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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
by 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 agoGreat except for the part where current shareholders' stakes are diluted.
- DaniFong 13y agoThere 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.
- jamesaguilar 13y agoThe article doesn't say anything about that. I could be wrong, but I'm surprised if you can legally dilute a public stock.
- tanzam75 13y agoThe article does not have to say it. When a company does a secondary offering, that is a dilution, by definition. Dilution by secondary offering does not require shareholder approval, up to a threshold. On the NASDAQ, the threshold is 20%. A company could, if it felt like it, dilute by 20% every single year for twenty years, and leave the original shareholders with 4% of the company. The theory is that because the secondary offering will take place at fair market value, the cash raised will adequately compensate the existing shareholders for the dilution.
- jamesaguilar 13y agoAh, I see, that makes sense. I don't know what I was thinking. Of course selling stock is dilution, it's not like the company has extra stock it is holding in itself.
- calhoun137 13y agoAfter reading through all the comments in the dilution thread I think I finally understand: The value of a stock is determined by what people are willing to pay for it on the market, and if a company simply issues more stock, its entirely possible that the price of the stock will go up, go down, or stay the same. This is of course only true for public companies, and in the case of private companies dilution is a completely different issue.
- 7Figures2Commas 13y ago1. A lot of people don't care about the DOE loan. But those who don't like the government investing in private enterprise probably aren't going to run out and buy a new Tesla just because the loan is being paid off. Net-net: perceptions of Tesla are not likely to change based on the loan repayment. As for Tesla leaching off the government, it is important to note that $85m of Tesla's revenue in the last quarter came from regulatory credits. The vast majority, ~$67m, came from California's zero-emission program. All told, 15% of Tesla's revenue came from state and federal credits. Forget politics and perception: the impact of regulatory and tax credits on the company's finances and sales prospects over time is something any long-term Tesla investor should thoroughly understand. 2. Tesla is smart to raise capital now while money is still so cheap thanks to an almost unprecedented compression of risk premiums. The odds that capital will become more expensive in the next several years is certainly higher than the odds that it will become much cheaper. But raising capital doesn't guarantee that capital will be deployed effectively. Celebrating the capital raise without acknowledging that there's execution risk is like celebrating a championship before the season has even started. 3. Elon Musk's obvious confidence in Tesla is a good thing, but you should not oversimplify the details of his stock purchases. Business Insider has more on this at http://www.businessinsider.com/elon-musk-borrows-150-million-to-buy-tesla-2013-5 http://www.businessinsider.com/elon-musk-borrows-150-million.... 4. Raising capital for companies is one of the things that firms like Goldman Sachs and Morgan Stanley do. As for Morgan Stanley analysts taking a positive view on Tesla's prospects, consider that in July 2008, Morgan Stanley was advising clients to buy Lehman Brothers stock because "we think near-term risk of incremental write-downs is balanced by solid liquidity and capital footing." Tesla may or may not be successful long-term, and its stock may or may not be a good investment at current prices, but I think your analysis here is akin to looking at the exterior of the vehicle without examining what's under the hood.
- revelation 13y agoCredit sales do not come from government money. They work similar to Emissions trading, that is, other manufacturers who do not produce clean vehicles have to buy them. So all that money is coming from other manufacturers. (ironically, many of them are of course giant behemoths who have been given massive direct subsidies by their respective governments) That said, Tesla clearly has a brilliant track record of putting money to use. They built a frickin fully electric luxury sedan in 2 years on a $450M budget.
- damoncali 13y agoIt's not conservative law makers that are in the way. It's car dealerships. That type of local law is very common and widespread. Expect Tesla to submit to it eventually.
- bhickey 13y agoI disagree with this point. I don't think the laws are there to thwart competition, but to stop manufacturers from exploiting their own dealers. If, for example, a Ford dealer takes on the risk of setting up shop it would be crummy for Ford to come in and annihilate them. Tesla is operating under a completely different sales model, I don't think you're going to see judges slavishly ruling to the letter of the law.
- damoncali 13y agoI don't think so. The whole point of the various laws is to make sure the dealers have a presence and are not cut out by the manufacturers, which is exactly what Tesla is trying to do. There's nothing different about that, except that Tesla is trying any way conceivable to get around those laws and nobody else is. It's not surprising that they're updating the laws to catch up with Tesla's hacks that clearly circumvent the intent of the laws. Put another way, not only will the car dealers get pissed, but why would ford, toyota, honda, GM, etc allow Tesla to operate with an advantage? One way or another, Tesla will wind up playing by the same rules as everyone else. And given how local and how dug-in the dealerships' political power is, I'm guessing they will suck it up and sell though dealers. I hope I'm wrong. I would love to see manufacturer-run car stores.
- revelation 13y agoTesla never had dealerships, but GM and all the others did. These laws do exist, as you say, to prevent the manufacturer from cutting out the dealer after benefiting from the service the dealer provides to its customers, but Tesla never had any dealerships they could unfairly circumvent.
- 13y ago
- mtgx 13y ago5. Elon will finally tell us what the hyperloop is, now that Tesla is profitable and doing well.
- api 13y agoI sometimes wonder if that's a clever joke on his part -- put out this crazy-sounding sci-fi idea by name only and never tell anyone what it is.
- powdahound 13y agoIt's already public knowledge: http://en.wikipedia.org/wiki/Hyperloop http://en.wikipedia.org/wiki/Hyperloop
- api 13y agoI hate the whole "leeching off the fed" argument. Every large-scale business venture in this country leeches off the government, often in multiple ways: * Free use of state-subsidized infrastructure. * Free use of state-funded research and development. (This is huge.) * Government contracts. * For the finance industry, they are backstopped by the government if they are "too big to fail." * Government limits on liability for many risky industrial processes. ... and so on. Tesla is threatening the status quo in a stale, moribund industry. That is what people don't like.
- temphn 13y agoThe US government takes 5.62 trillion in local, state, and federal taxes from people each year, and when it unilaterally increases those prices people must pay up, renounce citizenship, or be thrown in jail at gunpoint. Where's the cost/benefit analysis to show that those services you tout (infrastructure, etc.) are actually provided efficiently? For those cases where private examples exist alongside (FedEx/UPS/email vs. Postal Office; SpaceShipOne/SpaceX vs. NASA; Google self-driving cars vs. California train-to-nowhere; Coursera/Udacity/Khan vs. Dept. of Ed) the comparison is not flattering.
- gamegoblin 13y agoI'm aware of the large libertarian chunk of HN and have nothing against libertarians. But api made no references or comments about the efficiency of government services; he merely stated that companies use government services. Not to be rude, but it seems like you are looking to start a political debate where there isn't one (and a conversation that has been had over and over again in HN threads).
- jusben1369 13y agoI see this mistake in economic thinking over and over again when it comes to public vs private and it's getting to be rather dull. You need to do a much deeper dive into economics or step back from making these types of statements. Much of the most "efficient" government spending is spending that the private sector would not take on because it is "inefficient" in the narrower definition of a corporation. FedEX/UPS would be much smaller companies if they'd had to rely on private corporations to builds roads and highways. The Internet would never have reached the same critical mass as private telephone companies (dial up) would never have bothered wiring huge swaths of this country where houses or farms are miles apart. UPS and FedEx (sensibly) cherry pick the richest segments of delivery as the Postal Service has to cover the non profitable segments. SpaceX would not be able to launch if it wasn't for government funded space infrastructure initiatives. IF a market is such that it can be serviced by the private sector efficently that's always the better choice. In many cases here the government, if it was in it already, will remove itself over time (USPS is going through this now on a massive scale) But there are multiple examples over the course of time where only something like a national government can rationalize the investment in infrastructure that results in dramatic improvements down the road (Eisenhower's Federal Highways, Massive Power projects, Telecommunications)