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It was a "worst case" target; the malfeasance is that it was placed too high. The equity will be wiped out if there's a restructuring. It's hard to imagine a fu

It was a "worst case" target; the malfeasance is that it was placed too high. The equity will be wiped out if there's a restructuring. It's hard to imagine a future where TSLA is worth a low, but nonzero amount - there is a ton of debt first in line. Tesla still has a non-zero risk of failing; what kind of "repercussion" do you believe there should be for pointing this out? In my opinion, the right way to value Tesla is to figure out the NPV of Musk's autonomous network vision and multiply it by the chance of getting there. It's not necessarily a bad investment, but it would be a crazy basket to put all your eggs in to. There's a reason the 2025 bonds are currently trading at a 9% yield...

hn_throwaway_99 7y ago
Exactly, and your post made me realize why Cramer is totally correct. Of course the worse case scenario is $0 - I don't think anyone really doubts there is a significant, non-zero possibility of Tesla going bankrupt. But saying that wouldn't get you in the news, so this analyst pulled the $10 number out of his ass to make it more newsworthy than just "Tesla could go bankrupt."
londons_explore 7y ago
If Tesla had any spare cash, surely the logical thing for them to do is buy up those 9 percent yield bonds. If they are still solvent on bond payout day, they have made a tidy profit. If they are not, it doesn't matter!
- zaroth 7y ago
  If a company can provide return on capital greater than 9%, then spending their money to get a 9% return is not actually a good investment. It’s more complicated than this because it’s expected rate of return with some variance, and deploying additional side-lined cash doesn’t always achieve the same return as the previous dollars, etc. etc. But it comes down to this; if the best thing a company has to do with its dollars is pay down debt, they are telling you that they couldn’t think of anything more reliably profitable or useful to do with the dollars than that.
  - reitzensteinm 7y ago
    Parent was talking about parking spare cash, so buying up bonds and selling them as an alternative to something like a money market account. Although for Tesla, it would be an alternative to paying down their ABL. A company that is cash flow positive and is looking for investment opportunities simply does not have bonds that yield 9%. Not in this millennium. In any case, I don't think you really hit on the reason not to do this. If you park your working capital in your own bonds, they're going to take a haircut when times get even worse, which is exactly when you'd be liquidating more of them. This could trivially turn in to an outright death spiral unless further funds can be raised from elsewhere. Probably not the bond market!

hn_throwaway_99 7y ago

Exactly, and your post made me realize why Cramer is totally correct. Of course the worse case scenario is $0 - I don't think anyone really doubts there is a significant, non-zero possibility of Tesla going bankrupt. But saying that wouldn't get you in the news, so this analyst pulled the $10 number out of his ass to make it more newsworthy than just "Tesla could go bankrupt."

londons_explore 7y ago

If Tesla had any spare cash, surely the logical thing for them to do is buy up those 9 percent yield bonds. If they are still solvent on bond payout day, they have made a tidy profit. If they are not, it doesn't matter!

zaroth 7y ago
If a company can provide return on capital greater than 9%, then spending their money to get a 9% return is not actually a good investment. It’s more complicated than this because it’s expected rate of return with some variance, and deploying additional side-lined cash doesn’t always achieve the same return as the previous dollars, etc. etc. But it comes down to this; if the best thing a company has to do with its dollars is pay down debt, they are telling you that they couldn’t think of anything more reliably profitable or useful to do with the dollars than that.
- reitzensteinm 7y ago
  Parent was talking about parking spare cash, so buying up bonds and selling them as an alternative to something like a money market account. Although for Tesla, it would be an alternative to paying down their ABL. A company that is cash flow positive and is looking for investment opportunities simply does not have bonds that yield 9%. Not in this millennium. In any case, I don't think you really hit on the reason not to do this. If you park your working capital in your own bonds, they're going to take a haircut when times get even worse, which is exactly when you'd be liquidating more of them. This could trivially turn in to an outright death spiral unless further funds can be raised from elsewhere. Probably not the bond market!