
Tesla Announces $500M Common Stock Offering - cpwright
http://ir.teslamotors.com/releasedetail.cfm?ReleaseID=927533
======
_xander
This is a timely announcement following chatter about Tesla's cash flow
problems[1][2].

[1]
[http://www.scmp.com/business/companies/article/1846965/tesla...](http://www.scmp.com/business/companies/article/1846965/tesla-
shares-fall-wider-loss-ceo-comments-cash-need)

[2]Flagged HN thread from 3 days ago:
[https://news.ycombinator.com/item?id=10030101](https://news.ycombinator.com/item?id=10030101)

~~~
dmfdmf
Why was that thread "flagged"? What does that mean?

~~~
gamblor956
The thread was flagged because the pro-Tesla crowd on HN felt that the article
was inaccurate regarding the amount of money Tesla lost on each car, and
flagged it over wording.

Tesla makes money on each car it sells (sales exceeds cost of goods sold), but
once fixed costs and other expenses like R&D and capital investments are
included, it has an enormous loss, so _on average_ it loses about $4000 to
$17000 per car (depending on whether you use Unicorn Accounting or Generally
Accepted Accounting Practices). The article reported this as Tesla losing
$4000 per car, which is accurate in a general/layman's sense but is
technically inaccurate.

~~~
matthewmcg
I'm going to have to start using the "unicorn accounting" phrase (vs. GAAP).
Love it.

~~~
_yosefk
It's nice but it kinda hints that GAAP is "the right thing", which is a bit
too optimistic IMO.

~~~
angstrom
Particularly when you look at any company which is growing very fast.
SolarCity would be an example where the company is growing exponentially, but
the returns are spread over 20 years instead of being realized quarterly.

~~~
_yosefk
Well, accounting is not supposed to tell how valuable a company is, just what
its balance sheet is, right? That people then take the balance sheet and
invent ways to mechanically arrive at a valuation based on that is not GAAP's
or any other accounting rules' fault.

The trouble with any accounting rules is that it's hard to convert everything
on the balance sheet into the same unit. If you don't convert it all, it's
really hard to compare balance sheets. If you do convert it all, this
conversion may be unfair to one balance sheet more than another. Or at least
that's how I understand it...

One example is pricing stock option grants so that you can then add them up
with other expenses. I'm sincerely not sure how I'd do that. Here's a critique
of what GAAP mandates:

[http://www.cypress.com/documentation/ceo-articles/dr-
rodgers...](http://www.cypress.com/documentation/ceo-articles/dr-rodgers-
speech-silicon-valley-rally-supporting-employee-equity-let-
our?source=search&keywords=options%20go)

------
noipv4
They just mass emailed Model S customers to reduce Super Charging.

[https://i.imgur.com/ruKYVHF.png](https://i.imgur.com/ruKYVHF.png)

[http://www.teslamotorsclub.com/showthread.php/51482-Supercha...](http://www.teslamotorsclub.com/showthread.php/51482-Supercharging-
letter-from-Tesla-2015-8-13)

~~~
verelo
Wow, so just ~2 weeks ago when I visited the Tesla show room in Toronto
Canada, in response to my concern, "My condo building isn't letting me install
an EV charger at this time, so i probably cant buy one" i was told "Well you
can come here and charge any time, its free and not that much longer than
having to fill up your car a gas station anyway"

At the end of the day, I feel like I avoided a bullet here, I ended up buying
a Mercedes-benz instead...the interior of the Tesla (mainly lack of tactile
feedback due to the touch screen, and simple things like there being no button
for the sun roof) was just not up to scratch, and potentially a dangerous
distraction to the driver, in my opinion.

~~~
rsync
"the interior of the Tesla (mainly lack of tactile feedback due to the touch
screen, and simple things like there being no button for the sun roof) was
just not up to scratch"

Setting aside the design differences (the Tesla interior is very modern and
stark and has very simple design) the _quality_ and featureset of the Tesla
interior is roughly equivalent to a 3-series BMW or an Audi A4.

Which is to say, it's glaringly insufficient for what is usually spec'd out as
a 90-120k car.

Let's tilt the field in favor of Tesla and compare only against mid-sized,
mid-ranged competitors, which are the 5-series, A6 and E-class. Those have
much, much nicer materials, more adjustable seats, features like ventilated
seats ... it's hard to believe that this far through the lifecycle the model S
interior is so lacking.

~~~
brianwawok
Is this a matter of design or a matter or budget?

If all the electric features are making the car already expensive... maybe the
market would not react well to another 10k in price to add some luxury
features like ventilated seats.

If things like ventilated seats are really only a few dollars to add, then
maybe it was indeed a weird choice to make. But not seeing Tesla currently
having a huge glut of inventory to unload, so seems to be filling some kind of
market niche ("Not the nicest luxury car, but fast and eco and pretty nice")

~~~
verelo
The impression I got was that its a matter of development convenience.

The Tesla UI is a big screen. If i was given the problem of "We don't have
much experience building car interfaces, and its likely something we'll want
to change once we get more experience; what should we do?" the thought of
throwing in a big screen that you can auto-update does start to sound pretty
appealing.

Having said that, as a driver, the practice of having this style of interface
just so the company can produce the cars faster and easier...i find less
appealing.

This video shows how to open the sun roof
([https://www.youtube.com/watch?v=b5a3n-vTtuU](https://www.youtube.com/watch?v=b5a3n-vTtuU)),
the fact that this button is more than 1 layer into the UI is pretty
insane(Normally the radio is in the place you see the roof in this video, so
you're pushing a button just to get to the sun roof slider). I often find
myself making this kind of adjustment while driving. Having it in this part of
the UI, i found to be a bit distracting and hard to use while performing my
test drive.

~~~
vvanders
You can bind any of these actions to the scroll wheel so you don't have to dig
into the UI.

------
jonknee
These sort of things can spook investors, but Elon purchased $20M of the
offering himself as a show of good faith. That's a big insider buy! TSLA is
currently trading up 2.5% so apparently it was also quite a convincing play.

~~~
billiam
To me, that it worked so easily says a lot about the people holding TSLA.

~~~
forgetsusername
$20MM USD is about half a percent of Mr. Musk's holdings...

TSLA is like Bitcoin; no news is bad news.

------
blacktulip
I am not too familiar with financing stuff. So is this a dilution? Does it
mean that current shares will be devalued?

~~~
repsilat
To first order, current shares should be worth a smaller fraction of the
company, but should be worth the same dollar amount as they currently are.

This process is meant to increase the size of Tesla by $500M, by simply
putting $500M into its bank account. The people who are providing this money
are getting new shares in return. In theory, the value of the new shares
should be $500M, and the value of the old shares should add up to the old
market cap of the company, and the sum of the new shares and the old shares
will naturally add up to the company's new market cap.

There are second-order effects, though. If there is only a fixed demand for
Tesla shares, this may reduce the price of shares (and so devalue the shares
of existing shareholders.) Conversely, if people think that Tesla is going to
make very good use of any new money, then existing shareholders may end up
better off.

~~~
wslh
> To first order, current shares should be worth a smaller fraction of the
> company, but should be worth the same dollar amount as they currently are.

Is this fair? I mean, you lose power because you have less shares. The share
price is only part of the investing story.

~~~
redwood
you have less power but over a more valuable company that's how it works

~~~
t0mbstone
But if a company increases in value, shouldn't the value of your shares go
_up_? I mean, isn't that the whole point of owning a percentage of a company?

~~~
Renevith
The increase in value only came from the new $500m in cash. That cash didn't
come from the company's operations and it didn't come from you, so there's no
reason to think that your shares would increase (or decrease) in value.

------
dtparr
So how do secondary offerings work, practically speaking? They've named the
amount they want to raise, not a number of shares. So do they wait until
trading closes one day, issue how many shares they need to to make that work
out to $500M and then sell it to people who've "registered" to purchase $X of
it? And then when the market starts the next day there's just an extra $500M
in market cap but all the shares trade similarly?

~~~
sparaker
That is one way to do it, but i don't think they can trade the shares
similarly at least not this way.

------
cpplinuxdude
I feel like buying some stock in Tesla to make a contribution toward our
future, not in the hopes of making money.

If these shares make money, that will be a bonus.

~~~
stygiansonic
If by "contribution toward our future", you mean giving money to Tesla, buying
their stock in the secondary market (i.e. the "stock market") doesn't transfer
any money to them. You'd have to get in on the IPO or a secondary offering to
have that effect.

However, supporting the existing stock price could have an effect - typically
the market price influences the price of a secondary offering like this.

~~~
masklinn
If Tesla offers new stock, that's additional money in their pocket.

~~~
stygiansonic
The "secondary offering" part of my comment already covers this.

It also worthwhile to note that the underwriters will take a cut/percentage of
whatever goes to the issuing company.

------
IBM
Frankly Tesla would be stupid not to issue as much stock as possible when it's
trading far above its intrinsic value.

~~~
matt4077
The efficient market hypothesis would like to have a word with you.

~~~
czbond
Theory and reality don't often match

~~~
desdiv
In theory, they always do. But in reality...

------
tdees40
So here's a thought. If I have lots of businesses with a high chance of
failure, and I bring them under one roof, any one business is more likely to
destroy my entire company. So if I have two high-risk businesses (electric
cars and energy storage) having both in the same company greatly increase the
total company's chance of insolvency and failure.

On a higher level, I LOVE Elon Musk, but what made Steve Jobs so great is that
he could innovate like crazy and make gobs of cash. Right now, Elon is
innovating, but his companies are really struggling to even sniff
profitability.

~~~
ojbyrne
I don't think your argument is correct. That is the whole point of portfolio
theory:

1\.
[https://en.wikipedia.org/wiki/Modern_portfolio_theory](https://en.wikipedia.org/wiki/Modern_portfolio_theory)

~~~
tdees40
Let me tighten up my argument a bit. Assume two businesses with an 80% chance
of success, where success is worth $1000, and a 20% chance of failure, where
failure is worth -$2000. But of course these are stocks, so they can't be
worth less than zero, so the expected value of each is $800.

But the expected value of the combined company (where all outcomes are floored
at zero) is only $1280 (not $1600), because there's a real chance that one
business blows through the profits of the other.

~~~
mikeash
Looking at it from another perspective, this is exactly why you want to
incorporate if you start a business, instead of just going as a sole
proprietorship. That way you have two entities (your person and your business)
and if one fails (your business goes under) the assets of the other are
protected (they can't take your house).

------
_pmf_
Any decent OEM can currently buy Tesla with spare change. It's criminally
undervaluated.

~~~
seunosewa
It's a financial blunder to sell new shares at a 'criminally' low price, so
maybe that isn't true.

------
cwt137
With Tesla loosing $4,000 per car[1], and they are on track to produce 50,000
cars this year, you knew they had to raise money sooner or later.

[1] [http://www.cnbc.com/2015/08/10/tesla-burns-cash-loses-
more-t...](http://www.cnbc.com/2015/08/10/tesla-burns-cash-loses-more-
than-4000-on-every-car-sold.html) [2]
[http://www.bloomberg.com/news/articles/2015-08-05/tesla-
fall...](http://www.bloomberg.com/news/articles/2015-08-05/tesla-falls-after-
lowering-sales-goal-to-as-few-as-50-000-autos)

~~~
dtparr
Again, they're not losing $4000 per car in the sense that their cost to
produce one car is $4000 more than what they're selling for. (Meaning if they
sold 50k more cars, they'd lose $200M)

They had significant CapEx and so their revenues - costs worked out to an
amount that was $4000 for every car they did sell. Had they sold more, their
net loss would have been less, not more.

~~~
hughes
With all the headlines about the $4000 figure the last few days, I was
completely mislead about what that actually meant. Thanks for explaining it.

~~~
dtparr
Yeah, for whatever reason that headline stuck even on sites that are typically
less click-baity and/or pro-Tesla. My favorite way I saw the headline
explained was something like:

I had major medical expenses this year and had to dip into my savings such
that I ended up spending about 12k more than I brought in this year. I also
ate 12 pizzas in the year. Their headline is like me saying "I lost $1k per
pizza this year". It's accurate in a sense, but they're not related.

------
crimsonalucard
Anybody have an opinion on tesla stock? Are they overvalued or undervalued?
How are there fundamentals?

------
loceng
It's going to be fantastic when all synergistic factors are fully in play.

~~~
loceng
Anyone want to cue in as to why the downvote party?

~~~
prawn
Might've thought "synergistic" was being sarcastic.

~~~
loceng
Ah, well, I wasn't being sarcastic. :)

