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My understanding is that the majority of his personal net worth is from Tesla (+Solar City) and SpaceX. Would that limit his ability to personally fund Tesla?

by amarka 8y ago

w1 8y ago
Just did some rough math on this. He's reported to have 55% of SpaceX, recently valued at 27.5B [1], and ~19% of Tesla [2], most recently at ~44B, for a combined net worth of ~23B (before any debt). He therefore definitely couldn't personally buy out Tesla at current prices, and any significant investment of personal funds would require the sale of SpaceX shares. Also, much of his liquid pocket money has come from loans backed by his Tesla Stock. This could be a problem if Tesla stock price drops too much, as the stock he has pledge is required to be no less than a multiple of the money he has borrowed. [3] Disclosure: I am short Tesla. [1] https://www.cnbc.com/2018/04/13/equidate-spacex-27-billion-valuation-shows-unlimited-private-funding-available.html https://www.cnbc.com/2018/04/13/equidate-spacex-27-billion-v... [2] https://money.usnews.com/investing/stock-market-news/articles/2018-06-14/tesla-inc-tsla-stock https://money.usnews.com/investing/stock-market-news/article... [3] https://www.forbes.com/sites/jimcollins/2018/05/18/musk-has-heavily-leveraged-his-holdings-of-tesla-while-teslas-financial-leverage-has-jumped/#1d93716a7099 https://www.forbes.com/sites/jimcollins/2018/05/18/musk-has-...
- bfwi 8y ago
  Thanks for the facts. You state that he can't buy out Tesla, which is true. But why does he need to buy out Tesla to cover their debt? On the contrary he would need to sell some of his Tesla (and perhaps SpaceX) stock and give the cash to Tesla to cover their debt.
  - w1 8y ago
    Those are really good questions. I don't know what form a transfer of cash from Elon to Tesla like that would take. Tesla issuing new shares for him to buy? Honestly, on paper there isn't any reason why Tesla can't just sell additional shares to the market in general, not necessarily just to Elon, in order to get enough money to cover their upcoming debt payments. Elon has publicly said he won't sell shares because Tesla won't need the money because it will be profitable[1], but some people are skeptical [2]. Maybe he just doesn't want to walk back his statement? Also as previously mentioned, he can't sell all of his Tesla stock without paying back some of his personal loans. [1] https://www.cnbc.com/2018/08/01/musk-says-tesla-wont-be-selling-stock.html https://www.cnbc.com/2018/08/01/musk-says-tesla-wont-be-sell... [2] https://www.businessinsider.com/teslas-upcoming-debt-payments-could-be-a-big-challenge-experts-2018-10?r=UK&IR=T https://www.businessinsider.com/teslas-upcoming-debt-payment...
    - Latteland 8y ago
      You seem to have some reasonable answers about tesla, what do you think about tesla's increasing sales & production of model 3 producing postive cash flow, since they are now in the mass production and away from the thrashing around trying to increase production phase (and hopefully not digging a hole and burning it kind of like the poorly executed early "production hell"). If they make & sell 50k model 3s per quarter at 60k and make 25-30% margin, that's $750 million (50k60k.25). That is approaching a sustainable business if they produce $3 billion a year. Take out say a billion in infrastructure spending (new stores, super chargers, etc), that looks much better than losing 700 million a quarter. I thought they were losing money because of wasteful production ramup.
      - w1 8y ago
        Thank you, being reasonable is really important, and being unreasonable when investing can be very expensive! Producing 55k Model 3's per quarter [1] will definitely help with the cash flow situation. I think the biggest questions that determine if they can be self-sustaining are: - Can they ramp up Model 3 production quickly enough to meet the debt obligations they have accumulated to date? - What will the average Model 3 margin be, given the price distribution from 60k to 35k? The bull case [2] aligns with your basic assumptions that the 3 will add significant cash flow that allows them to get over the "debt maturity hump". Note that their analysis does include other sources of cash flow (energy credits, remaining line of credit). The bear case, basically, disagrees. They suppose that there will not be sufficient demand for the higher end Model 3, given increased competition from vehicles like 2019 Jaguar I-Pace (69.5k, 240mi); Chevy Bolt (37.5k, 235mi); and maybe Hyundai Kona EV (? $, 250 mi). This could then put Tesla into a negative spiral, where shrinking orders cause their accounts payable to not keep up with their lagged accounts receivable. Also it's worth noting that they are probably on track to spend 2.5B in capital on PP&E this year based on 1.25B in first six months [3], and spent 3.6B, 1.3B, and 1.6B in the previous three years[4]. Adding in another 0.75 - 1.0 in selling/general/admin and R&D costs per quarter, on top of the cost of producing their cars and servicing their debt, makes even the 3B/yr in Model 3 gross profit case less of a slam dunk for Tesla success. I think it really could go either way at this point, and the next six months will be telling. Elon does has a tendency to just make things work, but I am taking a risk here and siding more with the negative case. [1] https://www.bloomberg.com/graphics/2018-tesla-tracker/ https://www.bloomberg.com/graphics/2018-tesla-tracker/ [2] https://www.cnbc.com/2018/10/09/tesla-on-path-to-profitability-this-year-and-70percent-stock-gain-analyst.html https://www.cnbc.com/2018/10/09/tesla-on-path-to-profitabili... [3] http://ir.tesla.com/node/18946/html http://ir.tesla.com/node/18946/html [4] http://ir.tesla.com/node/18501/html http://ir.tesla.com/node/18501/html

My understanding is that the majority of his personal net worth is from Tesla (+Solar City) and SpaceX. Would that limit his ability to personally fund Tesla?

by amarka 8y ago

My understanding is that the majority of his personal net worth is from Tesla (+Solar City) and SpaceX. Would that limit his ability to personally fund Tesla?

w1 8y ago

Just did some rough math on this. He's reported to have 55% of SpaceX, recently valued at 27.5B [1], and ~19% of Tesla [2], most recently at ~44B, for a combined net worth of ~23B (before any debt). He therefore definitely couldn't personally buy out Tesla at current prices, and any significant investment of personal funds would require the sale of SpaceX shares. Also, much of his liquid pocket money has come from loans backed by his Tesla Stock. This could be a problem if Tesla stock price drops too much, as the stock he has pledge is required to be no less than a multiple of the money he has borrowed. [3] Disclosure: I am short Tesla. [1] https://www.cnbc.com/2018/04/13/equidate-spacex-27-billion-valuation-shows-unlimited-private-funding-available.html https://www.cnbc.com/2018/04/13/equidate-spacex-27-billion-v... [2] https://money.usnews.com/investing/stock-market-news/articles/2018-06-14/tesla-inc-tsla-stock https://money.usnews.com/investing/stock-market-news/article... [3] https://www.forbes.com/sites/jimcollins/2018/05/18/musk-has-heavily-leveraged-his-holdings-of-tesla-while-teslas-financial-leverage-has-jumped/#1d93716a7099 https://www.forbes.com/sites/jimcollins/2018/05/18/musk-has-...

bfwi 8y ago
Thanks for the facts. You state that he can't buy out Tesla, which is true. But why does he need to buy out Tesla to cover their debt? On the contrary he would need to sell some of his Tesla (and perhaps SpaceX) stock and give the cash to Tesla to cover their debt.
- w1 8y ago
  Those are really good questions. I don't know what form a transfer of cash from Elon to Tesla like that would take. Tesla issuing new shares for him to buy? Honestly, on paper there isn't any reason why Tesla can't just sell additional shares to the market in general, not necessarily just to Elon, in order to get enough money to cover their upcoming debt payments. Elon has publicly said he won't sell shares because Tesla won't need the money because it will be profitable[1], but some people are skeptical [2]. Maybe he just doesn't want to walk back his statement? Also as previously mentioned, he can't sell all of his Tesla stock without paying back some of his personal loans. [1] https://www.cnbc.com/2018/08/01/musk-says-tesla-wont-be-selling-stock.html https://www.cnbc.com/2018/08/01/musk-says-tesla-wont-be-sell... [2] https://www.businessinsider.com/teslas-upcoming-debt-payments-could-be-a-big-challenge-experts-2018-10?r=UK&IR=T https://www.businessinsider.com/teslas-upcoming-debt-payment...
  - Latteland 8y ago
    You seem to have some reasonable answers about tesla, what do you think about tesla's increasing sales & production of model 3 producing postive cash flow, since they are now in the mass production and away from the thrashing around trying to increase production phase (and hopefully not digging a hole and burning it kind of like the poorly executed early "production hell"). If they make & sell 50k model 3s per quarter at 60k and make 25-30% margin, that's $750 million (50k60k.25). That is approaching a sustainable business if they produce $3 billion a year. Take out say a billion in infrastructure spending (new stores, super chargers, etc), that looks much better than losing 700 million a quarter. I thought they were losing money because of wasteful production ramup.
    - w1 8y ago
      Thank you, being reasonable is really important, and being unreasonable when investing can be very expensive! Producing 55k Model 3's per quarter [1] will definitely help with the cash flow situation. I think the biggest questions that determine if they can be self-sustaining are: - Can they ramp up Model 3 production quickly enough to meet the debt obligations they have accumulated to date? - What will the average Model 3 margin be, given the price distribution from 60k to 35k? The bull case [2] aligns with your basic assumptions that the 3 will add significant cash flow that allows them to get over the "debt maturity hump". Note that their analysis does include other sources of cash flow (energy credits, remaining line of credit). The bear case, basically, disagrees. They suppose that there will not be sufficient demand for the higher end Model 3, given increased competition from vehicles like 2019 Jaguar I-Pace (69.5k, 240mi); Chevy Bolt (37.5k, 235mi); and maybe Hyundai Kona EV (? $, 250 mi). This could then put Tesla into a negative spiral, where shrinking orders cause their accounts payable to not keep up with their lagged accounts receivable. Also it's worth noting that they are probably on track to spend 2.5B in capital on PP&E this year based on 1.25B in first six months [3], and spent 3.6B, 1.3B, and 1.6B in the previous three years[4]. Adding in another 0.75 - 1.0 in selling/general/admin and R&D costs per quarter, on top of the cost of producing their cars and servicing their debt, makes even the 3B/yr in Model 3 gross profit case less of a slam dunk for Tesla success. I think it really could go either way at this point, and the next six months will be telling. Elon does has a tendency to just make things work, but I am taking a risk here and siding more with the negative case. [1] https://www.bloomberg.com/graphics/2018-tesla-tracker/ https://www.bloomberg.com/graphics/2018-tesla-tracker/ [2] https://www.cnbc.com/2018/10/09/tesla-on-path-to-profitability-this-year-and-70percent-stock-gain-analyst.html https://www.cnbc.com/2018/10/09/tesla-on-path-to-profitabili... [3] http://ir.tesla.com/node/18946/html http://ir.tesla.com/node/18946/html [4] http://ir.tesla.com/node/18501/html http://ir.tesla.com/node/18501/html