14 ms·

Tesla to raise up to $5B in share offering, its second in three months

49 points by miked85 6y ago

RivieraKid 6y ago
Of course. It's basically free money at this stock price.
samfisher83 6y ago
At their valuation this would be the perfect time to raise more capital. You don't dilute the shares much. At 600 billion dollar valuation you are assuming rates will be 0 for a while and that tesla will be more profitable than any existing car company by a bit.
- deleted 6y ago
  [deleted]
- grey-area 6y ago
  At that valuation of 600B the assumption is that they’ll be more profitable than all the other leading car companies combined! Their current valuation is not justified by even the most optimistic projections IMO, though their holistic view of energy should help (they can become a lifestyle brand, not just a car company), but it’ll take a decade to grow into this valuation. Even Musk thought it was overvalued and said so twice this year when it was worth a lot less. As you say that makes this the perfect time to raise (again).
  - bryanlarsen 6y ago
    Most of the other large car companies have debt loads over $100 billion. This means two things: - they have significant amounts of capitalization that don't show up in their market capitalization. "Enterprise Value" (which includes debt) is a more accurate representation of their size. - Their stock prices reflect a significant risk of bankruptcy. If Ford doesn't go bankrupt, it's worth a lot more than $9. If it does, it's worth $0. This analyst rates that probability at 42%: https://www.macroaxis.com/invest/ratio/F/Probability-Of-Bankruptcy https://www.macroaxis.com/invest/ratio/F/Probability-Of-Bank...
    - mdorazio 6y ago
      I'm guessing you purposely left out the Japanese OEMs in your assessment? Their debt to equity ratios are pretty low.
      - bryanlarsen 6y ago
        Correct, I should have put more qualification on "most".
    - SilasX 6y ago
      Hm, wouldn't you want to look at Ford credit default swaps to quantify that? Here's what I found for Ford CDS price history, don't know offhand how to translate that into a bankruptcy probability: https://www.assetmacro.com/united-states/credit-default-swaps-cds/ford-motor-company-credit-default-swaps-f-3y-cds/ https://www.assetmacro.com/united-states/credit-default-swap...
      - lordnacho 6y ago
        Long, long time since I did this, but back then you made an assumption that you'd get 40% of the bond's principle in case of a default. I recently asked a credit guy about this and he also gave me this magic figure. So from there you basically are saying at 100% chance of default, you get 40, and at zero you get 100. That gives you some amount that balances the payment from the CDS with the value of the bonds.
    - grey-area 6y ago
      The largest competitors now are Toyota, VW, Daimler, GM, Honda. Their combined market cap is about 400B. Do those companies have high debt loads? I agree competitors will be in trouble in the coming EV transition and some are discounted, but I do also think Tesla is now vastly overvalued by the market. They've only just started making a profit, and they are still burning huge amounts of cash. I wouldn't be worried about solvency but I would worry that the future return promised by their valuation is extraordinary. Tesla has risen 800% in the last year, that seems to be unjustified by their progress in the same time frame.
- onetimemanytime 6y ago
  The thinking, right or wrong, goes that Tesla will do more than cars. Like batteries for consumers, utilities, homes, states... IMO it's overpriced but what the hell do I know. I thought Google was overpriced in 2010
  - xiphias2 6y ago
    Whether these are overpriced depends on how low rates you can get. Would you say Tesla is a bad trade if you would get a debt with 2% yearly rate that you have to give back in 30 years?
    - staticman2 6y ago
      Whether Tesla is a bad trade depends on how it compares to other Stock. Whether you can buy it on margin has nothing to do with anything.
      - xiphias2 6y ago
        Not really, as bonds are printed and bought quite rapidly, the FED has QE infinity policy at this point, and a big part of the money goes to the stock market
        staticman2 6y ago
        I don't follow. Why would you invest in Tesla rather than any other stock? The answer has nothing to do with interest rates unless interest rates uniquely effect Tesla.
        xiphias2 6y ago
        Why not all of them? I'm just saying that the discount rate is an important part of why Tesla stock is so high: high growth with extremely low discount rate can get these valuations that look overpriced. As for me personally, I'm not a bank, so I don't have access to cheap loans.
anonymouse008 6y ago
Does anyone have any insight as to why this is offered at the market? Avoiding fees? Fiduciary Responsibilities? This is the second at the market offering for Tesla, and I know Elon understands the stock market better than most, so there must be a long term reason.
- deleted 6y ago
  [deleted]
- neural_thing 6y ago
  Because it's an insanely overvalued stock with questionable accounting and a retail cult following. No bank wants to pitch it to clients with whom they'll work again, but dumping it on the market makes sense, retail will gobble it up.
  - anonymouse008 6y ago
    Yeah, that’s kinda what it feels like... I’m surprised the sp wants this much volatility. Hell I’m in though - last 15mins of MWF have been a lot of fun this year.
- Hjfrf 6y ago
  Elon knows exactly why - https://mobile.twitter.com/elonmusk/status/1256239815256797184 https://mobile.twitter.com/elonmusk/status/12562398152567971...
onetimemanytime 6y ago
Smart, super smart. I'd pay all the debt and have 2 year runaway for next to nothing in shares (relatively speaking)
- beefield 6y ago
  I am not sure if that move is especially smart. More like not being a complete idiot by not taking the almost free money people are trying to shove on your bank account.
H8crilA 6y ago
Amateurs. With this level of overvaluation you raise 25%-50% of market cap (could be via acquisitions), and then you actually have a shot at making self driving cars and other moonshots.
- onetimemanytime 6y ago
  No,because the stock will crash (faster). Loses for many, many years. Also with all that cash a firm might launch a takeover--using that cash, if Tesla is ever weakened enough
  - bradleyjg 6y ago
    They have robust anti-takeover provisions like most companies since Delaware turned so hostile to shareholders.
- hasuej 6y ago
  they already are making self driving cars
- xiphias2 6y ago
  They would do it if they could, but they have to raise money without decreasing shareholder confidence. It seems like diluting by 1% every quarter is fine.
- tanto 6y ago
  It’s not like 600B evaluation is equal to being able to sell for 600B. Let me explain. If you got a company named T with a total of 100 shares. Now they want to raise money and someone is willing to pay $10 for a share. You get a market cap of $1000. They create the extra share and someone is still willing to pay $10 a share. Magically they are worth $1010. Now T is selling the share for $10 and the next guy willing to buy only wants to pay $9. Magically the market cap drops to $909. Right now many Tesla share owners believe they will get rich by holding. Someday all of them might realize at the same time everybody is holding and decide to sell. If that day is tomorrow it will not be 600B actual dollars changing ownership. If Tesla would raise 25% market cap they would destroy the stock. I guess it might take at least a month or more for the market to absorb 1% new shares. Right now we have a market where a lot of people sold and the same or new investors freshly bought again and are optimistic. We got many people buying and not so much selling. Market cap is in a way a to simplistic metric.
tuyguntn 6y ago
with this valuation, I would instead sell half of company and acquire GM and Ford for that money, then it would definitely be 600B company, as a bonus I might as well add some smaller companies just in case like Hyliion UPD: will acquire Boeing as well
- DarmokJalad1701 6y ago
  > acquire GM and Ford Why take on all the baggage?
  - tuyguntn 6y ago
    because they really produce lots of cars every year, they do have facilities to produce as many cars as you want and their respective revenues are 130B and 150B, +Boeing 75B.
    - DarmokJalad1701 6y ago
      Producing ICE cars isn't the same as making EVs. A good example of this is Tesla's Fremont factory (which used to be a GM/Toyota facility) and their Shanghai Gigafactory. The layout of the Fremont one contributed to significant inefficiencies in manufacturing compared to GF3 which was built from scratch for EVs. Buying Ford and GM would also mean taking on the baggage of hundreds of billions in debt, pension obligations, employees with minimal experience in building batteries/drivetrains/EVs, a dealership network that doesn't want to sell EVs and the old guard that has no desire to innovate. Tesla uses manufacturing methods no other OEM does (e.g. Giga-press casting machine for Model Y/3 - https://en.wikipedia.org/wiki/Giga_Press https://en.wikipedia.org/wiki/Giga_Press). The facilities they are currently building are massive compared to Ford/GM's factories. They vertically integrate, soon going all the way down to cell manufacturing/lithium mining. Buying an incumbent OEM would end up a burden.
      - tuyguntn 6y ago
        EVs are not something only some companies or people can do, they can be replicated by any car company at this moment, look EU companies, Renault and Volkswagen are already in top by selling electric cars across Europe. Also GM is working on EVs, their Electric Hummer maybe released soon as well
spikels 6y ago
Very smart. Tesla joins the S&P500 in 13 days. Investors tied to this index are short at least $100 billion in stock. A $5 billion offering will have little impact on existing shareholders but take advantage of the high stock price.
JohnJamesRambo 6y ago
I don't understand anything about Tesla valuation anymore. It's like watching Theranos and Enron (Tesla is currently 10x Enron market cap at peak) happen at an even larger scale from memes and hope and hero worship and fuzzy math. It's 2.6x Toyota's market cap now and Toyota made 24x as many cars in 2019. I don't see any way "future performance" can make those numbers ever work. And I assume that is why they keep shoveling this crap to retail investors.
- deleted 6y ago
  [deleted]
- elcomet 6y ago
  Probably because some investors believe that Tesla will achieve full self driving in the next 5/10 years. If this happens, Tesla might be worth much more than 2x Toyota.
- burnte 6y ago
  Tesla has something Theranos and Enron never had: actual products you can buy and that have a real market. Theranos had a pied piper song, and Enron became trading platform with cooked books.
ohiovr 6y ago
Tesla sells more stock than cars.

49 points by miked85 6y ago

Of course. It's basically free money at this stock price.

At their valuation this would be the perfect time to raise more capital. You don't dilute the shares much. At 600 billion dollar valuation you are assuming rates will be 0 for a while and that tesla will be more profitable than any existing car company by a bit.

deleted 6y ago
[deleted]
grey-area 6y ago
At that valuation of 600B the assumption is that they’ll be more profitable than all the other leading car companies combined! Their current valuation is not justified by even the most optimistic projections IMO, though their holistic view of energy should help (they can become a lifestyle brand, not just a car company), but it’ll take a decade to grow into this valuation. Even Musk thought it was overvalued and said so twice this year when it was worth a lot less. As you say that makes this the perfect time to raise (again).
- bryanlarsen 6y ago
  Most of the other large car companies have debt loads over $100 billion. This means two things: - they have significant amounts of capitalization that don't show up in their market capitalization. "Enterprise Value" (which includes debt) is a more accurate representation of their size. - Their stock prices reflect a significant risk of bankruptcy. If Ford doesn't go bankrupt, it's worth a lot more than $9. If it does, it's worth $0. This analyst rates that probability at 42%: https://www.macroaxis.com/invest/ratio/F/Probability-Of-Bankruptcy https://www.macroaxis.com/invest/ratio/F/Probability-Of-Bank...
  - mdorazio 6y ago
    I'm guessing you purposely left out the Japanese OEMs in your assessment? Their debt to equity ratios are pretty low.
    - bryanlarsen 6y ago
      Correct, I should have put more qualification on "most".
  - SilasX 6y ago
    Hm, wouldn't you want to look at Ford credit default swaps to quantify that? Here's what I found for Ford CDS price history, don't know offhand how to translate that into a bankruptcy probability: https://www.assetmacro.com/united-states/credit-default-swaps-cds/ford-motor-company-credit-default-swaps-f-3y-cds/ https://www.assetmacro.com/united-states/credit-default-swap...
    - lordnacho 6y ago
      Long, long time since I did this, but back then you made an assumption that you'd get 40% of the bond's principle in case of a default. I recently asked a credit guy about this and he also gave me this magic figure. So from there you basically are saying at 100% chance of default, you get 40, and at zero you get 100. That gives you some amount that balances the payment from the CDS with the value of the bonds.
  - grey-area 6y ago
    The largest competitors now are Toyota, VW, Daimler, GM, Honda. Their combined market cap is about 400B. Do those companies have high debt loads? I agree competitors will be in trouble in the coming EV transition and some are discounted, but I do also think Tesla is now vastly overvalued by the market. They've only just started making a profit, and they are still burning huge amounts of cash. I wouldn't be worried about solvency but I would worry that the future return promised by their valuation is extraordinary. Tesla has risen 800% in the last year, that seems to be unjustified by their progress in the same time frame.
onetimemanytime 6y ago
The thinking, right or wrong, goes that Tesla will do more than cars. Like batteries for consumers, utilities, homes, states... IMO it's overpriced but what the hell do I know. I thought Google was overpriced in 2010
- xiphias2 6y ago
  Whether these are overpriced depends on how low rates you can get. Would you say Tesla is a bad trade if you would get a debt with 2% yearly rate that you have to give back in 30 years?
  - staticman2 6y ago
    Whether Tesla is a bad trade depends on how it compares to other Stock. Whether you can buy it on margin has nothing to do with anything.
    - xiphias2 6y ago
      Not really, as bonds are printed and bought quite rapidly, the FED has QE infinity policy at this point, and a big part of the money goes to the stock market
      - staticman2 6y ago
        I don't follow. Why would you invest in Tesla rather than any other stock? The answer has nothing to do with interest rates unless interest rates uniquely effect Tesla.
        xiphias2 6y ago
        Why not all of them? I'm just saying that the discount rate is an important part of why Tesla stock is so high: high growth with extremely low discount rate can get these valuations that look overpriced. As for me personally, I'm not a bank, so I don't have access to cheap loans.

anonymouse008 6y ago

Does anyone have any insight as to why this is offered at the market? Avoiding fees? Fiduciary Responsibilities? This is the second at the market offering for Tesla, and I know Elon understands the stock market better than most, so there must be a long term reason.

deleted 6y ago
[deleted]
neural_thing 6y ago
Because it's an insanely overvalued stock with questionable accounting and a retail cult following. No bank wants to pitch it to clients with whom they'll work again, but dumping it on the market makes sense, retail will gobble it up.
- anonymouse008 6y ago
  Yeah, that’s kinda what it feels like... I’m surprised the sp wants this much volatility. Hell I’m in though - last 15mins of MWF have been a lot of fun this year.
Hjfrf 6y ago
Elon knows exactly why - https://mobile.twitter.com/elonmusk/status/1256239815256797184 https://mobile.twitter.com/elonmusk/status/12562398152567971...

onetimemanytime 6y ago

Smart, super smart. I'd pay all the debt and have 2 year runaway for next to nothing in shares (relatively speaking)

beefield 6y ago
I am not sure if that move is especially smart. More like not being a complete idiot by not taking the almost free money people are trying to shove on your bank account.

H8crilA 6y ago

Amateurs. With this level of overvaluation you raise 25%-50% of market cap (could be via acquisitions), and then you actually have a shot at making self driving cars and other moonshots.

onetimemanytime 6y ago
No,because the stock will crash (faster). Loses for many, many years. Also with all that cash a firm might launch a takeover--using that cash, if Tesla is ever weakened enough
- bradleyjg 6y ago
  They have robust anti-takeover provisions like most companies since Delaware turned so hostile to shareholders.
hasuej 6y ago
they already are making self driving cars
xiphias2 6y ago
They would do it if they could, but they have to raise money without decreasing shareholder confidence. It seems like diluting by 1% every quarter is fine.
tanto 6y ago
It’s not like 600B evaluation is equal to being able to sell for 600B. Let me explain. If you got a company named T with a total of 100 shares. Now they want to raise money and someone is willing to pay $10 for a share. You get a market cap of $1000. They create the extra share and someone is still willing to pay $10 a share. Magically they are worth $1010. Now T is selling the share for $10 and the next guy willing to buy only wants to pay $9. Magically the market cap drops to $909. Right now many Tesla share owners believe they will get rich by holding. Someday all of them might realize at the same time everybody is holding and decide to sell. If that day is tomorrow it will not be 600B actual dollars changing ownership. If Tesla would raise 25% market cap they would destroy the stock. I guess it might take at least a month or more for the market to absorb 1% new shares. Right now we have a market where a lot of people sold and the same or new investors freshly bought again and are optimistic. We got many people buying and not so much selling. Market cap is in a way a to simplistic metric.

tuyguntn 6y ago

with this valuation, I would instead sell half of company and acquire GM and Ford for that money, then it would definitely be 600B company, as a bonus I might as well add some smaller companies just in case like Hyliion UPD: will acquire Boeing as well

DarmokJalad1701 6y ago
> acquire GM and Ford Why take on all the baggage?
- tuyguntn 6y ago
  because they really produce lots of cars every year, they do have facilities to produce as many cars as you want and their respective revenues are 130B and 150B, +Boeing 75B.
  - DarmokJalad1701 6y ago
    Producing ICE cars isn't the same as making EVs. A good example of this is Tesla's Fremont factory (which used to be a GM/Toyota facility) and their Shanghai Gigafactory. The layout of the Fremont one contributed to significant inefficiencies in manufacturing compared to GF3 which was built from scratch for EVs. Buying Ford and GM would also mean taking on the baggage of hundreds of billions in debt, pension obligations, employees with minimal experience in building batteries/drivetrains/EVs, a dealership network that doesn't want to sell EVs and the old guard that has no desire to innovate. Tesla uses manufacturing methods no other OEM does (e.g. Giga-press casting machine for Model Y/3 - https://en.wikipedia.org/wiki/Giga_Press https://en.wikipedia.org/wiki/Giga_Press). The facilities they are currently building are massive compared to Ford/GM's factories. They vertically integrate, soon going all the way down to cell manufacturing/lithium mining. Buying an incumbent OEM would end up a burden.
    - tuyguntn 6y ago
      EVs are not something only some companies or people can do, they can be replicated by any car company at this moment, look EU companies, Renault and Volkswagen are already in top by selling electric cars across Europe. Also GM is working on EVs, their Electric Hummer maybe released soon as well

spikels 6y ago

Very smart. Tesla joins the S&P500 in 13 days. Investors tied to this index are short at least $100 billion in stock. A $5 billion offering will have little impact on existing shareholders but take advantage of the high stock price.

JohnJamesRambo 6y ago

I don't understand anything about Tesla valuation anymore. It's like watching Theranos and Enron (Tesla is currently 10x Enron market cap at peak) happen at an even larger scale from memes and hope and hero worship and fuzzy math. It's 2.6x Toyota's market cap now and Toyota made 24x as many cars in 2019. I don't see any way "future performance" can make those numbers ever work. And I assume that is why they keep shoveling this crap to retail investors.

deleted 6y ago
[deleted]
elcomet 6y ago
Probably because some investors believe that Tesla will achieve full self driving in the next 5/10 years. If this happens, Tesla might be worth much more than 2x Toyota.
burnte 6y ago
Tesla has something Theranos and Enron never had: actual products you can buy and that have a real market. Theranos had a pied piper song, and Enron became trading platform with cooked books.

ohiovr 6y ago

Tesla sells more stock than cars.