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Tesla Repays Department of Energy Loan Nine Years Early
- VandyILL 13y agoDoes anyone know if the DOE is able to recycle the funds back into loans for other electric vehicle manufacturers? If so, this may have been an extra smart move on Tesla's part because it could help competitors access capital and start investing in some of the shared technology behind electric cars and help bring the whole industry to scale.
- wmf 13y agoIIRC the DOE still has billions of electric vehicle loan money that they haven't awarded because there are no companies worthy of receiving it. They're also gun-shy about another Solyndra.
- snprbob86 13y agoThe subtitle says: "ONLY AMERICAN CAR COMPANY TO HAVE PAID BACK GOVERNMENT" Assuming that's true, I'm not sure whether I should be proud of Tesla, ashamed of our Government, or angered at other car companies. Probably all three...
- lclarkmichalek 13y agoWhat's the problem with companies paying back loans when they "need" to (i.e. when the loan comes to an end)?
- davidrudder 13y agoI'm not an economist, but this is how I understand it. GM paid back it's debt in full, but it paid most of it back in stock. The US government has sold some of it, so it's gotten about half of it's bailout back in cash. But, it still has a ton of GM stock. It's selling the stock slowly to avoid disrupting the market. That being said, the government needs to sell at something like $75/share to make their money back, but it's at $33 as I write this. Source: http://www.fool.com/investing/general/2013/05/09/when-will-gm-pay-back-its-bailout.aspx http://www.fool.com/investing/general/2013/05/09/when-will-g...
- testing12341234 13y agoThis announcement doesn't really have anything to do with GM (or even apply to them) in anything but the "we gave them a loan" sense. From the linked article: "This program is often confused with the financial bailouts provided to the then bankrupt GM and Chrysler, who were ineligible for the ATVM program, because a requirement of that program was good financial health."
- davidrudder 13y agoYeah, I thought that was confusing. "We're the only", "but in some circumstances we're not really talking about everyone". I thought it was worth answering the question "did GM pay back it's loan" because GM is the largest and most notorious recipient of US loan money. Maybe Tesla really did mean "We're the only American company who received an ATVM loan to pay it back." But, if so, they're being intentionally misleading.
- nathan_long 13y ago>> GM paid back it's debt in full, but it paid most of it back in stock. ... the government needs to sell at something like $75/share to make their money back, but it's at $33 as I write this. So they "paid" their debt with something that 1) isn't worth enough to cover their debt and may never be 2) gives the government a financial interest in continuing to keep them afloat. Pretty nice deal if you can get it.
- 3am 13y agoWhy be mad at anything? At most be mad at car makers for running so leveraged that they had liquidity problems at the same time that all the major lenders in the financial system ran into solvency problems (and feel free to be mad at the financial sector) But given that, it was _excellent_ government policy to guarantee loans to the automakers, just from a cost/benefit perspective. And there's no shame in not going above and beyond the repayment terms of a loan - but good for Tesla for doing so (and great marketing).
- Uhhrrr 13y agoGM was in trouble long before the 2008 crash: http://www.thetruthaboutcars.com/2008/06/general-motors-death-watch-181-bankruptcy/ http://www.thetruthaboutcars.com/2008/06/general-motors-deat... (in June 2008, they were already up to part 181 in their series) Also, guaranteed loans for automakers might be excellent compared to other government policy, but given that Ford didn't take a loan, and there are many foreign companies which didn't need loans, the existence of any benefit from subsidizing more poorly-run automakers is questionable.
- dragonwriter 13y ago> Also, guaranteed loans for automakers might be excellent compared to other government policy, but given that Ford didn't take a loan, and there are many foreign companies which didn't need loans, the existence of any benefit from subsidizing more poorly-run automakers is questionable. FWIW, Ford's CEO disagreed, which is both why he went to Congress in 2008 to argue for the bailout, and defended the bailout in 2012 as having been good for the country, the industry, and Ford even though Ford wasn't a direct beneficiary [1]. [1] http://articles.latimes.com/2012/apr/19/news/la-ol-ford-ceo-rebuts-mitt-romney-auto-bankruptcy-view-20120418 http://articles.latimes.com/2012/apr/19/news/la-ol-ford-ceo-...
- Uhhrrr 13y agoWell yeah. The bailout terms were heavily slanted towards the unions. Of course Ford preferred the bailout to competing against some company which might buy all the assets at bankruptcy prices and then hire workers on much more favorable terms.
- dcosson 13y agoI'm sure there was some money wasted along the way, but this makes me think of the often-quoted (around here at least) anecdote that VCs succeed not by getting decent returns across the board but by having one or two "home runs". If Tesla is the home run that this ATVM program made possible, maybe it doesn't matter if all the rest end up defaulting on the loans (which this article doesn't even imply, Tesla seems to have just paid back the loan early). Obviously the economics of government loans aren't exactly the same as those of VC investments, but making the large-scale production of electric cars economically feasible is a huge accomplishment that seems like it'd be worth the cost of this whole program.
- roin 13y agoAs you noted, the problem is that the government bought debt, not equity, so they don't share in the upside that would make this a financial home run that makes up for other failures. That being said, the government isn't in this to make money, they're in it for the broader benefits that will spillover outside of the individual company receiving financing. In that sense the VC analogy could work, because a major successful electric car company in the US probably would be a "home run" for the country (and the world) on several dimensions, more than making up for losses on the way.
- tufyjggbfhry 13y agoWhat the fuck are you talking about? They are in it for the money, in the form of taxes. Taxes that are then used for public services.
- rayiner 13y agoWho ever pays back the government for stuff? It's largely besides the point. The government didn't bail out say GM because it wanted to get a return on its investment. It did so because of the fear that letting Detroit go bankrupt would have a domino effect that would leave a gaping crater in employment. If the car companies manage to pay back the government, great. Even if they don't, that wasn't really the point.
- ericcumbee 13y agoYet GM still went bankrupt...just a few months later. People forget that. So what was really gained?
- rayiner 13y agoThere's bankruptcy as in a controlled restructuring, and then there is bankruptcy as in a failure of the business with ripple effects throughout the economy. What GM went through was the former, and it was foreseen at the time of the government's investment.
- ericcumbee 13y agoThere was nothing to keep them from going through a controlled bankruptcy at the start of it.
- danielweber 13y agoPeople forget just how amazingly tight the credit markets were at that time. Extremely tight. To keep it short, the bailouts of both the auto sector and the banks were bad, but probably the least bad of a bunch of very worse options. The moral hazard problems with both of them are significant. (It's personally good to fail at the same time as everyone else, because you get bailed out, while we really want systems where failures are independent.)
- duck 13y agofear that letting Detroit go bankrupt would have a domino effect that would leave a gaping crater in employment You mean like the +20% currently unemployed in Detroit? The best thing about Detroit is that one day it will be used as a case study of why entitlements don't work out the way people think they do.
- lanstein 13y ago"This program is often confused with the financial bailouts provided to the then bankrupt GM and Chrysler, who were ineligible for the ATVM program, because a requirement of that program was good financial health." "ONLY AMERICAN CAR COMPANY TO HAVE PAID BACK GOVERNMENT" I'm not so sure Elon isn't writing his own copy.
- andrewtbham 13y agoI own Tesla stock and I'm glad to see this. Tesla has been a highly politicized stock... largely because Mitt Romney and Sarah Palin called it a "loser." My hope is that this will help get rid of that stigma and help them with their image and political battle with dealerships in red states, like North Carolina and Texas. This also removes some strings attached to the DOE loan. For instance, Tesla could be acquired (although I find that unlikely).
- axus 13y agoI wondered if the payback a political move; something to make the U.S. government look good after the problems with Solyndra and Fisker Automotive. Mentioning the other auto companies doesn't sound like an attempt to make the government look good, though, just Tesla.
- twistedpair 13y agoDon't forget, we tried to make Tesla dealerships illegal first here in Mass. NC was late on that one, so let's not make it a "Red State" matter.
- veritas20 13y agoIt's a preservation of money and industry matter.
- twistedpair 13y agoEver heard of the Tucker? It was the Tesla of its day. So Detroit sued them out of existence.
- andrewtbham 13y agoI agree, the dealership issue is not a red/blue state issue. It's one less criticism that can be used against Tesla... one that would likely be more effective in red states.
- deleted 13y ago[deleted]
- mrkmcknz 13y agoDidn't Tesla repay this loan back with another loan: http://www.reuters.com/article/2013/05/15/us-tesla-stock-idUSBRE94E18W20130515 http://www.reuters.com/article/2013/05/15/us-tesla-stock-idU... I'm not a market economics kind of guy but I don't see how this is any kind of special achievement. Surely any other car manufacturer could have done precisely this?
- apaprocki 13y agoNot if the rate was 10%, 20%, etc. It's just a form of bootstrapping. The government stepped in and bootstrapped it so now the private sector can finance it normally.
- cinquemb 13y agoMaybe it isn't a special achievement if you're suggesting GM could pull this off.
- twistedpair 13y agoSeems that not all electric car companies getting loans from the US gov't are repaying their loans.
- meterplech 13y agoThe story is that they paid it back via the private market, meaning that the financial community believes in the company enough that they no longer need public support. Incidentally, they did issue corporate debt (a form of a loan, sure), but also issued more equity as well.
- mrkmcknz 13y agoI guess it probably made sense financially in that the private market believed in Tesla enough to provide a better rate than the original loan.
- ChuckMcM 13y agoNo, they paid back the government loan with stock. The difference between a 'convertible note' and a 'loan' is that in a convertible note turns into its conversion when 'due.' Basically it turns into stock at the value of the amount borrowed plus interest. There is a fascinating Convertible Note generator that you can run on the Wilson Sonsini web site [1] which I recommend doing if you are at all interested and read all the text about why or why not you might want choose one set of terms over the other. [1] http://www.wsgr.com/WSGR/Display.aspx?SectionName=practice/termsheet-convertible.htm http://www.wsgr.com/WSGR/Display.aspx?SectionName=practice/t...
- matt_brushlabs 13y agoI don't know if Elon should be so quick to thumb his nose at the other auto manufacturers. For one, he's facing a pretty substantial uphill climb WRT dealership laws in a lot of states, and rattling the snake cage won't win any friends. On the other hand, when brand value (save Ford) for the domestics is strikingly low, maybe he's throwing punches exactly when he needs to.
- preinheimer 13y agoHe's not fighting car makers, he's fighting the (generally very independent) dealers in those states. Playing nice isn't going to have them withdrawing their complaints. At this point better PR, and a mention on the six o'clock news seems worth it.
- matt_brushlabs 13y agoI'd agree with you, on the most part -- but I've worked with folks at the Big Three on their dealership strategies, and trust me: they're strange bedfellows. Look no further than how TrueCar had to pivot their business model in a short period of time in order to comply with the cold backhand of dealers. It's a juggernaut, sadly. I'm rooting for Elon to turn it on edge.
- dba7dba 13y agoIf you think about it, Tesla is a lot like Apple. One similarity is having their own sales channel and not reply on a middleman. Main channel of apple products is their website and the stores. And I for one would like a choice in buying cars, directly from maker and also dealers.
- noname123 13y agoThe reason why Tesla is able to pay the Dept of Energy loan early is because of a secondary stock and bonds offering worth about >850+ million. In another words, Tesla is raising funds by generating more debt (from bondholders) and diluting share value (from shareholders), roughly about 3.5 mil out of 40 mil float, and using that money to pay the US govt. TSLA rose on the news despite diluting shareholders is because coupled with the announcement, Elon Musk mentions that he will personally put an additional 100mil into the secondary offer; and general exuberance that TSLA will use the cash for more infrastructure build-out, a la Google, Yahoo during their heyday's. Make no mistake, this is as much a PR ploy by Tesla to pump up their offering. It's incredibly smart for Musk and company to raise money in a very favorable environment as TSLA climbed from 45 to 90 after earnings. However, it remains to be seen if they can be still profitable. Note that they are still selling each car at a material loss; and only managed to show a profitable quarter by trading green credits they gained from their manufacturing. To truly scale, they need to either drive down the production cost of their cars down and broaden their market as there are only so much supply of carbon-emission credits on the market. Disclosure: I trade TSLA options on volatility, without any directional bias.
- andrewtbham 13y agoWhere do you get 40M for the float? Yahoo indicates 73M. Plus doesn't dilution go against all outstanding shares (115M)? http://finance.yahoo.com/q/ks?s=TSLA+Key+Statistics http://finance.yahoo.com/q/ks?s=TSLA+Key+Statistics
- Nrsolis 13y agoIf I take a step back from this, I'd say it's bad strategy to bet against Elon Musk. IMHO, part of what makes his companies appealing is that he has a remarkable track record of keeping his head down and just getting sh!* done. I'm very impressed with his work ethic and vision and I think Tesla is going to go far. Secondly, if he is successful and manages to bootstrap and entire electric car industry from the ground up, what kind of effect do you think this innovation is going to have on the world? Think of the massive investment in geopolitical resource availability that will be mitigated by the diversification of fuel options for auto transport. He already hit one home run with PayPal, hit a triple with SpaceX, and might steal home with Tesla. He's a star player in a very sparse field of real innovators right now. Disclosure: I also trade TSLA options, but I'm quite bullish on the company.
- gailees 13y agolike a BOSS
- codex 13y agoTesla's early repayment of their DOE loan has prevented the U.S. government from exercising three million warrants, which would have netted America around $250 million at the current stock price. Smart move for Tesla, almost a huge boon for U.S. taxpayers.
- Eliezer 13y agoOh, they had stock warrants? That explains it. Trading the low-interest debt for stock wouldn't make any sense otherwise.
- MarkMc 13y agoMitt Romney must hate Tesla - it is a textbook example of why governments should sometimes mess with free markets. If the government had not provided this loan Tesla would have gone bankrupt and the US would have lost a significant high-tech asset. 99% of the time the market is more efficient than government, but that other 1% counts for a lot.
- deleted 13y ago[deleted]
- JunkDNA 13y agoThe right wing argument against government meddling isn't that it doesn't work sometimes (broken clocks being right twice a day and all that). The complaint is that, in aggregate, for every Tesla there are countless Solyndras. Governments aren't good at picking investments for the exact same reason individual people are not good at picking investments: predicting the future is hard. It's doubly hard when governments do it because of the distorting influence of constituents and politics. Let the private sector keep that money and if Elon convinces enough people to lend him cash, he can move forward. I have no doubt he could have done everything he has without a loan from Uncle Sam.
- josefresco 13y ago"The complaint is that, in aggregate, for every Tesla there are countless Solyndras" The problem with that argument or complaint is the evidence against it... "The Energy Department has said that losses in the $34 billion loan portfolio amount to about 2% of the total." This program might be a success so far, I cannot speak to past government investments which might back the "right wing" view better.
- cdugg 13y agoI don't remember getting a check from tesla nor was I asked permission to loan them money . The whole absurdity of "greater common good"
- nathan_long 13y agoWhat's absurd about it? If pollution has bad and expensive effects (asthma, flooding, crop loss), those creating it should pay to help deal with it. It's like paying to have your own trash picked up instead of dumping it in your neighbor's yard. If you doubt that pollution is bad, that's another story, but you're in the minority and outvoted.
- twoodfin 13y agoAnd you really think the best way to do that is to subsidize toys for rich folks?
- epicureanideal 13y agoAs far as I know, the subsidy is the same regardless of the price of the vehicle, so it doesn't apply only to "toys for rich folks". Also, I wouldn't say that a Tesla is a toy for rich folks. Many reasonably successful software engineers could afford one if they didn't want to spend their disposable income on other forms of entertainment.
- josefresco 13y ago"Entertainment for the upper middle class" there fixed it for you.
- AlisdairO 13y agoAs part of a long term plan to commoditise the technology and make it cheap, as you no doubt well know.
- roguas 13y agoOf course they should pay. Money should go to people who suffer from pollution. Its not like paying to have your own trash picked up. When you pay to have trash picked up you can choose a company, you can do it yourself, you can produce no trash etc.etc. Why should one pay companies to make cars they will never buy? One that has never added his 5cents to the pollution is beyond reason. But then again democracy is just another form of tyranny.
- kumarski 13y agoWhat about Lee Iaccoca? and Sergio Marchionne? I thought they fully repaid the government too. Maybe I'm confused?
- deleted 13y ago[deleted]
- Coko 13y agoI usually don't comment, but I'm surprised that I haven't seen anyone mention what I think is the most important part of the story. The DOE loan was an attractive low-interest loan. Why would they repay it early? Because the DOE loan had restrictive agreements that prevented Tesla to stay competitive. From page 44 of their May 10th Quarterly Report SEC Filing: "Our DOE Loan Facility documents contain customary covenants that include, among others, a requirement that the project be conducted in accordance with the business plan for such project, compliance with all requirements of the ATVM Program, and limitations on our and our subsidiaries’ ability to incur indebtedness, incur liens, make investments or loans, enter into mergers or acquisitions, dispose of assets, pay dividends or make distributions on capital stock, prepay indebtedness, pay management, advisory or similar fees to affiliates, enter into certain affiliate transactions, enter into new lines of business and enter into certain restrictive agreements. These restrictions may limit our ability to operate our business and may cause us to take actions or prevent us from taking actions we believe are necessary from a competitive standpoint or that we otherwise believe are necessary to grow our business. In addition, our DOE Loan Facility also contains a variety of customary financial covenants, including covenants related to current ratio, leverage ratio, interest coverage ratio and fixed charge coverage ratio. We modified certain of these covenants in February 2012, September 2012, and again in March 2013."
- damoncali 13y agoNot terribly surprising. I've seen HUD loans up close, and if DOE loans are anything like HUD loans, they are a nightmare. Audits, escrows, and complexity 'til the cows come home. Thanks for digging that up though, I was wondering why they refinanced it, as I assume the interest rate was pretty good.
- Fuxy 13y agoFinally a company with a sense of integrity and responsibility. Regardless of how they raised the money the had a debt that they needed to pay and they did which is more then i can say about most companies. "Tesla will be the only American car company to have fully repaid the government." All other companies only care about their stock and how to make more money the last thing on their mind is paying back their debts and the government lets them get away with it because their "too big to fail". Let me tell you something ...there's no such thing that is the result of their bad decisions and if they don't fail they will repeat the same mistakes again and again because they can.