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Tesla seeks to raise $1.5B to fund Model 3 production
- olivermarks 9y agoTLDR Cash burn, expected to top $2 billion this year, against $3b in cash means Tesla are raising $1.5b in junk bonds to help cash flow as they ramp up production and scale.
- dalbasal 9y ago"High-yield junk bonds" is such an unflattering way of putting things. It always seemed strange to me that banks/bonds/lending seems to have such a small role in financing risky ventures. Is it just that capital is a better deal? How does risk work here, are bondholders effectively de-risked compared to stockholders?
- martin_bech 9y agoIn case of the company going belly up, creditors, bondholders etc. are first in line, and stockholders are last.
- dalbasal 9y ago..what's the distance between beginning and end?
- TwoFactor 9y agoDebt holders (bonds) have a higher liquidity preference than equity (stocks) in the case of financial trouble. An oversimplified example being if Tesla was liquidated with $3B in assets, and $2B in debt, the debt holders would be paid $2B first and equity holders would split whatever was remaining.
- londons_explore 9y agoBut debts to suppliers and bank loans still get paid first right? It seems unlikely with someone like Musk at the helm that the company would be wound up before assets (and loans guaranteed on them) didn't pay the salaries. Hence, in the case of liquidation, I can't see bondholders getting any more than shareholders - ie. NILL. Am I mistaken?
- TwoFactor 9y agoCorrect, suppliers etc are higher on the liquidity preference than debt. If something were to go wrong, its most likely that Tesla would get a soft landing (e.g acquisition by Toyota) that would pay debtors significantly more than equity holders, but doubtful it would be 100% of what is owed in that scenario.
- kgwgk 9y agoIs this risky venture generating enough cash-flow to pay the interests starting now and is it likely to return the principal back in a few years? If not, that's why it's not used more.
- olivermarks 9y agoS&P B- corporate debt rating, and similar other ratings means Tesla are currently in junk bond territory.
- asdf33323 9y agoawesome news for the company!
- nihonde 9y agoMeanwhile, Toyota and Mazda quietly announced a tie-up specifically for all electric vehicles. I know it's not as much fun as rooting for Tesla, but the odds are on the German and Japanese incumbents in the long run. It's very Japan Inc to wait until consumer interest proves itself, and then start the long game in extreme earnest with cross-brand cooperatives and government backing.
- quadcore 9y agoHow does Tesla technologies compares to Toyota's and Mazda's? If they are inferior, are they actually bad? Can they catch up? (real questions)
- Invictus0 9y agoGiven that Tesla opened up all its patents to the public, it's safe to say that they are at least on a level playing field in terms of tech.
- bkanber 9y agoI haven't been in the auto industry for a number of years, but the following is my educated impression. On most aspects (drivetrain, body, safety, etc), tech will be comparable. Where Tesla tech wins is in battery technology (good chance Toyota and Mazda will start buying Tesla battery packs instead of developing their own), and Autopilot. Other manufacturers are working on autonomous vehicles, and they will probably be pretty good, but Tesla has a first-mover advantage in terms of training data and real-world usage (which will be very valuable), and they're also much more culturally aggressive about deploying new software technology than the major manufacturers. Yes, they can catch up in those regards, but likely not for the next ~5 years or so which is going to be the crucial time period in terms of capturing the market.
- martin_bech 9y agoWhy? In all seriousness why? Neither Mazda nor Toyota, has an electric car, competetive batterytech, a charging network or practicly anything, that will give them an edge.
- stevecalifornia 9y agoCan someone explain the best method to purchase some of these bonds? I want to purchase a small amount that I am willing to lose ($3K - $10k).
- jonknee 9y agoTypically though your broker. Curious as to why you'd specifically want these bonds? Unlike stocks they have a fixed upside (5ish percent) and yet can still go to 0.
- neals 9y agoWhy would anybody buy them?
- bkanber 9y agoBonds are a healthy part of a diversified portfolio. There of course is risk to bonds. The bond market is less volatile than the stock market, which is what draws most investors to them. In poor market years bonds can yield more than equity. Bonds have a higher liquidation preference than equity, so if a company is going under you have a better chance of recouping some money. Bonds also pay their coupons on an annual or semi-annual basis and become income. Bonds can also be traded on the secondary market just like stock. Just like equity there's a ton of downsides to bonds as well, like interest rate risk, prepayment risk, credit/default risk. Bonds are rated by credit agencies, equity is not. In theory (though we've seen credit agencies fail time and time again), bond risk is better-understood and communicated than stock risk. Highly-rated corporate and government bonds are a good, stable place to store capital to protect against market volatility and inflation depreciation. For instance, when the global market took a hit last year, a ton of demand for US Treasury bonds was created. Investors bought US bonds at a loss (both on primary and secondary markets) because the loss was a well-understood, small amount (something like 1-2% over 10 years), rather than the totally unknown loss that the stock market would suffer. Junk bonds like this one are higher risk in exchange for higher yield. Junk bonds usually are issued either by companies on the way down (low confidence) or companies on the way up (no credit). If you're long on Tesla and believe they're in the "on the way up", adding these bonds to the portfolio could be a decent source of low volatility income. This isn't advice. Just explaining why people buy bonds!
- cinquemb 9y agoHell, at this point, why not an ICO? Would probably be the most reputable company to have one if they did…
- Etheryte 9y agoThe internet would downright explode if Τ became a digital currency of some sorts.
- foepys 9y ago1. Because you cannot dump 1.5 billion US-Dollar worth of any cryptocurrency on the market without crashing its price to zero. 2. No publicly traded company will step into the minefield of unregulated market that is cryptocurrency.
- cinquemb 9y agoWith regards to 1), does anyone know the extent they all USD $1.5B right away (outside of their sec filings)? Probably right on 2) to some (most?) degree, but big institutional players are making moves in cryptocurrency markets who might have pull over tesla and the ear of those at FINCEN/SEC, to get someone to give the rubber stamp green light on their "security"? Then again with gov bonds being oversubscribed in general, people are looking for more in the private market and Tesla is a realistic option?
- crb002 9y agoI see Ford offering up a Tesla drivetrain compatible body. The big boys just want to keep the lines pumping at current margins.
- kin 9y agoIt the fundraising really necessary or just a way to sort of overproduce in anticipation of high demand? As it is, they pretty much have that $1.5B in preorder money alone right? Unless, he's just somehow pouring extra money into SpaceX instead.
- spyspy 9y ago> Shares of Tesla, which have risen 67 percent this year, were down 9 cents at $356.82. That's 0.025%. Why was it even mentioned?
- atestu 9y agorobo-journalism?
- bostonpete 9y agoPeople are often interested in how the market reacts to major news/announcements by public companies. The fact that the news didn't move the needle significantly (i.e. investors don't seem to care) may be just as interesting to some as a major change in price...
- Tade0 9y agoIt's like those Twitter "storms" of 1000 retweets.
- nkohari 9y agoIt's standard procedure to quote the ticker price when a news article discusses a public company.
- londons_explore 9y agoSeems like free advertising for the services of the NASDAQ stock exchange...
- bob_loblaw 9y agoLook at AB 1184 in California. They are looking for more government money to offset their prices. Current stipends from Obama will reduce by half once they sell 200,000 cars. These reduced stipends will get cut in half after two quarters. They will go away after an additional two quarters. A majority of Model 3 preorders are actually for a $42,500 car instead of $35,000. They have to get that price back down.
- goeric 9y agoThe price is $35,000 before tax incentives.
- randomsearch 9y agoTesla's biggest threat is itself. Overstretching or a major technical error could kill the company. The next biggest threat is sabotage, legal attack, etc. from the old car manufacturers. Good old fashioned capitalism. If the competition remains free and open, ain't no way in hell a big Goliath that produces controlled explosion vehicles is going to compete with a company that knows software. The future of cars is software with hardware attached.
- bamboozled 9y ago_The future of cars is software with hardware attached._ IMO this is wrong, yeah there will be software, but combustion cars have computers too. I wouldn't buy a car that is connected 24/7 with closed source software monitoring me and my environment and sending data back to god knows where constantly as Tesla does. I often feel like Tesla would be better off just selling cars that run on electric motors before worrying about the "hi-tech" parts so much, which to be honest make the cars seem gimmicky and will date very quickly. This is probably the start of affordable "dumb" electric cars, which excites me more as person who cares for privacy and doesn't care for commuting long distances in a self-driving auto-carriage.