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Serious question: My impression is that when Verizon bought Yahoo (for 5 Billion), this was a pretty standard affair M&A. However, this Gigafactory has the sa
by twelfthnight 10y ago
Serious question: My impression is that when Verizon bought Yahoo (for 5 Billion), this was a pretty standard affair M&A. However, this Gigafactory has the same price tag but is met with the question "Does Elon Musk have more money than sense?" How are M&A purchases different from direct investments in a company?
- tcoppi 10y agoVerizon currently makes a profit, Tesla doesn't[1]. 1. They might be able to run a profit without R&D expenses, but that wouldn't make any sense at this point, so they are bleeding money and need to raise capital constantly.
- mrtron 10y agoBleeding money and need to raise capital constantly? -> Investing in infrastructure to meet the huge demand for their next generation electric automobiles, using common stock sales.
- forgetsusername 10y ago>Investing in infrastructure to meet the huge demand Can you explain why Tesla didn't add to the capital raise in May? They couldn't foresee needing more capital for the M3 and GF a month-and-a-half ago? That seems odd.
- marvin 10y agoLikely because Tesla leadership expects the stock price to be significantly higher in a few years, and they can make do on a smaller amount + proceeds from vehicle sales until then. To be precise, the capital raise in May was for the gigafactory and Model 3. The expected capital raises in the future are for Tesla Energy expansion, plus future vehicles. That plan might change, but this is the latest official message.
- mikeash 10y agoTesla doesn't make a profit, and they're spending billions on a factory that will make a valuable product with good margins. Verizon makes a profit, and they're spending billions on a failed company. I don't really see how the profit status of the acquirer is relevant. What matters is the profit potential of what's being acquired.
- tcoppi 10y agoTesla /might/ make a valuable product with good margins from the factory. I would rate that chance as greater than 90% personally, but it still isn't certain. Just like it isn't certain that Yahoo is a failed acquisition for Verizon, although you and I might rate the chance of that as quite high. The profit of the acquirer is relevant in so far as it relates to the ability to finance massive acquisition projects such as these, and the market's willingness to do so. I'd say in both instances the market's willingness has been high, but people have good reasons to be skeptical both ways.
- mikeash 10y agoProfit and ability to finance aren't quite the same, though. So far, capital markets have been willing to give Tesla big piles of money with excellent terms (buying issued stock at a price that values the company similarly to major automakers and such) so they seem to have no trouble financing the Gigafactory. Verizon may well have access to more money, but then that just supports the first half of "more money than sense."
- gozur88 10y agoYahoo makes a profit as well. Verizon may have overpaid (I couldn't say), but they are getting a mature property which makes money.
- jsingleton 10y agoI don't really know, but could it be that you can buy a company with mainly stock yet building things requires cash? Panasonic has invested just under $2bn in the plant. I assume that's in cash.
- detaro 10y agoVerizon is also paying cash for Yahoo.
- ralfd 10y agoSimple: Verizon earned last quarter $32 billion with profits of $4.31 billion. Even if the Yahoo aquisition turns out to be total worthless it doesn't threaten the company. In comparison the Gigafactory is a big bet for Musk.
- api 10y agoInvestments in innovation are a much harder sell. The HN crowd is a minority. Most people alternate between fear and incredulity regarding anything new.
- jdavis703 10y agoYou also have to remember the people championing this deal probably have bonuses and other economic incentives that might run counter to the best interests of the company.