a profit of nearly US$34 billion, or almost US$6 billion per tranche.

In its quarterly report after the bell, Tesla said it incurred an expense of US$299 million related to Mr Musk's pay package, "driven by an increase in market capitalisation and a new operational milestone becoming probable".

Sales of regulatory permits were higher than quarterly profit, in line with the trend of several quarters. Tesla earned US$518 million from sales of regulatory credits in the first quarter, up 46 per cent from a year earlier. Tesla earns credits for exceeding emissions and fuel economy standards and sells them to other automakers that fall short of the goals.

"Higher regulatory credits, lower taxes, and bitcoin sales buoyed financial results. Back these out, and it was a large miss," Roth Capital Partners analyst Craig Irwin said.

Tesla trimmed its bitcoin position by 10 per cent during the quarter, which contributed to a small gain in first-quarter financials.

"We do believe long term in the value of bitcoin," said chief financial officer Zachary Kirkhorn. "It is our intent to hold what we have long term and continue to accumulate bitcoin from transactions from our customers as they purchase vehicles."

Shares of the company were down about 2 per cent in extended trading on Monday.

Tesla posted record deliveries in the first quarter despite a global chip shortage that has slammed auto sector rivals. Model Y production in China has spurred demand there.

Still, the world's most valuable automaker, whose shares jumped more than eight-fold last year, faces challenges of living up to its valuation and managing expectations.

"Tesla looks well positioned to continue delivering more vehicles in the future as more production plants come online which, in turn, could see the company rein in the ludicrous valuation metrics that it currently possesses," said Mr Peter Hanks of DailyFX.com.

Mr Elon Musk, who is also a major shareholder and CEO of rocket maker SpaceX, receives no salary at Tesla. PHOTO: REUTERS

The company said it was able to navigate through global chip supply shortage issues in part by pivoting quickly to new chips, while simultaneously developing software for chips made by new suppliers.

The first quarter "had some of the most difficult supply chain challenges that we've ever experienced in Tesla", Mr Musk said.

However, its vehicle average selling price fell by 13 per cent as production of pricier Model S and Model X vehicles ground to a halt ahead of major updates. Tesla will start deliveries of the new Model S next month and high-volume production in the third quarter. The Model Y production rate in Shanghai continued to improve.

Tesla said it expects this year's volume growth to exceed 50 per cent, while saying that it is on track to start production and deliveries at its planned factories in Texas and Berlin this year. Mr Musk said Tesla will have two million cars on the road next year, up from more than one million cars now.

Rivals such as Volkswagen and Ford Motor are rolling out their own all-electric vehicles, aiming to compete with Tesla on price and style.

In the United States, Tesla's full self-driving software is facing new federal investigations following 28 crashes of Tesla vehicles, including a recent one in Texas that killed two.

On a call with investors, Tesla said someone was likely in the driver's seat at the time of the crash and all seat belts post-crash were found to be unbuckled.