Tesla Tops Volkswagen to Become Second Most Valuable Auto Maker

Elon Musk

has navigated

Tesla Inc.

TSLA 8.01%

into new territory, as the electric-car maker’s market value topped $100 billion Wednesday morning and overtook

Volkswagen AG

as the world’s No. 2 most valuable auto maker.

Tesla shares traded 6.25% higher early on Wednesday, lifting its market cap to $104.8 billion. Crossing the $100 billion threshold could start unlocking a more than $50 billion pay package for Mr. Musk. Volkswagen shares fell 1.48% in late German trading, putting its market cap around 90 billion euros ($99.7 billion).

Tesla shareholders almost two years ago approved an incentive package for Mr. Musk considered one of the most lucrative for any chief executive. The first tranche of options under that arrangement nominally would net $346 million if immediately sold at today’s price.

It doesn’t vest immediately. Tesla’s value needs to remain above $100 billion for some time and the company has to achieve $20 billion in annual sales or $1.5 billion in earnings before interest, taxes, depreciation and amortization, after adjusting for stock compensation before Mr. Musk is entitled to the payout. Tesla reached both of those two earnings metrics in 2018.

Tesla, when it reports 2019 earnings in the coming days, is expected to post $2.6 billion in earnings by that measure and $24.19 billion in sales, according to analysts surveyed by FactSet.

For Mr. Musk to receive the first tranche, Tesla must sustain the market value on average for a trailing six-month period as well as on average for 30 calendar days. There are 11 other tranches of potential payments.

Tesla shares have risen sharply in recent months after the company surprised investors with strong third-quarter results last year. The rally has continued after the Silicon Valley auto maker in recent weeks said it had begun deliveries from its factory in China and met 2019 delivery guidance.

Tesla’s stock is up more than 200% since last year’s closing low of $178.97 in June, when investors worried about the company’s ability to achieve 2019 targets.

Since then, the shares have hit several milestones. They have raced past $420, a symbolic threshold at which Mr. Musk, in 2018, said he wanted to take the electric-vehicle maker private. Tesla this month became the most valuable U.S. auto maker of all time when it topped the historic high

Ford Motor Co.

hit in 1999.

China-made Teslas are hitting the road as buyers in Shanghai get their Model 3 sedans. But the car maker faces daunting challenges in its quest to conquer the world’s largest auto market. Photo: STR/Agence France-Presse/Getty Images

The stock’s rally means Tesla is second only to

Toyota Motor Corp.

in valuation, even though it builds far fewer cars than its main U.S., European and Japanese rivals.

Volkswagen said it delivered almost 11 million vehicles last year, including cars made by other brands its owns such as Audi and Porsche. Tesla delivered 367,500 cars last year.

VW Chairman

Herbert Diess

has been frustrated by the company’s low valuation. In a presentation this month, Mr. Diess laid out VW’s accomplishments, including meeting financial targets. “However, our company valuation is not where it should be!,” one of his slides said.

As part of its efforts to fight back, Volkswagen plans several new electric-vehicle launches. Its ID.3 compact electric car will go on sale in the summer, the car maker has said.

Write to Tim Higgins at

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