Tesla says expansion on track as it reports higher than expected profits

Tesla's quarterly report has hit targets qualifying Chief Executive Elon Musk for two options payouts worth a combined $11 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 $10.39 billion and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $1.84 billion, surpassing milestones that trigger the vesting of the fifth and sixth of 12 tranches of options granted to Musk in his 2018 pay package to buy discounted Tesla shares. 

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 capitalization and financial growth to hit a series of rising targets.

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

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

Tesla said that over a “multi-year horizon,” it expects vehicle deliveries to grow on average by 50 percent per year, with some years, like 2021, growing faster than others.

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Security concerns

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

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

The company also said that there is evidence that a person was behind the wheel of a Tesla that crashed in Texas earlier this month, killing two men. But authorities near Houston said investigators are sure that no one was driving the car when it missed a curve, hit a tree, and went off the road.

The April 17 crash near Houston has brought renewed scrutiny of Tesla and its Autopilot partially automated driving system. Two federal agencies are joining local authorities in investigating.

In the Texas crash, authorities in Harris County, Texas, said one man was found in the passenger seat, while another was in the back. They’re issuing search warrants in the probe, which will determine whether Tesla’s Autopilot partially automated system was in use. 

Once again the company needed regulatory credits purchased by other automakers in order to make a profit. Without $518 million in credits for the quarter, Tesla would have lost money. Other automakers buy the credits when they can’t meet emissions and fuel economy standards.

The company, which also makes solar panels and batteries, made only $16 million in the first quarter of 2020.

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