Each of the 12 tranches of stock options vests and becomes available for Musk to use when both of the above operating milestones and one of the market-capitalization milestones have been achieved.
How the market-cap milestones work, and what each tranche could be worth to Musk
The latter milestones start at a market capitalization, or the value of all outstanding Tesla shares combined, of $100 billion, and increase by $50 billion for each additional tranche. Those valuations need to be maintained for six months before Musk's options vest.
Tesla's incredible stock-price increase over the past few years has caused the company to hit 11 out of the 12 market capitalization milestones, according to the company's most recent annual report.
What each tranche is (roughly) worth at the needed stock price
Tesla has about 963 million outstanding stock shares. Based on that, Tesla has a market capitalization of at least $100 billion once the stock price is above about $104 a share, since market capitalization is just the number of shares times the price of each share.
Each tranche of options, once vested, entitles Musk to buy up to about 8.4 million shares of Tesla stock at a price of $70.01 a share, or the closing price at the time of the agreement, adjusted for stock splits.
So, if Tesla's stock is trading right at the $104 level needed to hit a $100 billion valuation, he'd essentially net a profit of about $34 a share, making the overall first tranche worth about $285 million.
At Tesla's price just before market close Wednesday of about $670 a share, the total value of the first tranche would be about $5 billion.
Of course, if Musk were to exercise his shares today at that price, his bank account wouldn't immediately jump up by three-quarters of a billion dollars. The agreement stipulates that Musk has to hold his shares for at least five years after exercising any of the options that vest under the plan. That is, Musk's potential new wealth would be in the form of illiquid stock holdings in Tesla, rather than cash.
Tranche by tranche
Following a similar logic, here's the value of each of the 12 tranches at the stock price needed at the current number of outstanding shares to hit each market-cap milestone.
