
Elon Musk Supports His Business Empire with Unusual Financial Moves - phodo
http://www.wsj.com/articles/elon-musk-supports-his-business-empire-with-unusual-financial-moves-1461781962
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dmode
WSJ has a target on Elon Musk's back. Every week they post something negative
about him or his companies. I have a couple of conservative friends who have
an irrational hatred for Elon. They rail how everything Elon Musk does is a
"scam". The WSJ comments are a reflection of that mindset. More broadly, I
wonder why WSJ and some conservatives set a target on Elon. There are
literally a gazillion subsidies, tax credits, offshore accounting going
around. For example, Hollywood shoots their movies wherever they get tax
credits. Texas has attracted large back office operations using tax credits.
Data center locations are chosen based upon which state government throws in
the most benefits. It seems odd that they would spent so much energy on Musk,
whose subsidies are probably a rounding error. It makes me wonder if there are
bigger things at stake. Are the WSJ overlords really scared that he is making
material changes to energy and transportation that could hurt them ?

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DigitalJack
That's a horrible generalization of conservatives.

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dmode
Ha ! When did I generalize conservatives ? I said a couple of my conservative
friends have this line of thought aligned with the comments. I was also just
commenting on WSJ's motivation and not conservatives in general. Obviously not
all conservatives are anti-Musk. I am not even sure that majority are. But
there is no denying that there is a strain of conservatives who have strong
anti-Musk sentiments.

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DigitalJack
"More broadly, I wonder why WSJ and conservatives set a target on Elon."

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dmode
Apologize, didn't mean to come across that way. Edited comment slightly to
reflect that

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vvanders
Man, comments on that article are certainly ugly. I wonder why subsidies for
Solar/EVs are viewed so negatively while ones for farming/oil/etc are almost
ignored.

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7952
Farm subsidies are justified based on a perception of unfair competition. That
farmers would make a loss without help.

You can actually make exactly the same argument about renewable energy. We
invested in clean energy because it is a superior, but more expensive product.
Fossil fuels are able to compete unfairly by selling a dirty product for less.
Without subsidies solar would be forced to track the price of fossil fuels. As
oil gets cheaper, solar becomes less profitable.

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abtinf
I've heard a number of arguments in favor of farm subsidies, but never one
based on "unfair" competition. I'm curious about what you mean. American
farmers are incredibly competitive and efficient, so I'm not sure who they
could be threatened by.

And I'm not sure how you are relating that point to "clean energy". You say
solar should be subsidized because it is a superior product. Are American farm
products somehow superior as well? Is grain from the mid-west some how better
than grain from Europe? Or is corn syrup cleaner than sugar cane from Cuba?

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JoeAltmaier
Farmers make no money. The government-supported crop insurance means they
don't lose money as fast.

And unfair? We use that word to describe cars, steel, electronics but not
grain? A Brazilian farmer can grow grain, haul it using donkeys to a barge,
sail it down river to the coast, pay for shipping on a grain scow, and load it
on a train to Chicago, for less than farmers in Iowa can afford to grow it.
Its got to mean miserable working conditions for people in that whole chain.
Is this any different from clothing or iPhones?

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mrep
> Farmers make no money.

Source?

My roommate in college worked on his parents farm every summer and while he
worked a lot of hours, he made would make about $25,000 dollars. That's more
than any of anyone I know made during the summer except for me (I only made
more cause my company paid for my hotel that I lived in plus the taxes on it
which were both ludicrous).

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JoeAltmaier
My family. Our neighbors. The farm accountant, who says nobody he works for
makes any money. Sure its just a few data points, but its darn hard to profit
with erratic markets and weather. Maybe make money one year in three.

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mrep
What do you guys sell? My buddy is from Indiana and they sell corn of which
they have seen consistently growing "yield rates" or some term like that.

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11thEarlOfMar
In general, a responsible CEO should utilize any legally defensible
opportunities to operate the company profitably.

By subsidizing Tesla, the Federal Government is effectively investing in it.
Tesla then utilizes tax concessions from Nevada to reduce the cost of building
and operating the gigafactory. So in a sense, Tesla is spending the money
invested by the Federal Government wisely.

If voters are not happy about the subsidy strategies of the government in
general, they should be aiming their ire at their political representatives,
not the companies that benefit from the subsidies.

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IMTDb
Is there an ELI5 version of this somewhere ? I understand some part of it but
as a non-native english reader and not-so-financial guy it makes it hard to
grasp it all.

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aerovistae
ELI5: Musk borrows money from banks for his companies. He uses his own stock
in these companies as a collateral, which means that they bank can claim the
stock from him if he fails to repay them in the long run. It also means that
if the stock starts dropping in value, the banks can take it from him and sell
it as a precautionary move, since if it dropped too much they would have
nothing.

If the banks were to do this, in theory this would hurt the companies. Right
there is where my understanding drops off. Can someone else finish the
narrative? Why would the banks selling off the stock collateral hurt Tesla ?
How is it any different from me selling my stocks and someone else buying
them? How does Tesla lose anything there?

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dxbydt
Sigh! tbh the wsj comments on this particular issue are mostly accurate,
though the other issues are debatable.

1\. Tsla is quite volatile. 2\. If it drops significantly by some Y%, Musk's
shares which are used as collateral would be called. 3\. When that margin call
gets triggered he'd be forced to sell X shares to meet it. 4\. X is very
large. 5\. Since X is large, you have a ton of tsla on the market with no
demand. Price will drop like a rock, by some Z%. 6\. Say I and you hold Tsla
shares. Obviously we are OK with a price drop of Y%, because we know the damn
thing us volatile, yet we chose to buy into it because we believe in its
upside. 7\. But just because we are OK with Y% drop due to some macro event
doesn't mean we are OK with this Z% additional drop due to the way Musk
structured his personal investments.

In other words, ordinary investors could end up losing a ton of money (y + z)
for no fault of their own, than if they had just lost y% which they had signed
up for. Depending on what numbers you attach to y and z, you can make the case
this is unfair or very unfair. For his part, Musk claims the probability of
the above is low, though definitely nonzero in today's uncertain market
conditions.

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aerovistae
I understand and at the same time there's one little thing I'm missing which
has always mystified me about stocks:

Who sets "the price"?

I understand that if a large amount of shares appear on the market with no
demand, the entity selling them will lower the price in an effort to sell
them. But how does that factor into "the price" that the stock is worth across
the market from any/all sellers? How is that calculated? Is it just whatever
the stock last sold for?

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brwnll
Yes, the stock price represents the last transaction.

If you are looking at a stock trading platform, you will usually also see
"Current Ask" and "Current Bid" representing standing sell and buy prices
(respectfully) for the stock.

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aerovistae
Re: the last transaction, what if I sell someone a couple shares of Microsoft
stock for $1? That obviously wouldn't affect the stock. Is there some
mathematical expression of amount of stock that has to be sold to impact the
price? Or is it a question of the sale being done by certain authorized
entities?

BTW, if you don't see "reply" under this comment like I don't for yours, you
can go to my profile page and "comments" and then you will see the "reply"
link.

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lambertsimnel
I think if you're a member of the public trading on an exchange, all you can
do is ask an authorised entity to accept the "bid" or "ask" price (mentioned
by brwnll above), which are set by other authorised entities. Maybe you can
trade at another price by not using the exchange, in which case the market
price would not reflect that trade, but I imagine that it would typically be
difficult to find someone to trade with unless (maybe even if) you set a
generous price.

I don't know, but maybe donating securities to charity and accepting a
takeover bid could be considered examples of off-exchange trading.

If an authorised entity wanted to set an unusual "bid" or "ask" price, I think
that would either trigger a trade (if it made the "bid" higher than the "ask")
or (otherwise, assuming other authorised entities don't follow suit) merely
signal that particular entity's unwillingness to trade that security at that
the prevailing market price and have no effect on the market price.

I don't know whether this differs from exchange to exchange.

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abhi3
I admire how Musk is so certain about his decisions and is willing to risk
all.

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sesutton
>The financial transactions have raised questions on Capitol Hill, where some
lawmakers are concerned that money from federal contracts with SpaceX could be
used to help SolarCity.

Do these people not understand that money is fungible? It's like pouring two
glasses of water into a pitcher and then trying to separate them again.

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mathattack
I understand when he puts his money where his mouth is, but is it ok for him
to fund one company with another when they're in different businesses and he's
not the only shareholder?

I don't know all the details, but it seems a little strange.

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abhi3
He didn't fund company X using company Y's money. He funded company X by
taking a _personal loan_ by pledging his own shares in company Y.

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maxerickson
The article is quite clear about SpaceX buying bonds from SolarCity.

edit: (It does also mention the large personal loans)

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abhi3
The article lists out several unusual practices. Buying bonds was just one of
them.

The bond purchase would have been approved by the board which would have
considered if it was a good investment, those details we do not have. Maybe
they were tax exempt, highly rated, secured and carried higher interest?

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nissimk
The bonds are great for investors because most of the the terms in there are
designed to screw over the customer. These bonds are securitizations of
SolarCity leased solar panel rooftop systems. The salesmane I met with in NY
told me that was the only way I could get SolarCity panels installed at my
home is if I signed the solar lease agreement (which would then be securitized
into these bonds).

The lease says that if you default on the lease, by missing a single payment,
SolarCity has the right to take back the panels, but you are still liable for
the remainder of the lease payments even though you no longer have the panels.

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maxerickson
Page 9 if anyone is interested:

[https://www.solarcity.com/sites/default/files/sc-contract-
re...](https://www.solarcity.com/sites/default/files/sc-contract-resi-
lease-2.9.pdf)

~~~
droithomme
Hm, in section 16 you also have to pay them for all costs, and you still owe
for the rest of the lease, plus compensation for loss of their investment tax
credits.

Default is also triggered if you sell the house, the person buying it assumes
the lease, but later has his credit rating drop.

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hkmurakami
> He has had a string of triumphs lately... Tesla shares are up 77% since Feb.
> 10.

Seems a bit disingenuous to cite a stock price recovery without mentioning its
preceding collapse. (they do have a more balanced chart later on in the
article)

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itp
Not only is there a chart, but the article also includes the sentence "Tesla
fell 40% from the end of December to February, but has since erased those
declines."

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wsloth514
This title makes me think he was going a casino and gambling with the
companies' money. Then he is using those winnings to create more companies.

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iopuy
Paywall free version?

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moreouters
This question makes sense to me. I believe this question, after considering
the challenges of monetizing media while maintaining journalistic quality and
integrity, is worth considering seriously and deeply.

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erikb
Money value changes though. In the internet text is so cheap that its
unreasonable to ask for money for it. That's just how it is. I personally,
don't like rain clouds, but I have to accept that water makes me wet. Get over
it.

