12 ms·

Tesla Raises $1B from Stock and Bond Sale

171 points by ericd 13y ago

yoster 13y ago
I hope the $30k model comes out soon. Regular Americans will have a better chance at embracing that model. With gas at disgusting price levels, I am pretty sure the rest of America would agree.
ericd 13y ago
More details on the raise reveal that it's actually not just from a stock sale - they're also issuing $450M in notes: http://blogs.wsj.com/corporate-intelligence/2013/05/15/tesla-is-selling-more-shares-to-pay-off-u-s-loan/?KEYWORDS=tsla http://blogs.wsj.com/corporate-intelligence/2013/05/15/tesla...
- revelation 13y ago
  They actually upped that to $525M later I think.
Mystalic 13y ago
If Tesla drives that money into development of the economy vehicle, they're going to scare a lot of car manufacturers.
- e40 13y ago
  Agreed, and expect the old guard to lobby more states than SC to put in rules that will severely hamper Tesla (by requiring them to open dealerships everywhere). (I realize SC hasn't voted it into law yet, but there is noise there about it.)
- neya 13y ago
  Not necessarily. Almost all car manufacturers are anticipating this kind of transition and have back up plans already [1]. I bet Tesla will become what Apple is to smartphones and then the rest will gradually pace up and someday attain equilibrium (or even overshoot) with Tesla's roadmap. For example, a lot of manufacturers are already developing electric vehicles for masses, just that they don't want to get their feet wet and they want someone else to do it first , so they can just jump in and join them if the market is actually ripe. Mass adoption of electric vehicles is what most manufacturers fear and which is a valid concern, which is why Tesla's move is particularly so important. Automotive industry is one industry where nobody is 'too late' for the party. As of now, I personally want to see Tesla succeed. [1]Nissan, Toyota, Mistubishi, Chevrolet, Hyundai, BMW, Audi, etc. all have EV's in their roadmaps, some are budget EV's too.
  - mtgx 13y ago
    Apple managed to maintain their strong lead for a relatively long time by creating the app ecosystem. Tesla could do the same with their supercharger network, where they offer free charging. Although I think (and hope) that eventually they'll let other car manufacturers "license" access to Tesla's network, and this way they'll be able to not only pay for the maintenance and cost of the network, but also make a bit of money from it, too. They shouldn't charge too much, though. Maybe $100 per car. By turning the network into an actual business and not just a "cost", they would have to incentive and capital to expand the network all over the world as fast as possible. And that's how we all get free charging for all cars, forever. Goodbye oil industry.
    - neya 13y ago
      Agreed. But 'Goodbye oil industry' will never happen in the near future. Not with the level of corruption with the top dogs right now. They'll do everything they can to suppress the viable alternatives. They'll buy out the media, pay the right guys to write stories about how unreliable and dangerous these EV's are and why oil based transport is still the best, and so on. And co-incidentally, I am reminded of the Tesla-BBC fiasco...[1] [1]http://green.autoblog.com/2013/03/10/uk-appeals-court-dismissed-teslas-bbc-top-gear-lawsuit/ http://green.autoblog.com/2013/03/10/uk-appeals-court-dismis...
      - ericd 13y ago
        I don't know if you need to ascribe malice there, Clarkson has always hated EVs, even before they were serious contenders.
        neya 13y ago
        What you hate or like is your personal prerogative. But when you are addressing a public audience, who have faith in you and your brand and trust you, you are morally obliged to be factually correct and not let personal opinions distort the facts. If you read that article, Tesla claims that they forged a scene as if the car just stopped randomly which is highly unlikely when there is enough charge (I am with Elon Musk on this one). (You doesn't literally mean you, but BBC in this case)
- loceng 13y ago
  I'm sure they're already working on the $30k version, and a lot of this money will be being used to tool the factories for higher volume output.
- damoncali 13y ago
  How are they going to actually produce that economy vehicle? They are scraping by now with the luxury line.
neya 13y ago
I wish Tesla made hipster apps with mediocre photo filters too, so they could have some additional money easily to do their awesome stuff xD
- speeder 13y ago
  Hipster apps are not enough. It is better for example to create some social mobile games, and then get valuated in a crazy bubble. For example the company Gungho, they got 273 million invested on them at march for about 60% of the company (do not remember the exact number), then released a single game named Puzzles and Dragons, and now they are valued on the Tokyo Stock Exchange for about 15.1 billion USD yay! And yes, that is more than Nintendo, for a single game. Perfect example of investor rationality.
  - McP 13y ago
    Except that single game (and they have many others) is making towards $1B per year. http://en.wikipedia.org/wiki/Puzzle_%26_Dragons http://en.wikipedia.org/wiki/Puzzle_%26_Dragons
- seiji 13y ago
  That's actually a really really good point. I've often wondered why Things Needing Money (cities with budget deficits, states with budget deficits, caltrain, etc) don't develop startup-like things they can sell. From one point of view, the answer is obvious: nobody wants to make someone else rich when they can make themselves rich [1]. But, from the other point of view: people do that all day every day. The majority of people don't understand (and don't want to understand) the complexities of corporate ownership, acquisitions, and payouts. They just want enough to pay for housing, food, support their family, and buy some toys a few times a year. Could those Things Needing Money work it out by advancing internal EIR positions with enough funding to hire subordinates as necessary? [1]: The valley does provide a way around "constantly working to make someone else rich." At large places (Cisco in the old days, Google now, probably Facebook too) you see people work the system. They can leave their company, start a startup of basically what they were working on at Big Corp, then have Big Corp aciqhire them back for a few million dollars. Or, they make a startup, get acquired by a Big Corp, vest their buyout, then immediately leave and re-create their original startup they sold, but better (maybe more sustainable or more IPO-like the second time around, but it's the exact same thing as the first time around).
Demiurge 13y ago
Looking forward to a Tesla car I could actually afford ;)
- speeder 13y ago
  I wish not only that I could afford it, but that regulations of my country did not made it almost illegal and impratical (in fact, Nissan Leaf is no go here either, and it was not lack of effort from Nissan, that even borrowed a entire fleet of them to the goverment to test)
  - NickM 13y ago
    What country do you live in?
    - speeder 13y ago
      Brazil And Brazil governments owns Petrobras, so it is very much against its interests to people ditch petroleum before Petrobras find some new business model...
- hkmurakami 13y ago
  I learned that Tesla is already taking preorders for the Model X, which is $45k (my mentor apparently put an order in). Hopefully this means that we'll have a "Model Y" in the 25k-30k range in another 5 years!
  - Demiurge 13y ago
    I wonder how that would look like and how it would compete with a civic on specs. If it could, I guess it would be 'the future is now' kind of a moment.
  - cma 13y ago
    The Model X signature edition deposit is $40K, the regular deposit is $5K; the two together may be where you got $45K. There is no reason the model X would be cheaper than the Model S; most of its versions have two motors instead of one in the S, and it likely has a bigger battery. That's not to say it won't be the price of the current model S, but no way it will be of a contemporary one.
hkmurakami 13y ago
Great time to do this, with their greatly increased stock price and still very low interest rates. They're repaying their debt when they have the greatest leverage (unlike the common industry practice of buying back stock when their stock is the most expensive), which is a very shrewd decision.
- Symmetry 13y ago
  I agree that issuing the new stock was probably a good move, but I'm not sure about paying back the debt. Low interest rates now mean that debt is relatively cheap, and if you think you might need the extra cash at some point but aren't sure if interest rates might rise at some point it might make sense to just keep the cash and don't pay back the debt. Lots of companies are actually taking loans they don't need just to lock in rates, and then pretty much just sit on the cash. That's part of the reason that the amount of dollars in circulation has gone up by a huge amount over the last few years while causing negligible inflation.
  - hkmurakami 13y ago
    >Lots of companies are actually taking loans they don't need just to lock in rates, and then pretty much just sit on the cash. If you're MSFT or AAPL and can issue bonds at 1% and buy other comapnies' bonds at 3%, that's a pretty easy way to lock in a spread. Interest rates are virtually guaranteed to rise in the next 3-5 years. Bernanke's previous quote is for interest rates to remain low until 2015, and Pimco has proclaimed that "the 30 year bull run in bonds is over".
_sentient 13y ago
What is the potential impact of this move when it comes to shareholders? I understand that a lot of the recent upside was caused by a short squeeze, which is a product of limited share availability. Does this basically constitute a "cash out" for Tesla, and will this have a deflating effect on the stock?
- hkmurakami 13y ago
  I think that would partly depend on what price they offer the stock at to institutional investors.
- NickM 13y ago
  It's not clear whether it was actually a short squeeze, or just a normal value increase caused by the shorts covering their positions. Shorting a stock always has a negative impact on its price, so now that Tesla has a much lower short interest, it's expected that its price will be higher regardless of whether there was a true squeeze or not.
- damoncali 13y ago
  No. Tesla needs lots of money and will continue to need lots of money. They can get that from debt or equity (or maybe the government, but leave that aside). It is a signal that they believe that their stock is highly valued (or even over valued, but they would never say that) if they are raising equity - otherwise debt might be a more attractive offer. In the end, it's all a balancing act between taxes, cash flow, dilution, and market demand for securities. Any time you raise money, you dilute ownership (or lower cash flow in the case of debt), which has the direct effect of devaluing the stock. But you wouldn't do that unless you thought you could increase the value of the stock by investing that cash and increasing future cash flows. (Incidentally, this is why everyone is so pissed at Apple, who has way too much cash to invest properly - they should be giving it back to shareholders to invest themselves if they can't figure out what to do with it). The cynic in me says, "beware - this stock is overvalued and they're just taking advantage of that with this offering." The optimist says, "great then- they can raise money at a low cost and increase their chances of making it big". On this one, I'm siding with the cynic. This is highly speculative. Besides, do you want to be the one who is permitting them to raise money so attractively? (That's an open question - akin to paying a stupid valuation for a hot startup because it will not matter one day when it sells for 100x.) I'm reminded of the time when AOL bought Time Warner with it's insanely overvalued stock. Didn't turn out to well for Time Warner shareholders.
TomGullen 13y ago
When companies like Tesla sells bonds, where would you buy them from? And how would you know about them being made available? (Often seems to be that once it hits the news it's all over)
- joshmlewis 13y ago
  Is it something you have to be an accredited investor for?
  - hkmurakami 13y ago
    No, you can be a regular investor but you need to have an account through a major bank and have someone you can talk to who can show you their new issue inventory and make the transaction for you.
  - lemma 13y ago
    You don't need to be accredited. The debt of a company is higher in the capital structure than its equity (creditors come before shareholders in bankruptcy), so it's a more conservative investment. That's not to say that any bond is safer than any stock, and there are plenty of bonds that are very risky (companies have credit ratings just like individuals and countries). Keep in mind also that bonds tend to have a minimum purchase size (usually $10k face value) and minimum increments thereafter ($1k usually).
- hkmurakami 13y ago
  Your broker at a major bank is the only place where you'd be able to buy a new offering of bonds. There's usually some minimum quantity you have to buy, in the range of $30k-$100k minimum. You basically have to ask said broker to tell you when they're available. (give you the list of new issues periodically) I think you can buy existing bonds on the market through more normal channels including discount brokerages. edit: Public Service Announcement - don't trade in bonds, because you're virtually guaranteed to get taken advantage of hardcore by Wall Street bond traders, even the "flow traders" that do the transaction for you. One example is the broker giving you a price (via the trader) that reflects the bank's own book instead of the actual open bond market (you can check the discrepancy by demanding to see the Bloomberg data on the security). The bond market is still even to this day nothing like the stock market. Visibility & transparency (in the stock market) are your friend.
hkmurakami 13y ago
The article doesn't say what the coupon on the bonds are for various maturities, but they are most likely extremely low yielding. I quote Bill Gross of Pimco in labeling these as a poor investment choice. Gross: Here -take my money Mr Lew, Buffett, Ballmer, Cook. I’m ur beast of burden - provider of ur free lunch - a non-thinking bond investor https://twitter.com/PIMCO/status/332501401613770752 https://twitter.com/PIMCO/status/332501401613770752
- tanzam75 13y ago
  1.5% coupon for 5 years. Note that these are convertible bonds, not regular bonds. The interest rate is reduced by the implied price of the warrant.
joonix 13y ago
Doesn't a sale of new stock generally imply that the company believes its shares are overvalued? Great timing in any case, this is the time to shore up on capital to make sure they can stick around a long time.
- SatvikBeri 13y ago
  If a company with huge cash reserves like Google was selling new stock then yes, I would assume they thought they believed their shares were overvalued. But in general it's the same as taking VC investment. It might just mean the company believes they can use the cash in a productive way, or that they need cash to continue operating.
- bryanlarsen 13y ago
  OTOH, Elon Musk buying $100 million worth of shares is a very strong signal that the shares are under valued. It's probably not a coincidence that those two countering signals are being sent at the same time.
ricardobeat 13y ago
It took SpaceX $100m to create a space rocket, engines, launch facilities, a cargo capsule fit for human travel, and a VTOL rocket prototype. I can't even fathom how it is possible that a different model of car costs $200m to develop, except that there must be a lot of middlemen.
- api 13y ago
  A very good, low-cost, consumer electric car that can compete with gasoline cars and hybrids is a harder problem than putting cargo in orbit. It's also a harder problem than intercontinental fiber optic networks and supersonic flight. That's why we have all those things and still drive 1900s internal combustion engines around. On the flip side, this shows us that space flight is not as hard as people commonly think it is, and that the reason it stagnated post-Apollo had more to do with NASA and the DOD's bureaucratic bumbling than with the inherent difficulty of it. Two things happened post-Apollo to hamstring space flight. One, Nixon cancelled the Saturn program and pushed the Shuttle, a stupid white elephant that ate up NASA's budget for 15+ years. Two, congress turned the space program into a pork program for influential districts, constantly moving goal-posts and creating and then scuttling programs to keep the pork flowing.
- beachstartup 13y ago
  cars are mass produced and highly regulated and are just as complex as rockets.
- nedwin 13y ago
  There is a lot of regulation. Almost every aspect of the design needs approval by the department of transport. There is a need to ensure that the vehicles can be produced in mass production versus a one off. This includes quality control and specialised tooling for their production line. It might even include a new production line / facility. I don't think it's middlemen increasing the cost.
  - api 13y ago
    Mass-production of anything cost-effectively at gigantic (100M+ units) scale is an engineering problem in and of itself, a whole other layer on top of the difficulty of designing the product in the first place. In some cases it's considerably harder.
mackmcconnell 13y ago
Good lor' das a lotta money
dave1619 13y ago
This is a quadruple whammy for Tesla. 1. Tesla pays off the $452 million Dept of Energy Loan, and this improves their political image and in the long-run will help sales. Tesla's had difficulty in some states selling direct to consumer, and paying of the DOE loan can help them convince conservative lawmakers to vote on Tesla's side in states like Texas and North Carolina (both have bills on the table). Also, paying off the DOE loan removes ammunition from a lot of critics who have said that Tesla is just leaching off the U.S. gov't. 2. Tesla puts more than $400 million additional cash into their bank account (they already had over $200m), so now it's well over $600m and close to $700m in cash they hold. This allow them to speed up a lot of the intiatives they have to roll out infrastructure. First, they can open more stores (especially in Asia and Europe). Second, they can roll out more service centers (all around the world). Third, they can roll out more Superchargers stations (around the world). Finally, Tesla has an upcoming 5th announcement in a 5-part trilogy and I think Tesla might announce battery swapping stations (for long distance travel). Tesla can now more aggressively roll these out as well. 3. Tesla stock gets a boost of confidence from Elon Musk spending $100m to buy common stock. Elon Musk is putting his money where his mouth is and is basically saying that at the offering price of $92.24 that TSLA stock is not overpriced but is a fair value to himself buying more stock and to investors. 4. Involving Goldman Sachs and Morgan Stanley in brokering convertible notes and stock increases the credibility and perception of Tesla. Big funds are now starting to invest in Tesla after their blowout 1st quarter earnings report (WSJ reported in another article that European funds and large-cap funds are starting to invest). Recently Morgan Stanley sent a client note saying that after the 1st quarter earning report saying that viability was no a problem for Tesla. This opens up TSLA stock to a whole new crowd of investors because Tesla's risk has been dramatically reduced. Overall, I think this is a great move by Tesla.
- cremnob 13y ago
  Great except for the part where current shareholders' stakes are diluted.
  - DaniFong 13y ago
    There is no scenario under which that wouldn't happen eventually. Tesla needs cash to fuel its next vehicle programs and growth. If it didn't get it, the growth story Shareholders should be glad, as I am, that they were able to raise at the price they did. They shown they can convert cash into value. They need to do it.
dreamdu5t 13y ago
It seems Tesla takes advantage of all kinds of government subsidies, loans, and windfalls. Is there a place that summarizes the government programs that Tesla takes advantage of, or how much of their revenue is from selling the carbon credits they get to other car makers? I'm not implying anything political with this comment, just genuinely curious.
- kunle 13y ago
  Tesla takes advantage of a lot of these things, but that sort of rent-seeking is so par for the course, that choosing to NOT take advantage of it would put any company of scale at a massive disadvantage relative to their peers. A short laundry list of the industries that do this very well: financial firms, energy firms (both production and delivery), car companies (who can forget GM and Chrysler in 08/09), sports teams/leagues (particularly when building stadiums/facilities, and others. The subsidies/tax breaks etc that they take advantage of are at the Federal, State, and Local level, sometimes international, and oftentimes playing different government entities against each other to get better deals. The New York Times had a fantastic article on this: http://www.nytimes.com/2012/12/02/us/how-local-taxpayers-bankroll-corporations.html?pagewanted=all&_r=0 http://www.nytimes.com/2012/12/02/us/how-local-taxpayers-ban... And a visualization here with some data: http://www.nytimes.com/interactive/2012/12/01/us/government-incentives.html http://www.nytimes.com/interactive/2012/12/01/us/government-... Re-reading it, makes you wonder how profitable all these industries would be without all these subsidies/tax breaks etc baked in.
  - dreamdu5t 13y ago
    That doesn't answer my question, and I specifically said I wasn't implying anything political with my statement.
  - damoncali 13y ago
    Last I checked, and it's been a few years, the entire wind power industry exists only because of tax credits - their financial structure is designed pretty much entirely around them. Take them away, and there are no new wind farms, which is interesting, because part of the reason that costs are high for wind farms is the scarcity of turbines. The turbines are scarce because the GE's of the world do not want to invest long term capital in an industry propped up by government subsidies... and round and round it goes.
codex 13y ago
Just as I predicted, Tesla's one quarter of profitability was just an enabler for them to raise more money for development of future models, which will most assuredly take them onto the red again, albeit probably temporarily. In this respect their profitability was not "real" in that they knew it was temporary prelude to more fund raising. It doesn't show sustainability, only that they can put the brakes on all spending for a quarter to look good to investors. I think it's a bit dishonest of Elon to claim there were no plans to go back to the public markets in last quarter's earnings call, only to raise more money a few weeks later.
amorphid 13y ago
Useless, fun speculation: I predict that Tesla will eventually buy Pep Boys Auto, an under performing company with a lot of real estate in middle class American neighborhoods. Pep Boys also has many stores already with service centers. Tesla will then start turning the stores into Tesla show rooms and service centers. They've already shown they are willing to take over legacy auto facilities, specifically the old NUMI Toyota plant in Fremont, CA. What are the odds that we'll soon see Manny, Moe, Jack, and Elon? Pep Boys has a market cap of less than 700 million and is profitable, so it shouldn't be a money pit.

171 points by ericd 13y ago

I hope the $30k model comes out soon. Regular Americans will have a better chance at embracing that model. With gas at disgusting price levels, I am pretty sure the rest of America would agree.

ericd 13y ago

More details on the raise reveal that it's actually not just from a stock sale - they're also issuing $450M in notes: http://blogs.wsj.com/corporate-intelligence/2013/05/15/tesla-is-selling-more-shares-to-pay-off-u-s-loan/?KEYWORDS=tsla http://blogs.wsj.com/corporate-intelligence/2013/05/15/tesla...

revelation 13y ago
They actually upped that to $525M later I think.

Mystalic 13y ago

If Tesla drives that money into development of the economy vehicle, they're going to scare a lot of car manufacturers.

e40 13y ago
Agreed, and expect the old guard to lobby more states than SC to put in rules that will severely hamper Tesla (by requiring them to open dealerships everywhere). (I realize SC hasn't voted it into law yet, but there is noise there about it.)
neya 13y ago
Not necessarily. Almost all car manufacturers are anticipating this kind of transition and have back up plans already [1]. I bet Tesla will become what Apple is to smartphones and then the rest will gradually pace up and someday attain equilibrium (or even overshoot) with Tesla's roadmap. For example, a lot of manufacturers are already developing electric vehicles for masses, just that they don't want to get their feet wet and they want someone else to do it first , so they can just jump in and join them if the market is actually ripe. Mass adoption of electric vehicles is what most manufacturers fear and which is a valid concern, which is why Tesla's move is particularly so important. Automotive industry is one industry where nobody is 'too late' for the party. As of now, I personally want to see Tesla succeed. [1]Nissan, Toyota, Mistubishi, Chevrolet, Hyundai, BMW, Audi, etc. all have EV's in their roadmaps, some are budget EV's too.
- mtgx 13y ago
  Apple managed to maintain their strong lead for a relatively long time by creating the app ecosystem. Tesla could do the same with their supercharger network, where they offer free charging. Although I think (and hope) that eventually they'll let other car manufacturers "license" access to Tesla's network, and this way they'll be able to not only pay for the maintenance and cost of the network, but also make a bit of money from it, too. They shouldn't charge too much, though. Maybe $100 per car. By turning the network into an actual business and not just a "cost", they would have to incentive and capital to expand the network all over the world as fast as possible. And that's how we all get free charging for all cars, forever. Goodbye oil industry.
  - neya 13y ago
    Agreed. But 'Goodbye oil industry' will never happen in the near future. Not with the level of corruption with the top dogs right now. They'll do everything they can to suppress the viable alternatives. They'll buy out the media, pay the right guys to write stories about how unreliable and dangerous these EV's are and why oil based transport is still the best, and so on. And co-incidentally, I am reminded of the Tesla-BBC fiasco...[1] [1]http://green.autoblog.com/2013/03/10/uk-appeals-court-dismissed-teslas-bbc-top-gear-lawsuit/ http://green.autoblog.com/2013/03/10/uk-appeals-court-dismis...
    - ericd 13y ago
      I don't know if you need to ascribe malice there, Clarkson has always hated EVs, even before they were serious contenders.
      - neya 13y ago
        What you hate or like is your personal prerogative. But when you are addressing a public audience, who have faith in you and your brand and trust you, you are morally obliged to be factually correct and not let personal opinions distort the facts. If you read that article, Tesla claims that they forged a scene as if the car just stopped randomly which is highly unlikely when there is enough charge (I am with Elon Musk on this one). (You doesn't literally mean you, but BBC in this case)
loceng 13y ago
I'm sure they're already working on the $30k version, and a lot of this money will be being used to tool the factories for higher volume output.
damoncali 13y ago
How are they going to actually produce that economy vehicle? They are scraping by now with the luxury line.

neya 13y ago

I wish Tesla made hipster apps with mediocre photo filters too, so they could have some additional money easily to do their awesome stuff xD

speeder 13y ago
Hipster apps are not enough. It is better for example to create some social mobile games, and then get valuated in a crazy bubble. For example the company Gungho, they got 273 million invested on them at march for about 60% of the company (do not remember the exact number), then released a single game named Puzzles and Dragons, and now they are valued on the Tokyo Stock Exchange for about 15.1 billion USD yay! And yes, that is more than Nintendo, for a single game. Perfect example of investor rationality.
- McP 13y ago
  Except that single game (and they have many others) is making towards $1B per year. http://en.wikipedia.org/wiki/Puzzle_%26_Dragons http://en.wikipedia.org/wiki/Puzzle_%26_Dragons
seiji 13y ago
That's actually a really really good point. I've often wondered why Things Needing Money (cities with budget deficits, states with budget deficits, caltrain, etc) don't develop startup-like things they can sell. From one point of view, the answer is obvious: nobody wants to make someone else rich when they can make themselves rich [1]. But, from the other point of view: people do that all day every day. The majority of people don't understand (and don't want to understand) the complexities of corporate ownership, acquisitions, and payouts. They just want enough to pay for housing, food, support their family, and buy some toys a few times a year. Could those Things Needing Money work it out by advancing internal EIR positions with enough funding to hire subordinates as necessary? [1]: The valley does provide a way around "constantly working to make someone else rich." At large places (Cisco in the old days, Google now, probably Facebook too) you see people work the system. They can leave their company, start a startup of basically what they were working on at Big Corp, then have Big Corp aciqhire them back for a few million dollars. Or, they make a startup, get acquired by a Big Corp, vest their buyout, then immediately leave and re-create their original startup they sold, but better (maybe more sustainable or more IPO-like the second time around, but it's the exact same thing as the first time around).

Demiurge 13y ago

Looking forward to a Tesla car I could actually afford ;)

speeder 13y ago
I wish not only that I could afford it, but that regulations of my country did not made it almost illegal and impratical (in fact, Nissan Leaf is no go here either, and it was not lack of effort from Nissan, that even borrowed a entire fleet of them to the goverment to test)
- NickM 13y ago
  What country do you live in?
  - speeder 13y ago
    Brazil And Brazil governments owns Petrobras, so it is very much against its interests to people ditch petroleum before Petrobras find some new business model...
hkmurakami 13y ago
I learned that Tesla is already taking preorders for the Model X, which is $45k (my mentor apparently put an order in). Hopefully this means that we'll have a "Model Y" in the 25k-30k range in another 5 years!
- Demiurge 13y ago
  I wonder how that would look like and how it would compete with a civic on specs. If it could, I guess it would be 'the future is now' kind of a moment.
- cma 13y ago
  The Model X signature edition deposit is $40K, the regular deposit is $5K; the two together may be where you got $45K. There is no reason the model X would be cheaper than the Model S; most of its versions have two motors instead of one in the S, and it likely has a bigger battery. That's not to say it won't be the price of the current model S, but no way it will be of a contemporary one.

hkmurakami 13y ago

Great time to do this, with their greatly increased stock price and still very low interest rates. They're repaying their debt when they have the greatest leverage (unlike the common industry practice of buying back stock when their stock is the most expensive), which is a very shrewd decision.

Symmetry 13y ago
I agree that issuing the new stock was probably a good move, but I'm not sure about paying back the debt. Low interest rates now mean that debt is relatively cheap, and if you think you might need the extra cash at some point but aren't sure if interest rates might rise at some point it might make sense to just keep the cash and don't pay back the debt. Lots of companies are actually taking loans they don't need just to lock in rates, and then pretty much just sit on the cash. That's part of the reason that the amount of dollars in circulation has gone up by a huge amount over the last few years while causing negligible inflation.
- hkmurakami 13y ago
  >Lots of companies are actually taking loans they don't need just to lock in rates, and then pretty much just sit on the cash. If you're MSFT or AAPL and can issue bonds at 1% and buy other comapnies' bonds at 3%, that's a pretty easy way to lock in a spread. Interest rates are virtually guaranteed to rise in the next 3-5 years. Bernanke's previous quote is for interest rates to remain low until 2015, and Pimco has proclaimed that "the 30 year bull run in bonds is over".

_sentient 13y ago

What is the potential impact of this move when it comes to shareholders? I understand that a lot of the recent upside was caused by a short squeeze, which is a product of limited share availability. Does this basically constitute a "cash out" for Tesla, and will this have a deflating effect on the stock?

hkmurakami 13y ago
I think that would partly depend on what price they offer the stock at to institutional investors.
NickM 13y ago
It's not clear whether it was actually a short squeeze, or just a normal value increase caused by the shorts covering their positions. Shorting a stock always has a negative impact on its price, so now that Tesla has a much lower short interest, it's expected that its price will be higher regardless of whether there was a true squeeze or not.
damoncali 13y ago
No. Tesla needs lots of money and will continue to need lots of money. They can get that from debt or equity (or maybe the government, but leave that aside). It is a signal that they believe that their stock is highly valued (or even over valued, but they would never say that) if they are raising equity - otherwise debt might be a more attractive offer. In the end, it's all a balancing act between taxes, cash flow, dilution, and market demand for securities. Any time you raise money, you dilute ownership (or lower cash flow in the case of debt), which has the direct effect of devaluing the stock. But you wouldn't do that unless you thought you could increase the value of the stock by investing that cash and increasing future cash flows. (Incidentally, this is why everyone is so pissed at Apple, who has way too much cash to invest properly - they should be giving it back to shareholders to invest themselves if they can't figure out what to do with it). The cynic in me says, "beware - this stock is overvalued and they're just taking advantage of that with this offering." The optimist says, "great then- they can raise money at a low cost and increase their chances of making it big". On this one, I'm siding with the cynic. This is highly speculative. Besides, do you want to be the one who is permitting them to raise money so attractively? (That's an open question - akin to paying a stupid valuation for a hot startup because it will not matter one day when it sells for 100x.) I'm reminded of the time when AOL bought Time Warner with it's insanely overvalued stock. Didn't turn out to well for Time Warner shareholders.

TomGullen 13y ago

When companies like Tesla sells bonds, where would you buy them from? And how would you know about them being made available? (Often seems to be that once it hits the news it's all over)

joshmlewis 13y ago
Is it something you have to be an accredited investor for?
- hkmurakami 13y ago
  No, you can be a regular investor but you need to have an account through a major bank and have someone you can talk to who can show you their new issue inventory and make the transaction for you.
- lemma 13y ago
  You don't need to be accredited. The debt of a company is higher in the capital structure than its equity (creditors come before shareholders in bankruptcy), so it's a more conservative investment. That's not to say that any bond is safer than any stock, and there are plenty of bonds that are very risky (companies have credit ratings just like individuals and countries). Keep in mind also that bonds tend to have a minimum purchase size (usually $10k face value) and minimum increments thereafter ($1k usually).
hkmurakami 13y ago
Your broker at a major bank is the only place where you'd be able to buy a new offering of bonds. There's usually some minimum quantity you have to buy, in the range of $30k-$100k minimum. You basically have to ask said broker to tell you when they're available. (give you the list of new issues periodically) I think you can buy existing bonds on the market through more normal channels including discount brokerages. edit: Public Service Announcement - don't trade in bonds, because you're virtually guaranteed to get taken advantage of hardcore by Wall Street bond traders, even the "flow traders" that do the transaction for you. One example is the broker giving you a price (via the trader) that reflects the bank's own book instead of the actual open bond market (you can check the discrepancy by demanding to see the Bloomberg data on the security). The bond market is still even to this day nothing like the stock market. Visibility & transparency (in the stock market) are your friend.

hkmurakami 13y ago

The article doesn't say what the coupon on the bonds are for various maturities, but they are most likely extremely low yielding. I quote Bill Gross of Pimco in labeling these as a poor investment choice. Gross: Here -take my money Mr Lew, Buffett, Ballmer, Cook. I’m ur beast of burden - provider of ur free lunch - a non-thinking bond investor https://twitter.com/PIMCO/status/332501401613770752 https://twitter.com/PIMCO/status/332501401613770752

tanzam75 13y ago
1.5% coupon for 5 years. Note that these are convertible bonds, not regular bonds. The interest rate is reduced by the implied price of the warrant.

joonix 13y ago

Doesn't a sale of new stock generally imply that the company believes its shares are overvalued? Great timing in any case, this is the time to shore up on capital to make sure they can stick around a long time.

SatvikBeri 13y ago
If a company with huge cash reserves like Google was selling new stock then yes, I would assume they thought they believed their shares were overvalued. But in general it's the same as taking VC investment. It might just mean the company believes they can use the cash in a productive way, or that they need cash to continue operating.
bryanlarsen 13y ago
OTOH, Elon Musk buying $100 million worth of shares is a very strong signal that the shares are under valued. It's probably not a coincidence that those two countering signals are being sent at the same time.

ricardobeat 13y ago

It took SpaceX $100m to create a space rocket, engines, launch facilities, a cargo capsule fit for human travel, and a VTOL rocket prototype. I can't even fathom how it is possible that a different model of car costs $200m to develop, except that there must be a lot of middlemen.

api 13y ago
A very good, low-cost, consumer electric car that can compete with gasoline cars and hybrids is a harder problem than putting cargo in orbit. It's also a harder problem than intercontinental fiber optic networks and supersonic flight. That's why we have all those things and still drive 1900s internal combustion engines around. On the flip side, this shows us that space flight is not as hard as people commonly think it is, and that the reason it stagnated post-Apollo had more to do with NASA and the DOD's bureaucratic bumbling than with the inherent difficulty of it. Two things happened post-Apollo to hamstring space flight. One, Nixon cancelled the Saturn program and pushed the Shuttle, a stupid white elephant that ate up NASA's budget for 15+ years. Two, congress turned the space program into a pork program for influential districts, constantly moving goal-posts and creating and then scuttling programs to keep the pork flowing.
beachstartup 13y ago
cars are mass produced and highly regulated and are just as complex as rockets.
nedwin 13y ago
There is a lot of regulation. Almost every aspect of the design needs approval by the department of transport. There is a need to ensure that the vehicles can be produced in mass production versus a one off. This includes quality control and specialised tooling for their production line. It might even include a new production line / facility. I don't think it's middlemen increasing the cost.
- api 13y ago
  Mass-production of anything cost-effectively at gigantic (100M+ units) scale is an engineering problem in and of itself, a whole other layer on top of the difficulty of designing the product in the first place. In some cases it's considerably harder.

mackmcconnell 13y ago

Good lor' das a lotta money

dave1619 13y ago

This is a quadruple whammy for Tesla. 1. Tesla pays off the $452 million Dept of Energy Loan, and this improves their political image and in the long-run will help sales. Tesla's had difficulty in some states selling direct to consumer, and paying of the DOE loan can help them convince conservative lawmakers to vote on Tesla's side in states like Texas and North Carolina (both have bills on the table). Also, paying off the DOE loan removes ammunition from a lot of critics who have said that Tesla is just leaching off the U.S. gov't. 2. Tesla puts more than $400 million additional cash into their bank account (they already had over $200m), so now it's well over $600m and close to $700m in cash they hold. This allow them to speed up a lot of the intiatives they have to roll out infrastructure. First, they can open more stores (especially in Asia and Europe). Second, they can roll out more service centers (all around the world). Third, they can roll out more Superchargers stations (around the world). Finally, Tesla has an upcoming 5th announcement in a 5-part trilogy and I think Tesla might announce battery swapping stations (for long distance travel). Tesla can now more aggressively roll these out as well. 3. Tesla stock gets a boost of confidence from Elon Musk spending $100m to buy common stock. Elon Musk is putting his money where his mouth is and is basically saying that at the offering price of $92.24 that TSLA stock is not overpriced but is a fair value to himself buying more stock and to investors. 4. Involving Goldman Sachs and Morgan Stanley in brokering convertible notes and stock increases the credibility and perception of Tesla. Big funds are now starting to invest in Tesla after their blowout 1st quarter earnings report (WSJ reported in another article that European funds and large-cap funds are starting to invest). Recently Morgan Stanley sent a client note saying that after the 1st quarter earning report saying that viability was no a problem for Tesla. This opens up TSLA stock to a whole new crowd of investors because Tesla's risk has been dramatically reduced. Overall, I think this is a great move by Tesla.

cremnob 13y ago
Great except for the part where current shareholders' stakes are diluted.
- DaniFong 13y ago
  There is no scenario under which that wouldn't happen eventually. Tesla needs cash to fuel its next vehicle programs and growth. If it didn't get it, the growth story Shareholders should be glad, as I am, that they were able to raise at the price they did. They shown they can convert cash into value. They need to do it.

dreamdu5t 13y ago

It seems Tesla takes advantage of all kinds of government subsidies, loans, and windfalls. Is there a place that summarizes the government programs that Tesla takes advantage of, or how much of their revenue is from selling the carbon credits they get to other car makers? I'm not implying anything political with this comment, just genuinely curious.

kunle 13y ago
Tesla takes advantage of a lot of these things, but that sort of rent-seeking is so par for the course, that choosing to NOT take advantage of it would put any company of scale at a massive disadvantage relative to their peers. A short laundry list of the industries that do this very well: financial firms, energy firms (both production and delivery), car companies (who can forget GM and Chrysler in 08/09), sports teams/leagues (particularly when building stadiums/facilities, and others. The subsidies/tax breaks etc that they take advantage of are at the Federal, State, and Local level, sometimes international, and oftentimes playing different government entities against each other to get better deals. The New York Times had a fantastic article on this: http://www.nytimes.com/2012/12/02/us/how-local-taxpayers-bankroll-corporations.html?pagewanted=all&_r=0 http://www.nytimes.com/2012/12/02/us/how-local-taxpayers-ban... And a visualization here with some data: http://www.nytimes.com/interactive/2012/12/01/us/government-incentives.html http://www.nytimes.com/interactive/2012/12/01/us/government-... Re-reading it, makes you wonder how profitable all these industries would be without all these subsidies/tax breaks etc baked in.
- dreamdu5t 13y ago
  That doesn't answer my question, and I specifically said I wasn't implying anything political with my statement.
- damoncali 13y ago
  Last I checked, and it's been a few years, the entire wind power industry exists only because of tax credits - their financial structure is designed pretty much entirely around them. Take them away, and there are no new wind farms, which is interesting, because part of the reason that costs are high for wind farms is the scarcity of turbines. The turbines are scarce because the GE's of the world do not want to invest long term capital in an industry propped up by government subsidies... and round and round it goes.

codex 13y ago

Just as I predicted, Tesla's one quarter of profitability was just an enabler for them to raise more money for development of future models, which will most assuredly take them onto the red again, albeit probably temporarily. In this respect their profitability was not "real" in that they knew it was temporary prelude to more fund raising. It doesn't show sustainability, only that they can put the brakes on all spending for a quarter to look good to investors. I think it's a bit dishonest of Elon to claim there were no plans to go back to the public markets in last quarter's earnings call, only to raise more money a few weeks later.

amorphid 13y ago

Useless, fun speculation: I predict that Tesla will eventually buy Pep Boys Auto, an under performing company with a lot of real estate in middle class American neighborhoods. Pep Boys also has many stores already with service centers. Tesla will then start turning the stores into Tesla show rooms and service centers. They've already shown they are willing to take over legacy auto facilities, specifically the old NUMI Toyota plant in Fremont, CA. What are the odds that we'll soon see Manny, Moe, Jack, and Elon? Pep Boys has a market cap of less than 700 million and is profitable, so it shouldn't be a money pit.