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How? how does this work? Tesla sells a fraction of the cars that other do yet their value is absolutely insane. So in essence you could build a company that pr

How? how does this work? Tesla sells a fraction of the cars that other do yet their value is absolutely insane. So in essence you could build a company that produces a marginal product but over hype it to a point where your stock price is high enough that you can just aquire your competitor?

mamon 6y ago
It's a new take on the trick that many startups pulled off in the past: grow fast enough to draw atention, then get acquired. Now, since Tesla's growth has been beyond crazy, they might do the opposite: acquire some established automaker and then, finally, Tesla will get the much needed expertise in car manufacturing business. On the bright side: maybe Teslas will finally get some polish and lose the "overpriced crap" vibe.
- jannotti 6y ago
  That was AOL / Time Warner, right?
toomuchtodo 6y ago
That is how capital markets work. Information->pricing->the right to allocate capital. The market has decided Tesla is more valuable than legacy automakers. Tesla has demonstrated execution, now they need all the manufacturing capacity they can afford.
- marcusverus 6y ago
  >The market has decided Tesla is more valuable than legacy automakers. I think a more accurate way to describe this would be "The market is speculating that Tesla will eventually be more valuable than legacy automakers."
  - deleted 6y ago
    [deleted]
  - innagadadavida 6y ago
    Market is also betting on Elon to make it all happen. Only time will tell if all these speculations are sustainable over a long term - beyond Elon.
- s1artibartfast 6y ago
  My problem with capital markets in general is that a high Tesla market cap/price does not translate 1:1 to the right to allocate capital. Tesla doesn't see capital when shares sell in the secondary market. The company raised ~225 million in the IPO at a split adjusted price of $3.5/share. That stock is now worth $580/share and not a penny of that increase went to the company. Similarly, the market cap at IPO in 2010 was $1.7 billion and is now $580 billion. The company can get some benefit from high market cap and valuation through borrowing and secondary stock offerings. Since 2010, Tesla has raised about $6 billion in secondary stock sales, which can actually invested in production. But this is about 1% of the cash spent by investors to purchase public stock from each other.
  - MuffinFlavored 6y ago
    > and not a penny of that increase went to the company. I think they might have raised a bit / issued more shares since IPO (not sure) Slightly different question: if the stock price increasing doesn't really gain the company any money, why are board executives typically concerned about share price performance? Obviously because they get paid in grants, but... are there any other reasons that actually benefit the company itself instead of the shareholders?
    - s1artibartfast 6y ago
      As I mentioned above, Tesla has issued about $6 billion worth of stock since the IPO, So it is not like there is absolutely no benefit to the company, but is just a small fraction of the amount of money that pours into the stock. >if the stock price increasing doesn't really gain the company any money, why are board executives typically concerned about share price performance? Obviously because they get paid in grants, but... are there any other reasons that actually benefit the company itself instead of the shareholders? Board executives represent the interests of the shareholders, not the company. The shareholders literally own the company, and can call a vote to replace the board members. Hell, if the shareholders think it is more valuable to liquidate the company and cash out, they can do it.
- robodale 6y ago
  As an "armchair manufacturing engineer", why would they want to buy manufacturing capacity? I would think the effort to (a) install Tesla machines/people in existing rectangle buildings is not much less effort than (b)install Tesla machines/people in NEW rectangle buildings. EDIT: Making new buildings is the easy part?
  - toomuchtodo 6y ago
    Tesla still has a ways to go in manufacturing experience, based on the build quality of our Teslas (S, X, Y). Perhaps the value isn't in the existing manufacturing machinery and building capacity, but in a workforce that already has experience building products with a focus on quality. You want those folks building Teslas. A merger with an established automaker (VW?) would be similar to an enormous acquihire by Musk (with the capital markets backing him).
yarg 6y ago
Either you need to raise enough money to buy the competitor, or you need to convince the competitor of what constitutes a fair merger. Tesla is overvalued, but either we start producing our fuel with electricity or ICE vehicles are doomed - once the price is right. Other vehicle makers will at very least be interested in diversifying - if not going full electric. Tesla has done lesser deals with other manufacturers before - as stated by the article - so a full on merger cannot be assumed to be the only thing on the table. Other desirable agreements might be for things like access to technology (e.g.: batteries) or licenses for Tesla technology - although the former will be dictated largely by the relative production rates (and ramp rates) for the different pieces of all the Tesla pies. Does anyone know how invasive the hardware for Tesla's self driving is?

mamon 6y ago

It's a new take on the trick that many startups pulled off in the past: grow fast enough to draw atention, then get acquired. Now, since Tesla's growth has been beyond crazy, they might do the opposite: acquire some established automaker and then, finally, Tesla will get the much needed expertise in car manufacturing business. On the bright side: maybe Teslas will finally get some polish and lose the "overpriced crap" vibe.

jannotti 6y ago
That was AOL / Time Warner, right?

toomuchtodo 6y ago

That is how capital markets work. Information->pricing->the right to allocate capital. The market has decided Tesla is more valuable than legacy automakers. Tesla has demonstrated execution, now they need all the manufacturing capacity they can afford.

marcusverus 6y ago
>The market has decided Tesla is more valuable than legacy automakers. I think a more accurate way to describe this would be "The market is speculating that Tesla will eventually be more valuable than legacy automakers."
- deleted 6y ago
  [deleted]
- innagadadavida 6y ago
  Market is also betting on Elon to make it all happen. Only time will tell if all these speculations are sustainable over a long term - beyond Elon.
s1artibartfast 6y ago
My problem with capital markets in general is that a high Tesla market cap/price does not translate 1:1 to the right to allocate capital. Tesla doesn't see capital when shares sell in the secondary market. The company raised ~225 million in the IPO at a split adjusted price of $3.5/share. That stock is now worth $580/share and not a penny of that increase went to the company. Similarly, the market cap at IPO in 2010 was $1.7 billion and is now $580 billion. The company can get some benefit from high market cap and valuation through borrowing and secondary stock offerings. Since 2010, Tesla has raised about $6 billion in secondary stock sales, which can actually invested in production. But this is about 1% of the cash spent by investors to purchase public stock from each other.
- MuffinFlavored 6y ago
  > and not a penny of that increase went to the company. I think they might have raised a bit / issued more shares since IPO (not sure) Slightly different question: if the stock price increasing doesn't really gain the company any money, why are board executives typically concerned about share price performance? Obviously because they get paid in grants, but... are there any other reasons that actually benefit the company itself instead of the shareholders?
  - s1artibartfast 6y ago
    As I mentioned above, Tesla has issued about $6 billion worth of stock since the IPO, So it is not like there is absolutely no benefit to the company, but is just a small fraction of the amount of money that pours into the stock. >if the stock price increasing doesn't really gain the company any money, why are board executives typically concerned about share price performance? Obviously because they get paid in grants, but... are there any other reasons that actually benefit the company itself instead of the shareholders? Board executives represent the interests of the shareholders, not the company. The shareholders literally own the company, and can call a vote to replace the board members. Hell, if the shareholders think it is more valuable to liquidate the company and cash out, they can do it.
robodale 6y ago
As an "armchair manufacturing engineer", why would they want to buy manufacturing capacity? I would think the effort to (a) install Tesla machines/people in existing rectangle buildings is not much less effort than (b)install Tesla machines/people in NEW rectangle buildings. EDIT: Making new buildings is the easy part?
- toomuchtodo 6y ago
  Tesla still has a ways to go in manufacturing experience, based on the build quality of our Teslas (S, X, Y). Perhaps the value isn't in the existing manufacturing machinery and building capacity, but in a workforce that already has experience building products with a focus on quality. You want those folks building Teslas. A merger with an established automaker (VW?) would be similar to an enormous acquihire by Musk (with the capital markets backing him).

yarg 6y ago

Either you need to raise enough money to buy the competitor, or you need to convince the competitor of what constitutes a fair merger. Tesla is overvalued, but either we start producing our fuel with electricity or ICE vehicles are doomed - once the price is right. Other vehicle makers will at very least be interested in diversifying - if not going full electric. Tesla has done lesser deals with other manufacturers before - as stated by the article - so a full on merger cannot be assumed to be the only thing on the table. Other desirable agreements might be for things like access to technology (e.g.: batteries) or licenses for Tesla technology - although the former will be dictated largely by the relative production rates (and ramp rates) for the different pieces of all the Tesla pies. Does anyone know how invasive the hardware for Tesla's self driving is?