
Tesla seeks to raise $1.5B to fund Model 3 production - whatok
https://www.reuters.com/article/us-tesla-offering-idUSKBN1AN13I
======
nihonde
Meanwhile, Toyota and Mazda quietly announced a tie-up specifically for all
electric vehicles. I know it's not as much fun as rooting for Tesla, but the
odds are on the German and Japanese incumbents in the long run. It's very
Japan Inc to wait until consumer interest proves itself, and then start the
long game in extreme earnest with cross-brand cooperatives and government
backing.

~~~
flexie
Let's see. I hope they will become competitive. They know how to produce
quality combustion engine cars at scale, that's for sure.

But that the world's largest car manufacturer has to team up with another of
the large manufacturers just to get a viable EV competitor on the market
doesn't bode well. Right now they really don't have any decent EV on the
market, any of them.

Toyota hopes to introduce a solid state battery type at some point in the
early 2020s. Check it out here, where you can also see their latest EV concept
car for ride sharing: prototype:[https://www.engadget.com/2017/07/25/toyota-
future-ev-battery...](https://www.engadget.com/2017/07/25/toyota-future-ev-
battery-tech-longer-trips/)

At that time, Tesla's Model 3 will have been on the market some 3-7 years.
Will they be able to catch up? I am not sure - To me it seems like the usual
traditional car company in denial thinking it needs to make weird cars for
weird EV fans. This is Mazda's much better looking concept:
[http://www.stuartsgarages.com/web/mazda-electric-car-
planned...](http://www.stuartsgarages.com/web/mazda-electric-car-planned-
for-2019/) No vital specs such as range has been provided, though.

Both the Asian, European and American competitors will not only be 3-4 or even
5-6-7 years behind. They will be hundreds of millions of miles behind in terms
of autonomy, and thousands of charging stations behind. And so far, they are
still stuck with the old structure of dealerships when accessing the markets;
dealers that in many of the markets used to make a good chunk of their income
on repairs and spare parts, both which is likely to be less important with
EVs. And a large part of their manufacturing infrastructure and employees can
only be used for combustion engine cars.

For each of them, if they flunk their first serious attempt at launching a
competitive EV, you can add another 3 years or whatever the developing to
production cycle is for vehicles. Right now, I have seen no-one - not a single
one of them - with specs and design for even as much as a concept car that
compares to the long range Model 3 now in production.

My bet is that those of the traditional combustion engine manufacturers that
flunk their first attempt (and right now they all look as if they try to
fail), will suffer huge losses from 2020- 2025 and that some of them may never
recover.

~~~
mschuster91
> Right now they really don't have any decent EV on the market, any of them.

Toyota has the Prius, which is the car model that basically equaled "electric
car" before Tesla even though it's "just" a hybrid. I wouldn't put Toyota out
of the game yet.

> Both the Asian, European and American competitors will not only be 3-4 or
> even 5-6-7 years behind.

Where they will be in front of Tesla, however, and that for at least a decade:
scaling and support. Once a car manufacturer figures out how to build a decent
electric vehicle, it's easy to retool the factories. BMW with its i3/i8 series
has experience with electric cars and with scaling while maintaining quality.
Also, the big manufacturers have huge networks of dealers and service centers,
which means that customers who value reliability and/or stress-free repairs
are more likely to buy a BigCo car instead of a Tesla.

> They will be hundreds of millions of miles behind in terms of autonomy, and
> thousands of charging stations behind.

In Europe, charging station connectors should be standardized so there won't
be a major advantage there. And autonomy... I would be surprised if big
truck/bus vendors like MAN, Scania, Volvo and others don't have their newest
fleet models send telemetry data back to home like Tesla does. Especially
buses can deliver mountains of data about city travel back home.

tl; dr: I would not count on BigCar going belly-up, Tesla will imho just be a
powerful competition but nothing like BigCar in scale.

~~~
flexie
I love the Prius but it's a hybrid, not a full EV. Now when we've seen that
full EVs can have long range why would we bother with internal combustion
engines at all?

~~~
scottLobster
"Long range" is a marketing term. Right now I couldn't take a "long range"
Tesla into rural North Carolina to see my relatives without serious range
anxiety and/or careful routing.

Charging station coverage in the US is about where digital cellular coverage
was in the mid-2000s. It exists in most places and in major population
centers, but there are clear holes. Gas stations meanwhile are still
ubiquitous.

The outlook may be different in 5-10 years, but right now in the US a plug-in
hybrid is the best of both worlds IMO. Assuming your round-trip daily commute
is within the electric range it's a de-facto pure EV, with the gasoline only
kicking in for occasional longer trips.

~~~
HeyLaughingBoy
_Charging station coverage in the US is about where digital cellular coverage
was in the mid-2000s_

Even this may be optimistic. I can name the 5 closest gas stations to my house
(even though the closest is about 8 miles away), but I couldn't name a single
charging station. Not one. I see Teslas on the road, so they must exist, but I
haven't a clue where they are.

~~~
scottLobster
Check this map out, you might be surprised:
[https://www.plugshare.com/](https://www.plugshare.com/)

And Tesla's supercharger map:
[https://www.tesla.com/supercharger](https://www.tesla.com/supercharger)

I've found they tend to be out of the way or attached to shopping centers/big
box stores/other places you wouldn't expect. It's rare to find a charging
station with gas-station-like visibility, the numbers just aren't there yet I
guess.

~~~
HeyLaughingBoy
The closest Supercharger is about 40 miles away, but that other map shows a
120V charger about 12km away at a golf course. I wonder if it's specifically
for car charging, though. Even this far south in Minnesota, some places do
have plug-ins for engine heaters in winter.

------
stevecalifornia
Can someone explain the best method to purchase some of these bonds? I want to
purchase a small amount that I am willing to lose ($3K - $10k).

~~~
jonknee
Typically though your broker. Curious as to why you'd specifically want these
bonds? Unlike stocks they have a fixed upside (5ish percent) and yet can still
go to 0.

~~~
neals
Why would anybody buy them?

~~~
bkanber
Bonds are a healthy part of a diversified portfolio. There of course is risk
to bonds. The bond market is less volatile than the stock market, which is
what draws most investors to them. In poor market years bonds can yield more
than equity.

Bonds have a higher liquidation preference than equity, so if a company is
going under you have a better chance of recouping some money. Bonds also pay
their coupons on an annual or semi-annual basis and become income. Bonds can
also be traded on the secondary market just like stock.

Just like equity there's a ton of downsides to bonds as well, like interest
rate risk, prepayment risk, credit/default risk.

Bonds are rated by credit agencies, equity is not. In _theory_ (though we've
seen credit agencies fail time and time again), bond risk is better-understood
and communicated than stock risk. Highly-rated corporate and government bonds
are a good, stable place to store capital to protect against market volatility
and inflation depreciation.

For instance, when the global market took a hit last year, a ton of demand for
US Treasury bonds was created. Investors bought US bonds at a loss (both on
primary and secondary markets) because the loss was a well-understood, small
amount (something like 1-2% over 10 years), rather than the totally unknown
loss that the stock market would suffer.

Junk bonds like this one are higher risk in exchange for higher yield. Junk
bonds usually are issued either by companies on the way down (low confidence)
or companies on the way up (no credit). If you're long on Tesla and believe
they're in the "on the way up", adding these bonds to the portfolio could be a
decent source of low volatility income.

This isn't advice. Just explaining why people buy bonds!

~~~
whatok
Can you clarify what you mean by a loss here?

> Investors bought US bonds at a loss

US Treasuries did not have negative yields last year which is the the closest
thing I would consider a loss but would depend on the context.

~~~
bkanber
I looked at the prices again, you're right that yields on the primary were
positive.

Yield on the secondary however was -1.7% in April 2016, for instance.

I'll update my post above to specify losses were for the secondary market.

Edit: can't edit the OP anymore, so hopefully this comment serves.

~~~
whatok
Can you link what you're looking at? It sounds like you're conflating yields
with returns.

~~~
bkanber
I don't think I am, but I could be wrong (as always). Specifically I'm talking
about yield to maturity which is one kind of return calculation (just like
mean is one type of average calculation).

Total return can only be calculated after the fact once capital gains are
factored in. Since this is a forward-looking calculation we can't do that. I'm
using the term "yield", more specifically "yield to maturity" because I'm
assuming bonds were held until maturity. In that situation yield to maturity
should be the same as total return; ie, total return is equal to yield to
maturity in the special case that there are no capital gains or losses and the
bond is held to maturity. So in this case I'm not conflating them, they are
the same thing.

Yield to maturity is based on par value, coupon rate, term, and purchase
price. The yield to maturity formula is:

YTM = (C + ((F-P) / n)) / ((F+P) / 2)

Where C = coupon, F = Face/par, P = price, n = years to maturity.

Looking up historical data for Apr 2016 you get P = $137 (secondary) and C =
1.7%. Plug it all in and you get a yield to maturity / rate of return of
-1.7%.

~~~
whatok
Can you link what you're looking at or provide the bond CUSIP?

------
olivermarks
TLDR Cash burn, expected to top $2 billion this year, against $3b in cash
means Tesla are raising $1.5b in junk bonds to help cash flow as they ramp up
production and scale.

~~~
dalbasal
" _High-yield junk bonds_ " is such an unflattering way of putting things.

It always seemed strange to me that banks/bonds/lending seems to have such a
small role in financing risky ventures. Is it just that capital is a better
deal? How does risk work here, are bondholders effectively de-risked compared
to stockholders?

~~~
TwoFactor
Debt holders (bonds) have a higher liquidity preference than equity (stocks)
in the case of financial trouble. An oversimplified example being if Tesla was
liquidated with $3B in assets, and $2B in debt, the debt holders would be paid
$2B first and equity holders would split whatever was remaining.

~~~
londons_explore
But debts to suppliers and bank loans still get paid first right?

It seems unlikely with someone like Musk at the helm that the company would be
wound up before assets (and loans guaranteed on them) didn't pay the salaries.
Hence, in the case of liquidation, I can't see bondholders getting any more
than shareholders - ie. NILL.

Am I mistaken?

~~~
TwoFactor
Correct, suppliers etc are higher on the liquidity preference than debt. If
something were to go wrong, its most likely that Tesla would get a soft
landing (e.g acquisition by Toyota) that would pay debtors significantly more
than equity holders, but doubtful it would be 100% of what is owed in that
scenario.

------
spyspy
> Shares of Tesla, which have risen 67 percent this year, were down 9 cents at
> $356.82.

That's 0.025%. Why was it even mentioned?

~~~
nkohari
It's standard procedure to quote the ticker price when a news article
discusses a public company.

~~~
londons_explore
Seems like free advertising for the services of the NASDAQ stock exchange...

------
randomsearch
Tesla's biggest threat is itself. Overstretching or a major technical error
could kill the company.

The next biggest threat is sabotage, legal attack, etc. from the old car
manufacturers. Good old fashioned capitalism.

If the competition remains free and open, ain't no way in hell a big Goliath
that produces controlled explosion vehicles is going to compete with a company
that knows software. The future of cars is software with hardware attached.

~~~
bamboozled
_The future of cars is software with hardware attached._

IMO this is wrong, yeah there will be software, but combustion cars have
computers too.

I wouldn't buy a car that is connected 24/7 with closed source software
monitoring me and my environment and sending data back to god knows where
constantly as Tesla does.

I often feel like Tesla would be better off just selling cars that run on
electric motors before worrying about the "hi-tech" parts so much, which to be
honest make the cars seem gimmicky and will date very quickly.

This is probably the start of affordable "dumb" electric cars, which excites
me more as person who cares for privacy and doesn't care for commuting long
distances in a self-driving auto-carriage.

------
crb002
I see Ford offering up a Tesla drivetrain compatible body. The big boys just
want to keep the lines pumping at current margins.

------
bob_loblaw
Look at AB 1184 in California. They are looking for more government money to
offset their prices. Current stipends from Obama will reduce by half once they
sell 200,000 cars. These reduced stipends will get cut in half after two
quarters. They will go away after an additional two quarters. A majority of
Model 3 preorders are actually for a $42,500 car instead of $35,000. They have
to get that price back down.

~~~
goeric
The price is $35,000 before tax incentives.

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cinquemb
Hell, at this point, why not an ICO? Would probably be the most reputable
company to have one if they did…

~~~
foepys
1\. Because you cannot dump 1.5 billion US-Dollar worth of any cryptocurrency
on the market without crashing its price to zero.

2\. No publicly traded company will step into the minefield of unregulated
market that is cryptocurrency.

~~~
cinquemb
With regards to 1), does anyone know the extent they all USD $1.5B right away
(outside of their sec filings)?

Probably right on 2) to some (most?) degree, but big institutional players are
making moves in cryptocurrency markets who might have pull over tesla and the
ear of those at FINCEN/SEC, to get someone to give the rubber stamp green
light on their "security"?

Then again with gov bonds being oversubscribed in general, people are looking
for more in the private market and Tesla is a realistic option?

------
kin
It the fundraising really necessary or just a way to sort of overproduce in
anticipation of high demand? As it is, they pretty much have that $1.5B in
preorder money alone right? Unless, he's just somehow pouring extra money into
SpaceX instead.

