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Equity Incentive Plans | 6 Months Ended
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Jun. 30, 2019
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] |
Equity Incentive Plans | Note 14 – Equity Incentive Plans In June 2019, we adopted the 2019 Equity Incentive Plan (the “2019 Plan”), and simultaneously terminated the 2010 Equity Incentive Plan (the “2010 Plan”). No new awards will be granted under the 2010 Plan following the adoption of the 2019 Plan, but such termination will not affect outstanding awards under the 2010 Plan. The 2019 Plan has similar terms as the 2010 Plan and provides for the granting of stock options, restricted stock, RSUs, stock appreciation rights, performance units and performance shares to our employees, directors and consultants. Stock options granted under the 2019 Plan may be either incentive stock options or nonstatutory stock options. Incentive stock options may only be granted to our employees. Nonstatutory stock options may be granted to our employees, directors and consultants. Generally, our stock options and RSUs vest over four years and are exercisable over a maximum period of 10 years from their grant dates. Vesting typically terminates when the employment or consulting relationship ends. As of June 30, 2019, 12,260,875 shares were reserved and available for issuance under the 2019 Plan. 2018 CEO Performance Award In March 2018, our stockholders approved the Board of Directors’ grant of 20,264,042 stock option awards to our CEO (the “2018 CEO Performance Award”) at an exercise price of $350.02 per share. The 2018 CEO Performance Award consists of 12 vesting tranches with a vesting schedule based entirely on the attainment of both operational milestones (performance conditions) and market conditions, assuming continued employment either as the CEO or as both Executive Chairman and Chief Product Officer and service through each vesting date. Each of the 12 vesting tranches of the 2018 CEO Performance Award will vest upon certification by the Board of Directors that both (i) the market capitalization milestone for such tranche, which begins at $100 billion for the first tranche and increases by increments of $50 billion thereafter, and (ii) any one of the following eight operational milestones focused on revenue or eight operational milestones focused on Adjusted EBITDA have been met for the previous four consecutive fiscal quarters on an annualized basis. Adjusted EBITDA is defined as net income (loss) attributable to common stockholders before interest expense, provision (benefit) for income taxes, depreciation and amortization and stock-based compensation.
Total Annualized Revenue (in billions) | Annualized Adjusted EBITDA (in billions)
$20.0 | $1.5
$35.0 | $3.0
$55.0 | $4.5
$75.0 | $6.0
$100.0 | $8.0
$125.0 | $10.0
$150.0 | $12.0
$ 175.0 | $14.0
As of June 30, 2019, two operational milestones: (i) $20.0 billion total annualized revenue and (ii) $1.5 billion annualized adjusted EBITDA have been achieved, subject to the formal certification by our Board of Directors, while no market capitalization milestones have been achieved. Consequently, no shares subject to the 2018 CEO Performance Award have vested as of the date of this filing. As of June 30, 2019, the following operational milestone was considered probable of achievement:
| • | Adjusted EBITDA of $3.0 billion
Stock-based compensation expense associated with the 2018 CEO Performance Award is recognized ratably over the longer of the expected achievement period for each pair of market capitalization or operational milestones, beginning at the point in time, which may or may not be the grant date, when the relevant operational milestone is considered probable of being met. In addition, if an operational milestone that was not considered probable at the grant date later becomes probable, we will record at such time cumulative catch-up expense for the service provided between the grant date and such time, which may be material depending on the length of such period. The market capitalization milestone period and the valuation of each tranche are determined using a Monte Carlo simulation and is used as the basis for determining the expected achievement period. The probability of meeting an operational milestone is based on a subjective assessment of our future financial projections. Even though no tranches of the 2018 CEO Performance Award vest unless a market capitalization and a matching operational milestone are both achieved, stock-based compensation expense is recognized only when an operational milestone is considered probable of achievement regardless of how much additional market capitalization must be achieved in order for a tranche to vest. At our current market capitalization, even the first tranche of the 2018 CEO Performance Award will not vest unless our market capitalization were to more than double from the current level and stay at that increased level for a sustained period of time. Additionally, stock-based compensation represents a non-cash expense and is recorded as a selling, general, and administrative operating expense in our consolidated statements of operations. As of June 30, 2019, we had $487.4 million of total unrecognized stock-based compensation expense for the operational milestones that were achieved but not vested or considered probable of achievement, which will be recognized over a weighted-average period of 2.7 years. As of June 30, 2019, we had unrecognized stock-based compensation expense of $1.5 billion for the operational milestones that were considered not probable of achievement. For the three and six months ended June 30, 2019, we recorded stock-based compensation expense of $55.6 million and $110.7 million, respectively, related to the 2018 CEO Performance Award. For the three months ended June 30, 2018, we recorded stock-based compensation expense of $55.7 million related to this award. From March 21, 2018, when the grant was approved by our stockholders, through June 30, 2018, we recorded stock-based compensation expense of $62.4 million related to the 2018 CEO Performance Award. 2014 Performance-Based Stock Option Awards In 2014, to create incentives for continued long-term success beyond the Model S program and to closely align executive pay with our stockholders’ interests in the achievement of significant milestones by us, the Compensation Committee of our Board of Directors granted stock option awards to certain employees (excluding our CEO) to purchase an aggregate of 1,073,000 shares of our common stock. Each award consisted of the following four vesting tranches with the vesting schedule based entirely on the attainment of the future performance milestones, assuming continued employment and service through each vesting date:
| • | 1/4th of each award vests upon completion of the first Model X production vehicle;
| • | 1/4th of each award vests upon achieving aggregate production of 100,000 vehicles in a trailing 12-month period;
| • | 1/4th of each award vests upon completion of the first Model 3 production vehicle; and
| • | 1/4th of each award vests upon achieving an annualized gross margin of greater than 30% for any three-year period.
As of June 30, 2019, the following performance milestones had been achieved:
| • | Completion of the first Model X production vehicle;
| • | Completion of the first Model 3 production vehicle; and
| • | Aggregate production of 100,000 vehicles in a trailing 12-month period.
We begin recognizing stock-based compensation expense as each performance milestone becomes probable of achievement. As of June 30, 2019, we had unrecognized stock-based compensation expense of $9.9 million for the performance milestone that was considered not probable of achievement. For the three and six months ended June 30, 2019, and for the same periods in 2018, we did not record any additional stock-based compensation related to these awards. 2012 CEO Performance Award In August 2012, our Board of Directors granted 5,274,901 stock option awards to our CEO (the “2012 CEO Performance Award”). The 2012 CEO Performance Award consists of 10 vesting tranches with a vesting schedule based entirely on the attainment of both performance conditions and market conditions, assuming continued employment and service through each vesting date. Each vesting tranche requires a combination of a pre-determined performance milestone and an incremental increase in our market capitalization of $4.00 billion, as compared to our initial market capitalization of $3.20 billion at the time of grant. As of June 30, 2019, the market capitalization conditions for all of the vesting tranches and the following performance milestones had been achieved:
| • | Successful completion of the Model X alpha prototype;
| • | Successful completion of the Model X beta prototype;
| • | Completion of the first Model X production vehicle;
| • | Aggregate production of 100,000 vehicles;
| • | Successful completion of the Model 3 alpha prototype;
| • | Successful completion of the Model 3 beta prototype;
| • | Completion of the first Model 3 production vehicle;
| • | Aggregate production of 200,000 vehicles; and
| • | Aggregate production of 300,000 vehicles.
We begin recognizing stock-based compensation expense as each milestone becomes probable of achievement. As of June 30, 2019, we had unrecognized stock-based compensation expense of $5.7 million for the performance milestone that was considered not probable of achievement. For the three and six months ended June 30, 2019, we recorded no stock-based compensation expense related to the 2012 CEO Performance Award. For the three and six months ended June 30, 2018, we recorded stock-based compensation expense of $0 and $0.1 million, respectively, related to this award. Our CEO historically earned a base salary that reflected the applicable minimum wage requirements under California law, and he is subject to income taxes based on such base salary. However, he has never accepted his salary. Commencing in May 2019 at our CEO’s request, we eliminated altogether the earning and accrual of this base salary. Summary Stock-Based Compensation Information The following table summarizes our stock-based compensation expense by line item in the consolidated statements of operations (in thousands):
|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Cost of revenues |  | $ | 34,607 |  |  | $ | 21,661 |  |  | $ | 61,817 |  |  | $ | 45,369 |
Research and development |  |  | 71,474 |  |  |  | 65,937 |  |  |  | 143,956 |  |  |  | 127,044 |
Selling, general and administrative |  |  | 102,948 |  |  |  | 105,869 |  |  |  | 209,654 |  |  |  | 162,693 |
Restructuring and other |  |  | 834 |  |  |  | 3,877 |  |  |  | 2,814 |  |  |  | 3,877 |
Total |  | $ | 209,863 |  |  | $ | 197,344 |  |  | $ | 418,241 |  |  | $ | 338,983 |
We realized no income tax benefit from stock option exercises in each of the periods presented due to cumulative losses and valuation allowances. As of June 30, 2019, we had $1.6 billion of total unrecognized stock-based compensation expense related to non-performance awards, which will be recognized over a weighted-average period of 3.0 years.

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- Definition The entire disclosure for accounts comprising shareholders' equity, comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income, and compensation-related costs for equity-based compensation. Includes, but is not limited to, disclosure of policies, compensation plan details, equity-based arrangements to obtain goods and services, deferred compensation arrangements, and employee stock purchase plan details. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -URI http://asc.fasb.org/topic&trid=2208762 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -URI http://asc.fasb.org/topic&trid=2228938 + Details
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