Tesla's New Compensation Pushes Elon Musk To Focus On Profitability, Baird Says

Tesla Inc TSLA skeptics have long anticipated the defection of CEO Elon Musk to the peripheral ventures of SpaceX and The Boring Company. Musk’s departure, they’ve said, would derail Tesla's leader-centric story.

But the auto and electric power company challenged the bear thesis Tuesday with the announcement of Musk’s new, 10-year performance-based compensation plan, which seemingly secures the visionary and celebrity fundraiser for the near-term.

The Rating

Baird Equity Research analysts Ben Kallo reiterated an Outperform rating on Tesla with a $411 price target.

The Thesis

Baird views the compensation plan favorably, considering both the payroll and profitability implications of the terms.

The plan requires Musk to be either CEO or both executive chairman and chief product officer at the time of cash-in, which “should ensure Elon Musk’s continued leadership over the long term,” Kallo said in a Wednesday note. (See the analyst's track record here.)

At the same time, it incentivizes the achievement of critical financial milestones for Tesla, including an incrementally increasing market cap toward $650 billion, a revenue boost from $20 billion to $175 billion and an increase in adjusted earnings before interest, taxes, depreciation and amortization from $1.5 billion to $14 billion.

“This is one of the first times TSLA has provided long-term profitability targets, and we think shares would appreciate significantly if TSLA were to achieve its adjusted EBITDA milestones," although not necessarily to a $650 billion market cap," Kallo said.

So not only will Tesla retain its critical leader, but it will also increase shareholder value as it inches toward profitability, according to Baird. 

Price Action

At the time of publication, shares were trading up marginally pre-market at a rate of $354.24.

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Photo courtesy of Tesla.