Elon Musk will see his fortune grow this year by shares of Tesla

Elon Musk about to get richer for these reasons 1:13

New York (CNN Business) --

It wasn't the best start to the year for the world's richest man, but this isn't something Elon Musk is really worried about.

Shares of Tesla owned by Elon Musk have lost nearly $30 billion this year through Monday's close, after falling 12%.

But the next 12 months could be the most lucrative for Musk.

If analysts are correct, Tesla will report strong financial results this year that will bring Musk billions of dollars in stock awards.

Musk does not receive any base salary or cash bonus from Tesla.

Instead, you receive stock options based on the company reaching certain financial and market value goals.

His 2018 salary package allocated 101 million division-adjusted shares to be awarded to Musk in 12 equal tranches as the company hit those goals.

All market value targets have been met, although Tesla's recent decline has knocked it off the list of companies with a trillion-dollar market capitalization.

And so far seven of the financial targets have been met, two of them in 2019, another two in 2020 and three in the first nine months of 2021. So you've already received 59 million of the 101 million options in that package.

• Tesla broke sales record during 2021

Analysts expect Tesla to hit all five remaining financial targets this year to give Musk all the options he could get under that 2018 package. If they're right, he'll be entitled to four of the tranches this year, a record for him. and one more in early 2023, once Q4 2022 results are officially on the books.

"With Tesla's growth trajectory, I'd be surprised if it didn't get all five tranches this year if all the requirements are met," said Dan Ives, technology analyst at Wedbush Securities.

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Each of the option tranches would entitle him to purchase 8.4 million shares for the bargain price of $70.01 per share, the share price when the options were first granted in 2018. Monday's closing price of $930, that means each option tranche would be worth $7.3 billion, and the five tranches would add up to $36.3 billion.

It's very likely he'll be entitled to at least one tranche of options, maybe two, when Tesla reports fourth-quarter results on Wednesday.

It should have at least three tranches in hand once first-quarter results are due in April, and a fourth tranche midway through the year.

A big tax bill... in 2027

However many options Musk receives in the next 12 months, he likely won't have to pay any taxes on them for about five years.

That's because he will only have to pay taxes on the options once he exercises them and buys additional shares.

And he's likely to only do it when the options are about to expire.

He did so last year, when he exercised 22.9 million options due to expire in August 2022, giving him a record $11 billion tax bill last year.

• Elon Musk owes $11 billion in taxes after selling Tesla shares

These last options won't expire until January 2028, so he likely won't exercise them until 2027. He still hasn't had to pay taxes on the 59 million options he already received as part of that 2018 salary package. And he probably won't. pay taxes on any of the additional 42 million options you are likely to receive over the next 12 months, regardless of their value.

Sinking stocks

The biggest problem for Musk is that Tesla stock is having an especially bad year.

He owns 177.7 million shares, in addition to the options he already has to buy another 59 million shares.

That's the reason for the huge hit to his net worth in 2022. Still, Forbes' real-time billionaire tracker puts Musk's net worth at $241 billion.

Investors are concerned about riskier tech stocks like Tesla as the Federal Reserve moves to stifle inflation with higher interest rates and less stimulus.

Tesla is worth more than the 10 largest automakers in the world even though its sales are much lower than each of them.

That makes it an example of a stock with a questionable valuation.

• Stocks end higher after a drastic fall on Wall Street

"While investors are seen to be looking for safety due to risk, Tesla shares are caught in the storm," Ives said.

On Monday, during a deep US stock sell-off, Tesla shares fell as much as 10% at one point.

But they rallied along with the rest of the market, closing down just 1.5%.

Still, that was enough to reduce Musk's net worth by $3.3 billion.

Many analysts view the recent slide in Tesla shares as a temporary setback.

Tesla shares reversed a similar decline earlier in 2021 to end the year up 50%.

Of the analysts surveyed by Refinitiv, 18 have a buy or strong buy recommendation on the stock, versus 10 with a sell or strong sell recommendation.

Ives said the recent sell-off in Tesla shares, which have fallen 25% from their all-time high in early November, makes Wednesday's earnings report especially important to investors.

They will want more information about plans to ramp up production at two new factories and when it plans to launch the Cybertruck, its pickup, which will face competition from pickups offered by established automakers like Ford and a new electric-vehicle maker, Rivian.

A disappointing report could fuel selling, while a strong earnings report could turn the stock around, Ives said.

"We think a strong showing from Tesla could be a lifeline for its stock," he said.

Elon Musk