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Tesla Announces $1.6 Billion Convertible Notes Offering
- crabasa 13y agoTSLA up 2% on the news: https://www.google.com/finance?cid=12607212 https://www.google.com/finance?cid=12607212
- aroch 13y agoSo, bet's that the recent Apple/Tesla meetings were about Apple joining this?
- zinssmeister 13y agothose meetings with Apple weren't really "recent". But yeah Apple has a high interest in batteries as well of course.
- digikata 13y agoIs there a reason for Tesla to raise funds via Convertible Notes vs issuing additional stock? I know little about this area. edit: Thanks for a range of informative replies!
- revelation 13y agoI think it's designed to limit dilution of existing shareholders.
- marvin 13y agoA suspicious mind could also suspect that it is an attempt to limit availability of additional shares on the open market, preventing existing short sellers from covering their positions en masse. Musk said something to this effect during the previous capital raise. Tesla has a ~30% short interest, which contributes to the ridiculous volatility of the stock.
- toomuchtodo 13y ago> Tesla has a ~30% short interest, which contributes to the ridiculous volatility of the stock. As a TSLA investor who owns several thousand shares, is there any way I can take advantage of this? I'm always looking for a way to generate more cash to acquire more TSLA.
- wbl 13y agoAsk your brokerage if your shares are being put out for rent. If they are, you are getting fees from letting people take short positions.
- toomuchtodo 13y agoThey're at TD Ameritrade in an institutional account managed by an automated Y Combinator investment firm. How do you determine which brokerage firms lend shares out for shorts?
- durkie 13y agonot to derail your interesting question (which I also want to know the answer to), but I'm super curious about that account: managed by an automated y combinator investment firm? can you elaborate on what that means?
- toomuchtodo 13y agohttps://www.futureadvisor.com/ https://www.futureadvisor.com/ I put cash into our (mine and my wife's) retirement accounts every month, they auto-rebalance it to optimize returns and tax savings. They have the ability to lock securities in your accounts so their algorithm doesn't touch them, but I asked them to move my TSLA stock to distinct IRA/ROTH IRA accounts just to be safe.
- eru 13y ago> Tesla has a ~30% short interest, which contributes to the ridiculous volatility of the stock. Are you sure that this is the direction of cause and effect?
- rayiner 13y agoA blue chip company will usually issue bonds because investors perceive them as low default risk and will buy debt at attractive rates. A company like Tesla would be seen as higher risk and would face higher rates on debt. A convertible note offers a potential equity element that can cause investors to accept less interest in return for potentially sharing upside though equity. The benefit to Tesla is that it won't necessarily dilute existing shareholders unless the conversion is exercised.
- vagarwa 13y agotargets different group of investors (who like the fixed income component) and is quicker to issue and less costly in terms of coupon rate and transaction costs. Tesla's high stock price 'begs' a convertible offering which lets the Company offer equity by the 'back door' without impacting the stock negatively.
- dpcheng2003 13y agoCheap debt with enough financial engineering to minimize EPS dilution. TSLA is an ideal stock for convert debt because it's highly volatile (compared to some other companies) which makes the pricing more attractive and opens it up for a certain class of buyers. Source - I used to price these for a living.
- foobarqux 13y agoNamely convertible arbitrage.
- billyarzt 13y agoThese also allow for deductions at Tesla's applicable plain vanilla debt rate, which would be much higher than the cash interest rate on the notes (by using a call spread on top of the embedded option). So there's a tax arbitrage as well. Source: I used to structure and sell these for a living "In connection with the offering of the notes, Tesla intends to enter into convertible note hedge transactions and warrant transactions, which are generally expected to prevent dilution up to approximately 100% over the common stock price at the time of pricing of the notes due 2019 and 120% over the common stock price at the time of pricing of the notes due 2021. Tesla intends to use a portion of the proceeds from the offering to pay the net cost of the convertible note hedge transactions. In connection with establishing their initial hedge of the convertible note hedge and warrant transactions, the hedge counterparties or their affiliates expect to enter into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the notes, including with certain investors in the notes."
- dpcheng2003 13y agoBilly... it's David Cheng (Hans' buddy). BofA tech ECM desk, FTW.
- billyarzt 13y agoHa, amazing. FTW for sure! Hope you're well.
- foobarqux 13y agoFrom Wikipedia: > From the issuer's perspective, the key benefit of raising money by selling convertible bonds is a reduced cash interest payment. The advantage for companies of issuing convertible bonds is that, if the bonds are converted to stocks, companies' debt vanishes. However, in exchange for the benefit of reduced interest payments, the value of shareholder's equity is reduced due to the stock dilution expected when bondholders convert their bonds into new shares.
- cloudwizard 13y agoThis means that the law banning Tesla sales in Texas will be off the books in about 20 seconds.
- deletes 13y agoCould you elaborate on that; why would politicians care?
- Phlarp 13y agoJobs. This factory has the potential to bring a large number of jobs to whichever state it ends up getting built in.
- arepb 13y agoIndeed. 6500 jobs specifically.
- ck2 13y agoUntil the battery packs can be built by robots or robotic assembly machines. Which cannot be too far away for that kind of volume.
- zeckalpha 13y agoWho will maintain/engineer/program/design the robots? It's not robots all the way down is it?
- toomuchtodo 13y agoNot yet, but eventually it will be. The battery pack cases could be SLS assembled (laser sintered) to exacting specifications. Pack disassembly could be automated. Not quite sure on raw material->cell construction though. I'll have to research that process and see if FANUC robotics has anything that would fit the bill for that sort of work
- cs702 13y agoWow, they expect to be selling half a million vehicles/year in six years. That would make make a Tesla a major automaker, roughly in the same league as household-name auto brands -- you know, the ones that advertise in the Super Bowl.
- mikeyouse 13y agoWow, they expect to be selling half a million vehicles/year in six years. No no no, they expect to sell batteries to power half a million vehicles per year.. They intend to supply other auto companies with battery packs. That would make make a Tesla a major automaker, roughly in the same league as household-name auto brands. It would still be a magnitude smaller than all 'major' manufacturers. Toyota sells ~10M/year, GM ~9.5M/year, VW ~9.2M/year, Ford ~5.5M/year, Chrysler ~2.4M/year, BMW ~2M/year.. There's no shame in being a wildly profitable smaller manufacturer though.
- basicallydan 13y agoThe Gigafactory PDF does make it sound like it'll be 500,000 vehicles per year, though. Perhaps it's left vague because "500,000 batteries" just doesn't sound like a lot of batteries to most people.
- cdash 13y agoWell they could just use the number of actual cells there are in a battery pack which I think is 7k. So that is 3.5 billion battery cells per year. I think 500k cars is much better to understand though.
- Crito 13y agoYeah, saying "3.5 billion battery cells per year [for cars]" could make it sound like they delusional expect every other person in the world to be buying a new electric car every year by 2020.
- cs702 13y ago
- dbg31415 13y agoFuck, I read all that and still no news of a Tesla Convertible. Bring back the Roaster! Any executive that opts to discontinue a 2-seater needs to be shot.
- josh-wrale 13y agoI wouldn't be surprised if the reason for a current lack of a convertible is a strategic move away from the following things: 1) making the cars even more expensive (by making) 2) things that have to high potential for fatality 3) things that require lots of engineering, testing and certification for a limited appeal/run (and thus limited profit) It will be awhile on that convertible, I bet. The Model X has gullwing(-like) doors.. That's pretty cool, right?
- grecy 13y ago> The Model X has gullwing(-like) doors.. That's pretty cool, right? http://i52.photobucket.com/albums/g24/speed_addict/Lambo-Doors-So-Played-Out.jpg http://i52.photobucket.com/albums/g24/speed_addict/Lambo-Doo...
- josh-wrale 13y agoThat is a truly awesome image. Here's the Model X: http://image.automobilemag.com/f/57687390+q100+re0/Tesla-Model-X-falcon-doors.jpg http://image.automobilemag.com/f/57687390+q100+re0/Tesla-Mod...
- Crito 13y agoDoes anybody know if those doors have cup-holders? Parents of small children might get a little surprise when they open up those doors if they do. In any event, they seem more practical than regular doors and are certainly cooler than sliding doors.
- deletes 13y agoThat must have been a design tradeoff. These are some pictures of the Model X, I have found. There are no "holes", only arm-rests. The black detail on the second picture must be the window control. http://d.ibtimes.co.uk/en/full/230436/model-x.jpg http://d.ibtimes.co.uk/en/full/230436/model-x.jpg http://b.fastcompany.net/multisite_files/codesign/poster/2013/01/1671665-poster-tesla-model-x.jpg http://b.fastcompany.net/multisite_files/codesign/poster/201...
- jacquesc 13y agoJust curious, how does this differ with 'junk bonds'?
- riggins 13y ago'junk bonds' are bonds with a high interest rate because of poor credit quality. convertible bonds basically have an equity option attached, so the interest rate paid by the issue is lower than what it would be otherwise (because the buyer is getting an option). Often it is low grade companies that issue convertible bonds (to keep the interest expense they pay down), but it doesn't have to be. Investment grade companies can issue converts as well.
- jake_nd 13y agoVertically integrating seems logical. Next step, lithium mines? And will they build the same 18650 packs, or develop something new?
- paulftw 13y agoUsually, when you start investing in manufacturing, that means R&D has achieved all it could. So is this factory a sign that Tesla is settling down on the current levels of cell capacity, charging times, weight, etc? I.e. they don't believe in a breakthrough before 2020, do they?
- wtvanhest 13y agoI've never heard that view before. Do you know of some examples that fit that model? The one I can think of that doesn't fit is Intel. They continue to innovate while investing in manufacturing.
- paulftw 13y agoIt's not the fact they invest in manufacturing, it's the size of the investment compared to company size/assets. Factory is supposed to pay for itself before its product becomes deprecated. Looking at how expensive this gigafactory is - how many years will it take before profits from selling li-ion batteries cover the equipment & construction costs? Some projections say peak output is expected by 2019-2021. Doesn't this imply that today's technology will still be competitive and in demand 6-7 years from now? I'm assuming gigafactory uses chemicals and tech that powers current generation of Tesla cars. Because if they had something significantly better they would not care about 2019, but would instead die to get it to market ASAP. Not caring about unit price or volumes. Just to prove that it works and to capture the high end market. And my second assumption is they don't plan to lose money on this project.
- wtvanhest 13y ago> Some projections say peak output is expected by 2019-2021. Doesn't this imply that today's technology will still be competitive and in demand 6-7 years from now? Tesla never said they will be building today's batteries in the plant and I would be surprised if your assumption is correct. They likely have projections on their R&D and can also project how long it takes to build massive capacity on what they are building. All major manufacturers of all complex products are faced with the same challenges. Management must match R&D to production or they will have huge misses. Manufacturing true technologically advance products is tough. There are many examples of companies that simultaneously invest in R&D while making far out production capacity investments: Intel, all Pharmaceutical companies etc. etc. If you can think of some companies that invest heavily in R&D, then stop investing in R&D and start investing in manufacturing, I would be interested in learning about them and why.
- hrvbr 13y agoOh, the Tesla website is available in French now and they're building stores all over Europe.
- chiph 13y agoA half-million batteries a year means they need raw materials to support that production. Are there suppliers that can do that? After all, these are car-sized batteries, not phone-sized ones.
- kirk21 13y agoBuying more panasonic stock as we speak. They are one of their main partners and the stock is still damn cheap.