Over $100bn in accounting and tax charges may await electric-car maker and CEO if they are forced to abandon 2018 deal
In April, Tesla warned shareholders that reissuing a new set of stock options entitling Musk to buy the same 304 million shares would result in a compensation-related accounting charge of more than $25 billion. Photograph: Al Drago/Bloomberg Tesla has vowed to press on with its fight to restore Elon Musk’s historic pay package, and failure could have a high cost: the potential for more than $100 billion in tax and accounting charges for the company and its chief executive.
In April, Tesla warned shareholders that reissuing a new set of stock options entitling Musk to buy the same 304 million shares would result in a compensation-related accounting charge of more than $25 billion, since the company’s valuation was substantially higher than in 2018. That compares with a $2.3 billion charge for the original 2018 award.
If the Delaware Supreme Court declines to overturn the original ruling and the board opts to issue a new plan on similar terms, the options would be awarded already “in the money”, since the financial targets have already been achieved. The rule was introduced in 2005 after Enron executives rushed to cash out vested stock they had received as part of their compensation plans before the company went bankrupt.
That means Musk would be immediately liable for 57 per cent income tax on the difference between the strike price and the current value of the stock, whether he chooses to exercise the options or not. At Wednesday’s closing price of $425 and a strike price of $23.34 set in 2018, the difference would be $122 billion, which means an almost $70 billion tax bill.
Despite Musk opting not to exercise his package when entitled to last year, “having the options is powerful and valuable”, said Moore, because they act as a deterrent to potential acquirers or activists. Musk can also borrow against their implied value, as long as he does not grant a lien on the options.
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