
Tesla Raises $1B from Stock and Bond Sale - ericd
http://blogs.wsj.com/corporate-intelligence/2013/05/17/tesla-has-a-fresh-1-billion-and-lots-of-ways-to-spend-it/
======
dave1619
This is a quadruple whammy for Tesla.

1\. Tesla pays off the $452 million Dept of Energy Loan, and this improves
their political image and in the long-run will help sales.

Tesla's had difficulty in some states selling direct to consumer, and paying
of the DOE loan can help them convince conservative lawmakers to vote on
Tesla's side in states like Texas and North Carolina (both have bills on the
table).

Also, paying off the DOE loan removes ammunition from a lot of critics who
have said that Tesla is just leaching off the U.S. gov't.

2\. Tesla puts more than $400 million additional cash into their bank account
(they already had over $200m), so now it's well over $600m and close to $700m
in cash they hold.

This allow them to speed up a lot of the intiatives they have to roll out
infrastructure. First, they can open more stores (especially in Asia and
Europe). Second, they can roll out more service centers (all around the
world). Third, they can roll out more Superchargers stations (around the
world).

Finally, Tesla has an upcoming 5th announcement in a 5-part trilogy and I
think Tesla might announce battery swapping stations (for long distance
travel). Tesla can now more aggressively roll these out as well.

3\. Tesla stock gets a boost of confidence from Elon Musk spending $100m to
buy common stock.

Elon Musk is putting his money where his mouth is and is basically saying that
at the offering price of $92.24 that TSLA stock is not overpriced but is a
fair value to himself buying more stock and to investors.

4\. Involving Goldman Sachs and Morgan Stanley in brokering convertible notes
and stock increases the credibility and perception of Tesla. Big funds are now
starting to invest in Tesla after their blowout 1st quarter earnings report
(WSJ reported in another article that European funds and large-cap funds are
starting to invest). Recently Morgan Stanley sent a client note saying that
after the 1st quarter earning report saying that viability was no a problem
for Tesla. This opens up TSLA stock to a whole new crowd of investors because
Tesla's risk has been dramatically reduced.

Overall, I think this is a great move by Tesla.

~~~
cremnob
Great except for the part where current shareholders' stakes are diluted.

~~~
jamesaguilar
The article doesn't say anything about that. I could be wrong, but I'm
surprised if you can legally dilute a public stock.

~~~
tanzam75
The article does not have to say it. When a company does a secondary offering,
that is a dilution, by definition.

Dilution by secondary offering does not require shareholder approval, up to a
threshold. On the NASDAQ, the threshold is 20%. A company could, if it felt
like it, dilute by 20% every single year for twenty years, and leave the
original shareholders with 4% of the company.

The theory is that because the secondary offering will take place at fair
market value, the cash raised will adequately compensate the existing
shareholders for the dilution.

~~~
calhoun137
After reading through all the comments in the dilution thread I think I
finally understand:

The value of a stock is determined by what people are willing to pay for it on
the market, and if a company simply issues more stock, its entirely possible
that the price of the stock will go up, go down, or stay the same.

This is of course only true for public companies, and in the case of private
companies dilution is a completely different issue.

------
neya
I wish Tesla made hipster apps with mediocre photo filters too, so they could
have some additional money _easily_ to do their awesome stuff xD

~~~
seiji
That's actually a really really good point.

I've often wondered why Things Needing Money (cities with budget deficits,
states with budget deficits, caltrain, etc) don't develop startup-like things
they can sell.

From one point of view, the answer is obvious: nobody wants to make someone
else rich when they can make themselves rich [1]. But, from the other point of
view: people do that all day every day. The majority of people don't
understand (and don't _want_ to understand) the complexities of corporate
ownership, acquisitions, and payouts. They just want enough to pay for
housing, food, support their family, and buy some toys a few times a year.

Could those Things Needing Money work it out by advancing internal EIR
positions with enough funding to hire subordinates as necessary?

[1]: The valley does provide a way around "constantly working to make someone
else rich." At large places (Cisco in the old days, Google now, probably
Facebook too) you see people work the system. They can leave their company,
start a startup of basically what they were working on at Big Corp, then have
Big Corp aciqhire them back for a few million dollars. Or, they make a
startup, get acquired by a Big Corp, vest their buyout, then immediately leave
and re-create their original startup they sold, but better (maybe more
sustainable or more IPO-like the second time around, but it's _the exact same
thing_ as the first time around).

~~~
pmorici
Government organizations tend to focus on treating all of their employees
"fairly" or "equally". That typically manifests itself in some odd outcomes.
Among them is very little individual accountability. Some amount of
consideration is typically given to "years in service" when handing out
promotions or salary increases. Very few people are ever fired and the few
that are typically have to commit an egregious fraud like not showing up for
work and claiming they did. Showing up and doing nothing or near nothing will
keep you happily employed with regular salary increases. If there is a down
economy and they need to cut jobs they do it on a strict seniority basis, most
recently hired, out first. The net effect is that over time the only people
that leave are the ones good enough to get a better job where their above
average ability will get them a higher salary. What you end up with is a large
organization of average to totally incompetent mid-career to older workers and
a segment of newly hired workers, typically younger, with a wide range of
abilities.

If it is even legal for a government organization to make something to turn a
profit, in many cases it isn't, the chances that an organization run like that
would produce even the stupidest of successful money making apps is unlikely.
On the off chance that they did succeed the cry from private industry would be
so incredulous it wouldn't last long.

~~~
api
I have done consulting for the fed and what you describe is exactly accurate.
It also describes the situation in many huge corporations, since as
corporation size approaches infinity its internal political reality approaches
government.

It'd be a good place to get a job if you wanted to cool your heels for a bit,
but long-term I think I'd get really cynical and depressed. The thing that
really hurts is that people who do go above and beyond _don't_ get more than a
token reward, and usually don't end up making more than the paycheck-suckers.
Like you said it's all seniority. You'll see one or a handful of people
busting their butts and doing really good work, and dozens or hundreds of
people coasting, and the former are not given raises.

"Pure" meritocracy is a pipe dream. It's an idea that sounds good in rhetoric
but is near-impossible to even define, let alone achieve, in reality. In the
real world attempts at pure meritocracy often devolve into stress-inducing 80s
Wall St. films. But absolutely flat anti-meritocracy sucks worse. The optimum
is probably somewhere... hmm... maybe 2/3 of the way to an attempt at pure
meritocracy? Enough incentive and accountability to motivate and reward, but
enough flex and forgiveness to not burn people out.

------
codex
Just as I predicted, Tesla's one quarter of profitability was just an enabler
for them to raise more money for development of future models, which will most
assuredly take them onto the red again, albeit probably temporarily. In this
respect their profitability was not "real" in that they knew it was temporary
prelude to more fund raising. It doesn't show sustainability, only that they
can put the brakes on all spending for a quarter to look good to investors.

I think it's a bit dishonest of Elon to claim there were no plans to go back
to the public markets in last quarter's earnings call, only to raise more
money a few weeks later.

------
ricardobeat
It took SpaceX $100m to create a space rocket, engines, launch facilities, a
cargo capsule fit for human travel, and a VTOL rocket prototype. I can't even
fathom how it is possible that a different model of car costs $200m to
develop, except that there must be _a lot_ of middlemen.

~~~
nedwin
There is a lot of regulation. Almost every aspect of the design needs approval
by the department of transport.

There is a need to ensure that the vehicles can be produced in mass production
versus a one off. This includes quality control and specialised tooling for
their production line. It might even include a new production line / facility.

I don't think it's middlemen increasing the cost.

~~~
api
Mass-production of anything cost-effectively at gigantic (100M+ units) scale
is an engineering problem in and of itself, a whole other layer on top of the
difficulty of designing the product in the first place. In some cases it's
considerably harder.

------
amorphid
Useless, fun speculation: I predict that Tesla will eventually buy Pep Boys
Auto, an under performing company with a lot of real estate in middle class
American neighborhoods. Pep Boys also has many stores already with service
centers. Tesla will then start turning the stores into Tesla show rooms and
service centers. They've already shown they are willing to take over legacy
auto facilities, specifically the old NUMI Toyota plant in Fremont, CA. What
are the odds that we'll soon see Manny, Moe, Jack, and Elon? Pep Boys has a
market cap of less than 700 million and is profitable, so it shouldn't be a
money pit.

------
joonix
Doesn't a sale of new stock generally imply that the company believes its
shares are overvalued? Great timing in any case, this is the time to shore up
on capital to make sure they can stick around a long time.

~~~
SatvikBeri
If a company with huge cash reserves like Google was selling new stock then
yes, I would assume they thought they believed their shares were overvalued.
But in general it's the same as taking VC investment. It might just mean the
company believes they can use the cash in a productive way, or that they need
cash to continue operating.

------
hkmurakami
Great time to do this, with their greatly increased stock price and still very
low interest rates. They're repaying their debt when they have the greatest
leverage (unlike the common industry practice of buying back stock when their
stock is the most expensive), which is a very shrewd decision.

~~~
Symmetry
I agree that issuing the new stock was probably a good move, but I'm not sure
about paying back the debt. Low interest rates now mean that debt is
relatively cheap, and if you think you might need the extra cash at some point
but aren't sure if interest rates might rise at some point it might make sense
to just keep the cash and don't pay back the debt.

Lots of companies are actually taking loans they don't need just to lock in
rates, and then pretty much just sit on the cash. That's part of the reason
that the amount of dollars in circulation has gone up by a huge amount over
the last few years while causing negligible inflation.

~~~
hkmurakami
_> Lots of companies are actually taking loans they don't need just to lock in
rates, and then pretty much just sit on the cash._

If you're MSFT or AAPL and can issue bonds at 1% and buy other comapnies'
bonds at 3%, that's a pretty easy way to lock in a spread.

Interest rates are virtually guaranteed to rise in the next 3-5 years.
Bernanke's previous quote is for interest rates to remain low until 2015, and
Pimco has proclaimed that "the 30 year bull run in bonds is over".

------
hkmurakami
The article doesn't say what the coupon on the bonds are for various
maturities, but they are most likely extremely low yielding. I quote Bill
Gross of Pimco in labeling these as a poor investment choice.

 _Gross: Here -take my money Mr Lew, Buffett, Ballmer, Cook. I’m ur beast of
burden - provider of ur free lunch - a non-thinking bond investor_

<https://twitter.com/PIMCO/status/332501401613770752>

~~~
tanzam75
1.5% coupon for 5 years.

Note that these are convertible bonds, not regular bonds. The interest rate is
reduced by the implied price of the warrant.

------
Mystalic
If Tesla drives that money into development of the economy vehicle, they're
going to scare a lot of car manufacturers.

~~~
neya
Not necessarily. Almost all car manufacturers are anticipating this kind of
transition and have back up plans already [1]. I bet Tesla will become what
Apple is to smartphones and then the rest will gradually pace up and someday
attain equilibrium (or even overshoot) with Tesla's roadmap.

For example, a lot of manufacturers are already developing electric vehicles
for masses, just that they don't want to get their feet wet and they want
someone else to do it first , so they can just jump in and join them if the
market is actually ripe.

Mass adoption of electric vehicles is what most manufacturers fear and which
is a valid concern, which is why Tesla's move is particularly so important.

Automotive industry is one industry where nobody is 'too late' for the party.
As of now, I personally want to see Tesla succeed.

[1]Nissan, Toyota, Mistubishi, Chevrolet, Hyundai, BMW, Audi, etc. all have
EV's in their roadmaps, some are budget EV's too.

~~~
mtgx
Apple managed to maintain their strong lead for a relatively long time by
creating the app ecosystem.

Tesla could do the same with their supercharger network, where they offer free
charging. Although I think (and hope) that eventually they'll let other car
manufacturers "license" access to Tesla's network, and this way they'll be
able to not only pay for the maintenance and cost of the network, but also
make a bit of money from it, too. They shouldn't charge too much, though.
Maybe $100 per car.

By turning the network into an actual business and not just a "cost", they
would have to incentive and capital to expand the network all over the world
as fast as possible.

And that's how we all get free charging for all cars, forever. Goodbye oil
industry.

~~~
neya
Agreed. But 'Goodbye oil industry' will never happen in the near future. Not
with the level of corruption with the top dogs right now. They'll do
everything they can to suppress the viable alternatives. They'll buy out the
media, pay the right guys to write stories about how unreliable and dangerous
these EV's are and why oil based transport is still the best, and so on.

And co-incidentally, I am reminded of the Tesla-BBC fiasco...[1]

[1][http://green.autoblog.com/2013/03/10/uk-appeals-court-
dismis...](http://green.autoblog.com/2013/03/10/uk-appeals-court-dismissed-
teslas-bbc-top-gear-lawsuit/)

~~~
ericd
I don't know if you need to ascribe malice there, Clarkson has always hated
EVs, even before they were serious contenders.

~~~
neya
What you hate or like is your personal prerogative. But when you are
addressing a public audience, who have faith in you and your brand and _trust
you_ , you are morally obliged to be factually correct and not let personal
opinions distort the facts. If you read that article, Tesla claims that they
forged a scene as if the car just stopped randomly which is highly unlikely
when there is enough charge (I am with Elon Musk on this one).

(You doesn't literally mean you, but BBC in this case)

~~~
vidarh
Clarkson is not a news reporter. He's an entertainer. He is _expected_ to be
controversial and opinionated, and - depending on your viewpoint - quite
delusional.

If he started being objective and serious, the show would be cancelled. As it
in fact _was_ before he pitched the new, less serious, format and convinced
the BBC to relaunch the show.

------
TomGullen
When companies like Tesla sells bonds, where would you buy them from? And how
would you know about them being made available? (Often seems to be that once
it hits the news it's all over)

~~~
hkmurakami
Your broker at a major bank is the only place where you'd be able to buy a new
offering of bonds. There's usually some minimum quantity you have to buy, in
the range of $30k-$100k minimum. You basically have to ask said broker to tell
you when they're available. (give you the list of new issues periodically)

I think you can buy existing bonds on the market through more normal channels
including discount brokerages.

edit: Public Service Announcement - don't trade in bonds, because you're
virtually guaranteed to get taken advantage of hardcore by Wall Street bond
traders, even the "flow traders" that do the transaction for you. One example
is the broker giving you a price (via the trader) that reflects the bank's own
book instead of the actual open bond market (you can check the discrepancy by
demanding to see the Bloomberg data on the security). The bond market is still
even to this day nothing like the stock market. Visibility & transparency (in
the stock market) are your friend.

~~~
ISL
Something I think about sometimes: "In a poker game, look around the table and
find the mark. If you can't, it's you."

This advice, of course, ignores the second order effect that someone skilled
might pretend to be a mark....

The NYT accords the quote to Billy Waters.

------
ericd
More details on the raise reveal that it's actually not just from a stock sale
- they're also issuing $450M in notes: [http://blogs.wsj.com/corporate-
intelligence/2013/05/15/tesla...](http://blogs.wsj.com/corporate-
intelligence/2013/05/15/tesla-is-selling-more-shares-to-pay-off-u-s-
loan/?KEYWORDS=tsla)

~~~
revelation
They actually upped that to $525M later I think.

------
dreamdu5t
It seems Tesla takes advantage of all kinds of government subsidies, loans,
and windfalls. Is there a place that summarizes the government programs that
Tesla takes advantage of, or how much of their revenue is from selling the
carbon credits they get to other car makers?

I'm not implying anything political with this comment, just genuinely curious.

~~~
kunle
Tesla takes advantage of a lot of these things, but that sort of rent-seeking
is so par for the course, that choosing to NOT take advantage of it would put
any company of scale at a massive disadvantage relative to their peers. A
short laundry list of the industries that do this very well: financial firms,
energy firms (both production and delivery), car companies (who can forget GM
and Chrysler in 08/09), sports teams/leagues (particularly when building
stadiums/facilities, and others. The subsidies/tax breaks etc that they take
advantage of are at the Federal, State, and Local level, sometimes
international, and oftentimes playing different government entities against
each other to get better deals.

The New York Times had a fantastic article on this:
[http://www.nytimes.com/2012/12/02/us/how-local-taxpayers-
ban...](http://www.nytimes.com/2012/12/02/us/how-local-taxpayers-bankroll-
corporations.html?pagewanted=all&_r=0)

And a visualization here with some data:
[http://www.nytimes.com/interactive/2012/12/01/us/government-...](http://www.nytimes.com/interactive/2012/12/01/us/government-
incentives.html)

Re-reading it, makes you wonder how profitable all these industries would be
without all these subsidies/tax breaks etc baked in.

~~~
damoncali
Last I checked, and it's been a few years, the entire wind power industry
exists only because of tax credits - their financial structure is designed
pretty much entirely around them. Take them away, and there are no new wind
farms, which is interesting, because part of the reason that costs are high
for wind farms is the scarcity of turbines. The turbines are scarce because
the GE's of the world do not want to invest long term capital in an industry
propped up by government subsidies... and round and round it goes.

~~~
kunle
Point about the wind power industry is entirely correct - my goal was simply
to put it in context. Many companies (including GE as you mention) are only so
profitable by taking advantage of a multitude of tax credits/subsidies and the
like.

Reference:
[http://www.nytimes.com/2011/03/25/business/economy/25tax.htm...](http://www.nytimes.com/2011/03/25/business/economy/25tax.html?pagewanted=all&_r=0)

Several of GE's businesses are propped up by government subsidies. All I'm
saying is that GE is not really different - Tesla simply happens to be in a
sector that's particularly high profile and politically charged, and its
claiming of those things are out in the open.

------
_sentient
What is the potential impact of this move when it comes to shareholders? I
understand that a lot of the recent upside was caused by a short squeeze,
which is a product of limited share availability.

Does this basically constitute a "cash out" for Tesla, and will this have a
deflating effect on the stock?

~~~
damoncali
No. Tesla needs lots of money and will continue to need lots of money. They
can get that from debt or equity (or maybe the government, but leave that
aside).

It is a signal that they believe that their stock is highly valued (or even
over valued, but they would never say that) if they are raising equity -
otherwise debt might be a more attractive offer. In the end, it's all a
balancing act between taxes, cash flow, dilution, and market demand for
securities.

Any time you raise money, you dilute ownership (or lower cash flow in the case
of debt), which has the direct effect of devaluing the stock. But you wouldn't
do that unless you thought you could increase the value of the stock by
investing that cash and increasing _future_ cash flows. (Incidentally, this is
why everyone is so pissed at Apple, who has way too much cash to invest
properly - they should be giving it back to shareholders to invest themselves
if they can't figure out what to do with it).

The cynic in me says, "beware - this stock is overvalued and they're just
taking advantage of that with this offering." The optimist says, "great then-
they can raise money at a low cost and increase their chances of making it
big". On this one, I'm siding with the cynic. This is highly speculative.
Besides, do you want to be the one who is permitting them to raise money so
attractively? (That's an open question - akin to paying a stupid valuation for
a hot startup because it will not matter one day when it sells for 100x.)

I'm reminded of the time when AOL bought Time Warner with it's insanely
overvalued stock. Didn't turn out to well for Time Warner shareholders.

------
Demiurge
Looking forward to a Tesla car I could actually afford ;)

~~~
hkmurakami
I learned that Tesla is already taking preorders for the Model X, which is
$45k (my mentor apparently put an order in).

Hopefully this means that we'll have a "Model Y" in the 25k-30k range in
another 5 years!

~~~
cma
The Model X signature edition _deposit_ is $40K, the regular deposit is $5K;
the two together may be where you got $45K. There is no reason the model X
would be cheaper than the Model S; most of its versions have two motors
instead of one in the S, and it likely has a bigger battery. That's not to say
it won't be the price of the current model S, but no way it will be of a
contemporary one.

~~~
NickM
The base model will have just one motor though, and the batteries are actually
the same as Model S (60kWh or 85kWh). Given that they've had time to refine
their manufacturing techniques and such, it _could_ be cheaper than Model S.

However I agree that $45k is likely incorrect, and in practice it's hard to
imagine they'd make it much cheaper than Model S, if at all.

------
yoster
I hope the $30k model comes out soon. Regular Americans will have a better
chance at embracing that model. With gas at disgusting price levels, I am
pretty sure the rest of America would agree.

------
mackmcconnell
Good lor' das a lotta money

