Tesla Seeks $1.15 Billion From Stock And Debt Sale

2 weeks ago by Steven Loveday 87

Tesla Model 3

Tesla Model 3

Tesla CEO Elon Musk announced on March 15 that the company will move forward to raise approximately $1.15 billion in order to “play it safe” as the electric automaker forges toward Model 3 production.

Tesla

Elon Musk didn’t anticipate another capital raise this soon, but with Model 3 production nearing, Tesla has opted to “play it safe.”

SEC filings show that Tesla will sell about 1 million stock shares, worth around $250 million. The company will also offer a minimum of $750 million in convertible notes, which will come due in 2022. Musk plans to purchase $25 million of the new shares himself. Tesla reported that the funds will:

“Strengthen our balance sheet and further reduce any risks associated with the rapid scaling of our business due to the launch of Model 3, as well as for general corporate purposes.”

This is not the first time that Tesla sought additional funding for the Model 3.

Musk sold $600 million worth of his personal holdings back in May 2016, as part of a previous stock sale that amounted to $2 billion. Another sale was expected around the time of the SolarCity deal, or prior to Model 3 production. Back in October, Musk said that he didn’t think either would be necessary, but at this point, with the Model 3 looming (and unexpectedly on schedule … perhaps?), apparently Tesla has reconsidered.

While there has been some expected fluctuation, Tesla shares have gained 20 percent since the opening of 2017. The company anticipates about $2.5 billion in capital expenditures through the end of this year. Barclay’s analyst, Brian Johnson, predicted that Tesla would initiate a $2.5 billion capital raise during the first quarter of 2017, so the company may be in better shape than expected. He shared:

 “If anything, we would not be surprised to see a $2.5 billion raise instead of the $1.5 billion equity raise currently reflected in our model. This likelihood of a substantial cushion, which given our price target, we have to admit would be at a non-dilutive price, is likely to support the stock for the short term… and indeed, Tesla stock has frequently outperformed post offerings.”

Just before Musk announced the new capital raise, he was in Detroit, meeting with Trump, and other automotive industry leaders, to discuss the new administration’s position on the EPA’s corporate average fuel economy (CAFE) guidelines. Tesla will have to act swiftly, and assure that all obstacles are addressed in advance, in order to assure that as many of its vehicles as possible still qualify for the $7,500 federal rebate.

Source: Forbes

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87 responses to "Tesla Seeks $1.15 Billion From Stock And Debt Sale"

  1. bro1999 says:

    Totally saw this coming from a mile away

    1. Someone out there says:

      Indeed.

      Here is another prediction: “Get Real” will soon write an angry reply accusing you of being a Tesla shorter, oil company shill and a serial Tesla hater.

      1. Get Real says:

        Uh, false.

        As a fellow Bolt and Volt owner, Bro is a GM fan but doesn’t seem to be an oil shill or shorter unlike the posters already well known to be like 4E, sven,zzzzzz, tftf, Don C, etc.

        In any case, this raise was expected and hinted at repeatedly by Musk and it comes in lower then most people expected.

        And no, Tesla does not lose money on every car produced and in fact makes excellent margins on each vehicle.

        Their large spending is building their foundation of the Giga, Superchargers, factory expansion, service center expansion, Tesla Energy, etc.

        These are assets that will allow Tesla to grow from a small automaker into a much larger automaker and the energy storage/solar roofs division could very well become larger then the auto side eventually.

        1. unlucky says:

          As mentioned in the article it was not hinted at by Musk. In fact Musk said the opposite.

          1. Nix says:

            unlucky, you obviously didn’t listen to the earnings conference call last month.

            Elon said that Tesla shouldn’t need more money to bring the Model 3 to market, but he also warned that they could raise money to “reduce risk”.

            You are a month behind. Sadly, you being uninformed will somehow be Tesla’s fault, or my fault in your eyes.

            1. unlucky says:

              My fault? Musk lies about this until a month ago and it’s my fault? Pretending he was just surprised about a need to raise money on short notice is my fault? Pretending they never made any fiscal projections from their cash flow until last month is my fault?

              Saying it’s not needed but just to “reduce risk” is an absurd joke. If you didn’t think you needed it you wouldn’t be getting it. The risk spoken of is the risk that YOU WILL RUN OUT OF MONEY. That’s why you raise money and it’s why they are raising money.

              1. Nix says:

                You keep making the same mistake again and again.

                Musk keeps giving guidance that Tesla won’t be raising funds in a specific quarter, and you keep pretending that this guidance is for eternity. Wrong.

                Musk said in the last quarter of 2016 that they wouldn’t issue stocks that quarter. They didn’t. Your ignorance is doesn’t make other people wrong. It makes YOU wrong.

                1. unlucky says:

                  He didn’t say anything about in a specific quarter.

                  http://fortune.com/2016/10/27/elon-musk-tesla-money/

                  No, said Musk, during the company’s earnings call on Wednesday afternoon, explaining that Tesla’s “current financial plan does not require any capital raise for Model 3 at all.”

                  He can do the math as well as the next guy. He can and did know their working capital would go negative at this time. And he can and did know that they will get very poor terms from suppliers (and others) if their working capital gets low. Yet he pretended they didn’t need to raise any money, claiming it was only for safety. It was nonsense then and it’s nonsense now.

                  Then again, the same guy who claims their recalls aren’t recalls would make a claim that capital is necessary for Tesla just “nice to have”.

                  1. realistic says:

                    Unlucky, surely you realize that he clearly implied “unless we really need to do it”….

                    Sorry; just stepping in to assist all the Muskovites who neglected to interpret the Words of the Prophet.

                    1. Nix says:

                      I see neither Tweedle-dee nor Tweedle-dumb actually listened to the Q3 call, nor even bothered to read your own link!

                      Elon certainly made no such “promise”, he in fact says he is NOT making a promise. And he SPECIFICALLY limits it to just through Q1 2017.

                      Elon is asked SPECIFICALLY about CAPEX “by the end of the year”. That SPECIFICALLY means all of this response below is in the context of Q4 2016, for you brain-dead folks:

                      “One thing that’s worth mentioning and, certainly, I would take this with a grain of salt and not like it’s – like sometimes, I’ll say things which I think are sort of speculation or my best guess but they are not – it’s different from a promise. Our current plan – our current financial plan does not require any capital raise for Model 3 at all. So now that’s different from saying whether we should raise capital or not to account for uncertainty to have a larger buffer and to sort of de-risk the business. So – and then we also feel pretty good having examined the SolarCity financials that looks like SolarCity will actually be, I believe, neutral but perhaps a cash contributor in the fourth quarter in a small way.

                      But again, does not – do not take this to the bank, this is not a promise. This is like – this is what appears to be the case. So contingent upon shareholder approval, we expect SolarCity to be somewhere between neutral and a cash contributor in the fourth quarter. And yeah, I mean things are looking good. Yeah. It’s not to say that there’s some darkness ahead, they look really quite good right now. It seems like we probably weren’t wanted to capital raise even in Q1. I’m not saying we won’t, but probably not. And yeah – so we’re looking quite promising.”

                      You trolls need to actually go to the Primary Source material, instead of relying upon Fortune. Who STILL doesn’t support your claims if you read the full story, or even just the title of the story.

                    2. realistic says:

                      Here ya go, Nix, from the transcript of the conference call:

                      Colin Michael Langan – UBS Securities LLC

                      Great. And one last – I just have – my last question is just any color on cash burn? And I think last time you mentioned that you were confident you wouldn’t need a capital raise. Do you still feel that way? I mean, I think it was close to $1 billion on the quarter and it sounds like CapEx is going to rise next year. How should we think about cash burn cadence and the (35:59) no capital raise going forward? Thank you.

                      Elon Reeve Musk – Tesla, Inc.

                      Well, so this is really a question of what’s the risk tolerance of the company, or how close to the edge do we want to go. According to our financial plan, no capital needs to be raised for the Model 3, but we get very close to the edge. So, then that’s probably not the best thing for shareholders on a risk adjusted basis. So, we’re considering a number of options, but I think it probably makes sense to raise capital to reduce risk.

                      Read it again.
                      An then read it again, and then show me where Langan restricted his question to 2016 or Q1 2017.
                      He didn’t.

                      And then read it again.
                      And read it again.
                      And show me where Musk said anything about the end of the year.
                      Musk CLEARLY SAID: “According to our financial plan, no capital needs to be raised for the Model 3, but we get very close to the edge.”

                      Then go back and listen to the transcript again, and all the way back to ~30min (the beginning of Langan’s string of questions) he never, ever restricted the context of spending to 2016 and neither did Musk in any of his answers.

                      “According to our financial plan, no capital needs to be raised for the Model 3”

                      He represented the plan as insurance to analysts and investors in the Conference Call following a Shareholder Letter.

                      That was pure bulls***.

                    3. unlucky says:

                      Nix, I didn’t say he promised. You have created a straw man.

                      He said they had no need to raise capital by making the same argument he is now that they don’t need to raise capital.

                      Except that is bunk, they need to raise capital. He tries to write this off as merely “risk reduction”, but the risk is not some minor risk, it is the risk of becoming insolvent. The reason you raise capital is to prevent this.

                      He is raising capital by need despite claiming this would not be the case. His statement was a lie then, it’s a lie now. He could do projections of where you end up based upon their available capital and burn rate and see they had to raise capital. But he pretended they didn’t. This is a problem, it does not engender trust. He really should figure out how to get past foolish lies like this and act like a businessman.

                      It’s a capital-intensive business. He knew they wouldn’t be recognizing enough revenue (and profit) to keep from having to raise money about now. And yet he pretended otherwise.

                      Same way he pretended 5 days before the end of 2016 that HW2 AP would get out in 2016. It was weeks away from even a crummy beta and months (at least) from being ready but he still said that. He has a way of staring reality in the face and then making impossible statements. It’s not a good thing and I’m not going to learn to like it. And just because you are fine with it doesn’t mean I’m going to pretend it isn’t so.

                    4. Nix says:

                      unlucky,

                      Wow, even after feeding you exactly what he said, you still can’t read it.

                      Go back and read it again. You clearly can’t understand what was said, or the context it was said in. Everything he said in 2016 is 100% consistent with what has happened.

                    5. Nix says:

                      Realistic — unlucky posted a link to the Q3 2016 call. I posted the transcript for that call. You posted the wrong call. You posted the Q4 2016 call.

                  2. Pushmi-Pullyu says:

                    “He didn’t say anything about in a specific quarter.”

                    He most certainly did say that, if you include the context of Musk’s remarks, and don’t try to pull a quote out of context.

                    Give it up, Unlucky. You’re just digging yourself deeper into a hole. Nix has you dead to rights when he says “Your ignorance… doesn’t make other people wrong. It makes YOU wrong.”

                    1. realistic says:

                      This is reminiscent of moms denying their precious kids were in fact causing trouble at school.

                      Here it is direct from the transcript (you may listen to the recording and hear the same thing), with Colin Langan’s last question. BTW you may go all the way back to the beginning of his string of inquiries at about minute 30, and find that neither he nor Musk place a temporal reference around 2017 or any particular quarter.

                      19 Feb 2017 review of results Q4’16 and FY’16

                      Colin Michael Langan – UBS Securities LLC
                      Great. And one last – I just have – my last question is just any color on cash burn? And I think last time you mentioned that you were confident you wouldn’t need a capital raise. Do you still feel that way? I mean, I think it was close to $1 billion on the quarter and it sounds like CapEx is going to rise next year. How should we think about cash burn cadence and the (35:59) no capital raise going forward? Thank you.

                      Elon Reeve Musk – Tesla, Inc.
                      Well, so this is really a question of what’s the risk tolerance of the company, or how close to the edge do we want to go. According to our financial plan, no capital needs to be raised for the Model 3, but we get very close to the edge. So, then that’s probably not the best thing for shareholders on a risk adjusted basis. So, we’re considering a number of options, but I think it probably makes sense to raise capital to reduce risk.

                      Did you get it?

                      I’ll run the important part again:
                      “According to our financial plan, no capital needs to be raised for the Model 3, but we get very close to the edge. So, then that’s probably not the best thing for shareholders on a risk adjusted basis. So, we’re considering a number of options, but I think it probably makes sense to raise capital to reduce risk.”

                      OK?

                      Musk said that “according to our financial plan, no capital needs to be raised for the Model 3.” There are no precedents or antecedents to this assertion at all to bound time/date. Musk is saying that Tesla didn’t need a raise to execute the Model 3 project according to their own financial plan, but maybe it might be a good idea just to “reduce risk”.

                      The CEO said this.
                      During a shareholder call.
                      And it’s positively untrue.

                      Now, Musk may not have known this, and right up to the call was certain that the $150Mish/month of Cash Used in Operations would clear itself up.
                      He may have thought that the thousands of M3’s worth of parts to be brought in to Tesla months before the first homologated car came off the line wouldn’t have invoices attached to them.
                      He might’ve even misremembered that the remaining $480M in the ABL was several-fold higher.
                      Boy, then he would be a complete moron. And I don’t think he is.

                      Or he could have just said this to make it seem like the company wasn’t headed to negative working capital within the next 60 days, and couldn’t possibly address the complete requirements of the Model 3 production intro without some serious dough, and very soon. So he just made this up and figured (rightly) that his defenders would go to the battlements armed only with broken bottles (and overheated keyboards) to defend his honor. That’s what I’m thinkin’. He fibbed. Just a LEEETLE one. And why not? Keep the crowd happy and move on once the money comes in.

                      All you need to do is understand if that teeny misstatement, like the off-the-hook Powerwall “Orders” in 2015 or the GAAP profitability for FY2016 or many others, show a similar pattern, and whether that same… “optimism”, might I say, could be a real problem when the Model 3 schedule becomes real.

                      Anyhow, Mom… I didn’t do nuthin’.

                    2. Nix says:

                      Realistic — You’ve got the wrong call.

                      I already posted the Q3 2016 call transcript I was quoting. It wasn’t in 2017, it was in 2016.

                      And it most definitely mentions quarters multiple times.

                    3. unlucky says:

                      No Pushy, he doesn’t have me dead to rights. That he thinks I’m not reading what Musk says shows he isn’t even keeping track of the point.

                      My point is that Musk was and still is mischaracterizing the situation. He said then they had no need to raise capital. And yet they did and they knew it at the time. This is underscored by them raising capital right now.

                      He thinks I’m somehow missing that Musk said different things about different quarters but that is just him and you misreading my posts.

                      Musk said their plans didn’t require raising capital in the early part of 2017. And yet they did. They do. And they are.

                      He tells a transparent lie mischaracterizing a need to raise capital as a mere whim to reduce risk. This isn’t a whim and the risk isn’t some small thing. They need to raise capital to keep from running out of working capital. And thus they are doing so.

                      Musk should simply have said that all along, that they expected to need to raise capital again in 2017. There’s no shame in it, it’s a capital intensive business.

                    4. Nix says:

                      unlucky — You guys are nuts.

                      Get Real says:

                      “In any case, this raise was expected and hinted at repeatedly by Musk”

                      You get it 100% WRONG claiming that Musk never hinted at this.

                      That has been proven 100% wrong in transcripts posted from TWO separate calls (Q3 2016 call, and Q4 2016 call) where he talks BOTH TIMES about raising more money, exactly like Get Real said.

                      Instead of simply admitting you were 100% wrong, you go into song and dance.

                      ________________-

                      Just man up and admit that Get Real was 100% right when he said:

                      “In any case, this raise was expected and hinted at repeatedly by Musk”

    2. speculawyer says:

      Well duh. Of course they need more money.

      But what most people don’t see coming is how strong the stock remains despite more follow-on offerings.

  2. Four Electrics says:

    Does this raise “reduce risk?” Yes, yes it does. It reduces the risk of running out of money. Does it reduce the risk of poor project management and cost control? No, no it does not.

    Look for at least one more round before the Model 3 starts volume (> 150K / year) production. Elon will use more cash borrowed against his existing shares to buy a token amount of that offering too.

    1. Pushmi-Pullyu says:

      “Does it reduce the risk of poor project management and cost control? No, no it does not.”

      Nonsense. Even though I’m not a “financial guy”, I know better than that. A company that is running short on money has its options increasingly limited, which results in spending even more money than they would otherwise; it’s a “death spiral” which can and often does lead to bankruptcy.

      Having a nice cash cushion most definitely does help control costs. That’s a fact, not just an opinion.

  3. Four Electrics says:

    For a concise history of Tesla funding rounds, see: https://www.google.com/amp/seekingalpha.com/amp/article/4055185-teslas-next-capital-raise-due-moment-now

    Spoiler alert: there are a lot of them.

    Tesla has written off roughly $3.5 billion (retained earnings) or -$22,000 per car sold to date. This latest round would be an additional -$7,600 per cumulative car sold, but of course some of that money will go towards recoverable assets which don’t count as losses, at least in the short term.

    1. Nix says:

      You have made the classic error of applying all the R&D and future expansion dollars to previously built vehicles, as if no more cars will ever be built.

      This is the same epic blunder that led to idiots claiming in 2012 that it cost $100,000 dollars to build each Chevy Volt.

    2. realistic says:

      Four Electric, see my epic tome below that addresses this topic.

      FWIW, even if you applied the same R&D amortization principles that BMW et al use, Tesla would still book losses.

      1. Nix says:

        Of course Tesla has burned more money than they have generated in sales to date. They are at the cusp of launching a huge Mass Market release, and just opened a Gigafactory, and are preparing the mass market launch of their Solar Roof product in their Gigafactory2.

        It doesn’t take a rocket surgeon to understand that all of their upfront costs to date won’t produce profits until after enough units of these new products are sold to cover the investments they made in order to get them all online.

        This is how industry works. Money is spent up front, in order to make profits across the entire lifetime of a product.

        1. realistic says:

          Nix sez: “It doesn’t take a rocket surgeon to understand that all of their upfront costs to date won’t produce profits until after enough units of these new products are sold to cover the investments they made in order to get them all online.”

          Get yer slide rule and scalpel out, Nix, and try to keep up. Rocket surgery ain’t easy.

          If Tesla booked their Model 3 R&D the way BMW does, they would acrrue it on the balance sheet and amortize it against Model 3s as they are produced, with the amortization rate per car beased on a reasonable projection of sales. And if that were so, the amount of Model 3 R&D hitting the bottom line in 2016 would have been the same as your name: Nix. Zero, Nil.

          Frankly, I don’t know why they don’t make a very large and complete accounting change and do this. I would cheer it.

          And if they had done so on 31Dec2015, guess what: they would have still lost $100M’s in 2016.

          1. Nix says:

            Trollistic — There is absolutely nothing wrong with how Tesla does their books. It is much, much more appropriate for a company that is still in huge growth. It is entirely in line with GAAP accounting.

            Just like how BMW does their books is appropriate for a very old mature company who isn’t seeing orders of magnitude growth.

          2. Pushmi-Pullyu says:

            “…they would have still lost $100M’s in 2016.”

            I cannot, for the life of me, understand why people who obviously should know better keep saying Tesla is “losing” money, when they are quite clearly investing it in future growth.

            This is every bit as stupid as all those claims, which stopped only a very few years ago, that Amazon.com was “losing money”.

            Amazon.com is now the world’s largest retailer. The amount of money it spent to get there would, I think, not be described by any reasonable person as “losses”. Rather, they were investments. The same is true of Tesla today.

            Now, does this “prove” Tesla is going to succeed? No. Following a similar business plan does not guarantee long-term success. But, Realistic, it does demonstrate that you’re simply, and completely, wrong.

            1. realistic says:

              Did you even try to read what I posted?

              If you completely remove every single dime of Research and Development spend from the 2016 Income Statement — all of it — and balance sheet the spending to be amortized over years of M3 production starting in 2018, the Net Income (Loss) would still have parentheses. The company loses hundreds of $Millions even if you don’t expense ANY of the “investment”.

              Tesla loses money even if you ignore R&D spend. Unremedied excessive costs, punctuated by a rhythm of more than once-per-year equity raises and Convertible Bond issuances and a tightly-constricted Loan facility backed by the company’s assets, is a problem. But that’s not even the point:

              Tesla is not “investing money” made in car sales. Read the Balance Sheet and the Statement of Cash Flows. The business does not contribute to the huge cash requirement. The cash is funded by raises and borrowing.

              Of course it’s “investing in the future” (here we go again with that extraordinary redundancy). It’s simply not being funded by the operation at all. The lights glow, the suppliers are paid and the new CFO is brought on board by the grace of lenders and share buyers. And presently there is no clear indication this condition will ever change.

              1. Nix says:

                realistic —

                Your fault is in assuming that just their R&D is the only way they are spending on expansion. That is false. There are tons of other areas of expansion, for example:

                Building Gigafactory

                Building Gigafactory2 for Solar Roofs

                Building more Superchargers

                Building more Service Centers

                Building more Stores and Galleries

                Building more destination chargers.

                Building out the Model 3 Production Assembly line.

                Bigger carry-over expenses for undelivered cars that carry-over between quarters because sales are increasing, resulting in bigger carryover.

                etc, etc.

                Again, all of this goes against FUTURE company sales. All of which you ignore.

  4. leafowner says:

    I do not see this as an issue. Expected

    1. georgeS says:

      agrred leafowner,
      kind of a non event.

      1. realistic says:

        I agree, too, george, except for the size of it. About a third of what I expected.

    2. Pushmi-Pullyu says:

      Indeed.

      The ignorant comments here suggesting this is a bad or at least questionable sign from Tesla, and the “concern troll” comments from serial Tesla bashers, are full of sound and fury, signifying nothing.

      Nothing to see here. Move along, move along!

  5. ijonjack says:

    It is common practice for Public Companies to raise monies from time to time so that they can carry out their business plans and there is nothing wrong with that! However others Raise money for other unknown agendas to line the Pockets of the Higher Ups & CEO’s . This One is LEGIT as Musk puts His money where his Mouth is . As Usual Musk Is Taking Down a Big Chunk of this Placement Himself.

  6. Taser54 says:

    Ahh so that’s why we saw the model 3 prototype cruising around for PR just prior to fundraising effort.

    1. Thomas says:

      As everytime done by Elon…

    1. Murrysville EV says:

      So true! I wonder how many people can remember that.

      1. (⌐■_■) Trollnonymous says:

        We’re aging ourselves……lol
        I used to always watch Cosmos.

      2. Pushmi-Pullyu says:

        I’ve got the original “Cosmos” series on DVD. Probably the very best science documentary series of all time, at least in its day. 🙂

    2. (⌐■_■) Trollnonymous says:

      That should about cover the BK for GM…..lol

  7. Thomas says:

    By every other company the stock price would fall but not by Tesla. I’m wondering anyway what people/funds throws billions after billions in that hole bigger than the pacific. If Tesla ever will make profit it needs 50 years until the billions lost “come” back and the balance is equal 😂😂😂

    1. LOL says:

      Currently Tesla has the edge over the competition, but in the long term is at huge risk because of a major flaw. Nikola Tesla had achieved the highest resonance with large masses of people through wireless power and companies attempting to bypass it are gambling big time. Therefore, the game is still wide open …

    2. Nix says:

      The price of the stock already priced in dilution of $2.5 Billion out of a market cap of $43 Billion. That means that the share price was artificially down because everybody was expecting dilution to come soon.

      The price of the stock went up to reflect that the actual dilution will only be $250 Million, a full order of magnitude less than was already baked into the price.

      Only $250 million of the $1.15 Billion dilutes current shareholder’s shares, due to how this is structured.

      Does that clear it up? Or are you among those who don’t want to be clear? Hard to tell.

      1. unlucky says:

        Nix, from what I read below you are making an error with this post. You speak of dilution being priced in already when I’m assured below by a fellow named Nix that that doesn’t happen, that dilution only affects anything once it happens.

        You may wish to reconsider your argument based upon the information this other person offers.

        1. Nix says:

          unluckhy — you truly are ignorant. If you can’t follow my posts, just ask questions about what you can’t follow.

          The market expected 2.5 Billion worth of new shares to be issued in the first half of 2017. That would have been about 6% of the current market cap. That was already priced into the stock.

          That did not happen. Instead only around 250 Million in new shares are being issued in 2017, for a rounding error on total shares outstanding in 2017.

          Future dilution will be based upon the FUTURE market cap, at which point it may also be a rounding error. It is NOT being priced in at the full face value as of today. It is being priced in at a discount to future value.

          1. unlucky says:

            I read the offering and it appears as I said below that the conversion rate is not tied directly to the daily price. It is fixed at offering and only adjusted to account for other dilutions, for stock splits, and also to account for dividends paid out in between.

            But that’s beside the point. You argue against me that future dilution is not priced in but here you argue it is (and was). This is a logical error.

            1. Nix says:

              I explained how expectations of a full order of magnitude more dilution was already baked into the stock price before today.

              I explained how today they announced a full order of magnitude less in dilution. This pushed the stock up, as the actual dilution was less than what was already baked into the price.

              If you don’t want to understand, I can’t help you. If you want to bicker, and ignore my point, I can’t help you.

              1. unlucky says:

                Yes, you explained how dilution was baked in ahead of time.

                Down below you claim that dilution doesn’t matter until it happens. If it didn’t matter it wouldn’t be baked in yet.

                You are making contradictory arguments.

    3. Pushmi-Pullyu says:

      Thomas said:

      “If Tesla ever will make profit it needs 50 years until the billions lost ‘come’ back and the balance is equal”

      50 years, seriously?

      Something tells me that mathematics isn’t your strong suit. There’s a concept called “sustained exponential growth”…

      P.S. — Investments in future growth are not “lost”. They’re invested.

    4. Nix says:

      Thomas,

      Tesla has 17.9 Billion in liabilities.
      Tesla has 22.7 Billion in assets.
      Tesla has 42.2 Billion dollar market cap value determined by the market.

      Tesla has built a 42 Billion dollar company with 23 Billion in assets on 18 Billion in liabilities.

      You seem to believe that companies pay off their liabilities. That’s not how companies work. Companies USE their liabilities by LEVERAGING them into growing Assets and growing Market Cap for their shareholders (AKA “Value”, AKA “Wealth”). Tesla is succeeding at this. They are investing money and successfully creating Assets and Wealth.

  8. unlucky says:

    I figured it would be all convertible debt. But instead we see a mix.

    I really don’t like that Tesla spent a lot of their capital on SolarCity when they clearly were going to need it for the Model 3. And then Musk gave out these weird denials after the SolarCity buy about how they didn’t see any need to raise capital soon.

    This is just slimy. I’m not a fan of this method of governance.

    1. Doggydogworld says:

      They didn’t invest any capital into SolarCity. It may even generate a tiny bit of capital for TSLA as they lay off the expensive SG&A staff and milk the lease portfolio.

      1. unlucky says:

        They didn’t spend money to acquire the company but SolarCity has expenses and runs operating losses. The deal did reduce their available capital.

      2. realistic says:

        Doggydog, I hear your point, but Tesla issued an additional $2B+ in shares to take it off the hands of endangered SCTY holders, like the families Musk and Rive.
        (Sungevity = SCTY minus cousin Elon.)

        That issuance seriously hindred the ability of the company to make this raise, arguably a more rational event.

        Furthermore, the acquisition of SCTY was viewed with a jaundiced eye by the underwriters of Tesla’s Asset Backed Line-of-credit (ABL). From the 4th Amendment to the Agreement, 31 July (not long after the plan to “acquire” SolarCity was announced:

        “10.14 SolarCity. Notwithstanding anything to the contrary herein, [a] the Company [Tesla] and its Subsidiaries shall not guarantee or otherwise become directly liable for any Indebtedness of SolarCity”

        The ABL backers, BTW, overlap with the book runners for yesterday’s offering. So they knew they didn’t want Tesla (the car business) to think that they could just borrow SECURED money and toss it over to Tesla (the old SolarCity business).

        Now: what does that mean?
        It means that paying for cuzzin Lyndon’s sins is going to be harder to do and put more pressure on borrowing resources. (And, no, as the albatross of rooftop leases matures and the deals with Hancock etal come home to roost, I do not think ex-SCTY ebtanglements will produce cash; rather they’ll demand it.)

        1. Nix says:

          I see absolutely no signs of Tesla having any difficulty raising money for CAPEX. Much less any specific difficulty tied directly to the $2B used for solar city.

          1. realistic says:

            I humbly disagree, but we are a way off of proving who is more right.

            1. Nix says:

              Actually, the available evidence is completely on my side.

              The underwriters in this offering asked for (and were granted) a 30 day option to take on an additional 15%. And right now the signals are that short of volatility in the market hampering their plans, that the underwriters are highly likely to take that option.

              The evidence is that underwriters WANT to take on as much as they can.

              Do you have any evidence to the contrary?

              1. realistic says:

                Read the prospectus and understand what the Underwriters get to do with their “greenshoe”. The options hedging alone is a great income opportunity as well as all the things they get to do (such as lend out shares for shorting) that make their roles potentially quite lucrative. That doesn’t mean they don’t see potential upside to the stock, but really they don’t need it to make this work. Also take a look at Morgan’s recent “structured product” using TSLA stock and you’ll see why the Investment Bankers like hot, relatively volatile issues.

                1. Nix says:

                  So you don’t have any evidence to the contrary.

                  Got it.

  9. speculawyer says:

    It must drive shorts crazy they way Tesla stock goes up when a follow-on stock offering is announced. For most stocks, that a guaranteed harsh drop.

    1. Nix says:

      The market already baked in $2.5 Billion in dilution, and only $250 Million out of this $1.15 Billion actually dilutes current shareholder value. So the market is celebrating how relatively little dilution is happening compared to what was expected.

      1. unlucky says:

        For a company in good financial health convertible debt is also dilutive. Even if it doesn’t happen until the later the nature of the market is to bake in later dilution as if it were happening now. In essence, future shareholder value is current shareholder value.

        So this is essentially a $1.15B dilution. Plus of course whatever they raise later because this still probably won’t be enough to get Model 3 to full production.

        If Model 3 is as successful as it seems they could be out of the capital raising business once Model 3 ramp is over and it is selling at full clip. That is unless Musk wants to make another large round of expansion which he probably does.

        1. Nix says:

          It won’t dilute until 2024. So no, you are wrong. It has zero dilution to the stock value today.

          Considering that Tesla may have millions of sales under their belt by the time, the dilution at that distant point will likely be a rounding error.

          1. unlucky says:

            As I said, the market prices in the future into the current price. If it dilutes later then it is priced (as well as can be done) as if it diluted today.

            If you think that changing number of sales changes the amount of dilution then you need to look up what dilution is. The formula only includes the number of shares outstanding before the dilution and the number after. It doesn’t include run rates, profits, revenues or anything.

            1. Nix says:

              Increasing sales at the scale Tesla is projecting raises Market Cap (by increasing share prices) and reduces dilution.

              Very simple. How can you not do the math?

              1. unlucky says:

                I’d have to look at this offering specifically (I have not had the opportunity) but convertible debentures are invariably issued such that the notes convert to shares at a ratio which is fixed at issuance. They are not converted into shares by dividing the debt by the share price at the time of conversion (or any other value-denominated formula for that matter).

                So the company going up in value does not reduce the number of shares which will be issued at the time of conversion. In fact in practice it increases them because a price rise makes it far more financially attractive to convert the debt than to hold it for coupons and redemption.

                Because of this, growth of the company’s sales after issuance will not reduce the dilution caused by this convertible debt.

                1. Nix says:

                  Maybe you should read it, because that’s not what I said.

    2. realistic says:

      I’m a Tesla skeptic and while I benefitted from this phenomenon as a long in 2014 and understand how it works, I am ever-confounded to see it happen.

    3. Pushmi-Pullyu says:

      “…Tesla stock goes up when a follow-on stock offering is announced. For most stocks, that a guaranteed harsh drop.”

      I was quite startled the first time I saw that happen. I still find it more than passing strange that this keeps happening.

      Perhaps if I understood financial matters better, I could understand why it happens. But I don’t, and can’t, understand why there isn’t at least a short-term drop when a stock dilution is announced, even if it’s what investors expected in the long term. It seems like antigravity! 😉

  10. realistic says:

    There is never-ending nonsense when discussing Tesla’s Gross Margin, whether thay make money and the concept of “investing in the future,” an odd and favorite phrase. Mostly it’s worsened by the vast gap between the typical industry definition of Gross Margin and the accounting method used by Tesla. Tesla expenses R&D up front while in general the industry accrues R&D spend, amortizing it against Cost of Goods sold.

    Neither way is right or wrong. It’s about accuracy, transparency and consistency. There’s no reason to suspect either camp doesn’t adhere to all three.

    The rub comes when Tesla advocates say “Tesla makes a lot of money: look at the Gross Margin compared to [GM, Daimler, TM]!” while ignoring accounting differences between companies that make the comparison meaningless. Then we get into how to reinterpret Tesla R&D as spend against future products vs. “upkeep” of the current product and it gets dumber. Tesla “invests”, so R&D is “investing profit” (which of course is “nonsense” because it’s EXPENSE).
    The standard POV is “Tesla would make a ton of money if they weren’t investing it in R&D”.

    Well… first of all that’s a nonsensical hypothesis. (You would be much trimmer if you didn’t have to lug around a complete digestive system.) But just to look at it rationally, Tesla’s total Net Losses since IPO (using TSLA 10k’s, not the Retained Losses line, which has some nuances and SCTY pollution) equals ($2895M). The total of R&D spend during this time was ($2763M) net of customer-funded. So, no, without having ever put a single line on a CAD screen or written a single line of code, Tesla still didn’t break even, although in 2016 they would have netted $61M if there we no engineering of any kind done. (Note: please look at Musk’s “Master Plan” part the first and see that this represents a MAJOR hole in the thesis).

    The breathless Teslacolyte then responds with “Nunh-uh! That’s because they spent all that money on Capital!”

    And… no (or nunh-uh).
    Capital expenditures are NOT expensed against the P&L. But, hey, Tesla invests all their operating cash into CapEx, yes? And the sales of Roadsters, Esses and Exes has funded that, yes? A total CapEx since IPO of $4700M? YES?

    Hold… hold… no.
    Well, the $4700M is right (+/-), but Tesla has had only one year of net positive cash flow from operations: 2013, when they really, truly shipped every damned car they built, collected a pile of ZEV income and racked up a LOT of $5k reservations. Every other year they’ve gone in the hole to fund operations, with a total for all years since IPO of ($1094M), ($124M) in 2016.

    Key points:
    Tesla cannot fund CapEx from Operations when the company burns cash on Operations.
    They do NOT “invest for the future” with the cash they make because THEY DON’T PRODUCE ANY CASH.
    They USE it.
    So they sell equity or borrow.
    They finance.

    And, ahh… can Tesla finance! (This is the downfall of the bears, BTW, who do not appreciate Musk’s ability to seduce the investor and are shocked by the resiliency of the shares.) Since IPO, the total cash flow from financing: $8461M, the majority from share or bond issuances, net of SCTY.

    Be very, very clear with these numbers: Tesla has raised over eight Billion dollars, of which just under five billion has been spent on CapEx. Tesla finances quite vigorously to keep the lights on, eventually pay suppliers and meet severance commitments to former executives. The numbers tell you exactly what I’ve been saying for years, and as of this latest raise and through 2018 will remain true:

    Tesla does not make money. Tesla RAISES money.

    1. unlucky says:

      As mentioned in the link above (seekingalpha), every increase in Tesla operating capital is due to raising money. Nothing (net) from profits, everything from fundraising.

      Although I don’t really agree completely that Tesla isn’t investing in the future. I can see you argument about it’s hard to call something an investment when it is in an extension to things which have failed to produce returns so far and thus may be considered to not produce returns. But still, it is a growth of the company’s capabilities and ability to produce product to sell to customers. It is possible to make good on these investments by turning them to a positive return later. Amazon did it. I feel Tesla intends to do it. And I think there’s a good chance they will be able to do it.

      1. realistic says:

        Unlucky, I’ve probably not been clear enough about that and if so I apologize. Tesla is unquestioningly spending money toward an array of future products and technologies. I’m simply saying that it’s all investor or lender money and not money that the business generated. That’s not evil or wrong, but it’s so counter to what the company tells the world and what people generally believe. Further the path to Tesla standing on its own feet is presently not conceivable, thus making the market capitalization a huge puzzlement.

        And as for Amazon: the vast majority of Amazon’s Capital and Technology investments were self-funded. Amazon makes a thin margin but generates enormous cash flow virtually every reporting period (and has been for years) and thus can acquire, develop and invest without going to capital markets. B_I_G difference.

      2. Pushmi-Pullyu says:

        “It is possible to make good on these investments by turning them to a positive return later. Amazon did it. I feel Tesla intends to do it. And I think there’s a good chance they will be able to do it.”

        Thank you.

        And that’s why we all should stop talking about Tesla’s investments in future growth as “losses” or “lost” money. It’s only a loss once it is shown there won’t be any return on the investment. So far at least, odds look good… and certainly much better than nearly all analysts predicted in Tesla’s early years! (“Tesla Death Watch”, anyone?)

        1. unlucky says:

          I didn’t say they were losses. They are money spent. I think it’s unfair to characterize them (essentially) as “good money after bad” as Realistic is doing. But you can’t make them disappear either. They represent reductions in working capital which have not been offset by profits. And that’s why Tesla has to raise capital.

          Now whether this situation is a problem and if so how big is very open to interpretation. One can feel that Tesla is all a scam, then this is surely bad, it’s a further grift on top of grifts. I don’t feel that way and don’t see any point in trying to argue that point at all.

          Anything other than that and you are in a gray area. You are basically arguing over whether Tesla *will* make it and so whether this is a win or not. There’s no way to settle this for everyone but I’ll just say that if you go by the “conventional wisdom” that Tesla can’t turn a profit because they have never turned a profit then you quickly run into the issue that if you assume that then you can’t explain how Tesla even got this far. They have outperformed informed projections (pessimistic or otherwise) to get here, to try to shut the door and say they can’t possibly do so in the future and thus make this company into a money spinner is probably unRealistic.

          Because what is really happening is by all reasonable consensus in this gray area I do not think Realistic’s characterization of these expenditures is fair.

          1. Nix says:

            “They represent reductions in working capital which have not been offset by profits”

            Correction, not YET been offset by profits. Those profits will come from sales over the next 4-7 years.

            Here is how it works. You invest in future products (like a generation of cars that will last the industry standard of 4-7 years) and then for those 4-7 years you reap those offsetting profits.

            That is how profits are calculated, whether formally in the books as a direct formula, or as an abstract of financials.

            You keep failing to understand this over and over.

            _________________

            Your “conventional wisdom” about Tesla not showing profit yet (they actually have in few quarters) are all fully explained in Tesla’s “Secret Plan”. The “Bluestar” family of cars (TM3, Model Y, GEN II Roadster) has ALWAYS been the point where Tesla would go mass market. All the products that came before where all a means to and end.

            You short-sighted Tesla haters have had this explained to you over and over since 2008, and you STILL can’t get it through your thick skulls.

            1. unlucky says:

              No correction required.

              I said what I meant. You are trying to turn it into another point. That’s fine, but it’s not a correction it’s another point. My point is about why they raised money in the past. You are trying to talk about the future.

              Your argument here is stupid. It’s like you didn’t even read my post. It actually was complimentary to Tesla about how they have gotten to this point. You’re so ready to be angry you can’t help but blast on my post despite the content.

    2. Nix says:

      Realistic — You are an imbecile.

      Of course Tesla has spent more money in order to get to the point of imminent Mass Market production and sales than they have collected from those same future Mass Market sales. The profits come AFTER going into mass production, and the investment comes first.

      Go read the 2008 Secret Plan. Everything in every past line of cars is just a means to an end goal of mass production of the Model 3 (and future variants).

      Your entire post is a fluff-filled statement of the Obvious. Tesla won’t reap the profits of all of their expenditures UNTIL after the Model 3 is in full mass production.

      You’ve made the same failed analysis that unlucky made. You’ve divided up all of the current costs to date, and placed them on all the cars built to date. But those costs ALSO will be spread into ALL of the future TM3 yet to be built that your numbers fail to account for. This is yet again the same failure as those who said in 2012 the Volt cost $100,000 dollars to build, because they divided costs to date by the number of cars built in 2012. Utter failure at an epic level. And your math repeats the same, except worse. You don’t even wait for the first M3 to go on sale, and you total up all the costs and apply them before even 1 is built!!

      Thank you Captain Obvious for explaining that Tesla won’t actually reap the profits for all their costs until after they actually sell the TM3. GTHFOH!!

      1. unlucky says:

        Nix: I did no such analysis that you speak of. I did not speak of per-car profit in any way.

        If you can’t understand what I’ve done then just stick to explaining what you’ve done.

      2. realistic says:

        Not “making the same mistake” at all, Nix. You’re so apoplectic, so in love with the Tesla idea, and so arrogant and insulting that you couldn’t understand the post. Read it again.

        I don’t even care about R&D. I bring it out because it’s de rigeur to speak loftily about R&D and “the Vision” as the reason for Tesla’s staggeringly weak finances. Take it out — that’s what I did. Even if you subtract ALL the R&D expense from OpEx, Tesla doesn’t break even. Their Gross Profit doesn’t cover SG&A and interest in most years, and definitely won’t in 2017, whether they spend the GDP of CA on R&D or nothing.

        The Volt analog is moot. It’s meaningless.

        Tesla’s manufacturing, G&A, and financing costs are too high. They aren’t getting better as deliveries grow and option lists expand. Gross Margins continue to struggle. Moreover these hurdles aren’t proportionately shrinking as the business grows. It’s a mess.

        And while you wail and insult and misconstrue and bloviate, you can’t grapple with the cash and capital issue which is even worse. Tesla borrows money to keep the lights on. They cannot pay the bills without borrowing and the borrowing will grow enormously. This is somehow inaccessible to you. I don’t get why you don’t get it, because in between spittle-spraying insults you are occasionally lucid.

        None of this matters much since investors are hanging in there, money is still loose and cheap and there is no reality yet to torpedo the absurd Model 3 progress claims.

        Calm down.

        And, no, I won’t get out of here, much to your certain discontent (and clearly to the degradation of your circulatory system – take a Lopressor).

        1. Nix says:

          Just show in your math where you account for the future sales of the Model 3. Go ahead, show your math.

          When you realize you don’t account for that, you will understand where you have massively failed.

          1. realistic says:

            You just subtract all the 2016 R&D that you would guess is dedicated to the Model 3. Out of the $834M, I would say net of
            — Autonomous Driving development
            — the rush of design and cost improvement changes to MX in Q1/2
            — Tweaks to MS for speed and reliability
            — Tesla Energy

            the number would be about $500M (and I think that’s high, but I’m open to discussion.) When you take that away the Net Loss goes from ($675M) to ($175M).

            You might want to say “hang on: everybody gets to use A/P so that should proportionately also go to Model 3”. That’s arguable (though I think the current system will be WAY too expensive in a couple of years and I also think Musk knows that).

            Anyhow, that $500M plus the ~$750M to be spent between now and Delivery Day of Car #0001 to you or Pu-Pu brings the total to a cool $1.2B (ish).

            Over 300,000 cars (and that’s probably the kind of math they would use to satisfy auditors) it’s ~$4k per car amortization, which if you assume a 20% GM on a $42k car before the theoretical accounting change would make the GM a bit over 10%. In this industry that’s pretty good.

            1. Nix says:

              You’re so funny. Your math is complete utter failure.

              1) You pretend the entire TM3 run will be just 300,000 units. Typically a car’s run will last 4-7 years. That is industry standard before a major refresh. So you’ve just projected sales of 50-75K units per year for the run of the TM3. Utter rubbish!! You are off by a full order of magnitude right from the start.

              2) You think that Tesla didn’t start TM3 R&D until 2016!!! You really are clueless, aren’t you? Here are things that Tesla FINISHED in early spring of 2016:

              Finished new clean sheet inverters designed specifically for the new battery pack.

              Finished new battery pack to go with said new inverters.

              Finished building the first two Alpha test cars containing said battery pack and said inverters.

              Links for all of this has been posted many times before (ibid)

              Even with all that said, your math STILL fails to actually account for the income of the TM3, much less the carry-over to the platform mate, the Model Y which is also part of their current investment.

              I can’t believe you even pretend to know anything about Tesla. You are so far off over and over on the basic facts, that it is amazing.

        2. Pushmi-Pullyu says:

          realistic said:

          “And while you wail and insult and misconstrue and bloviate…”

          Just who is bloviating here, and who isn’t, is a matter of opinion, Realistic.

          I appreciate your attempt at a deep-dive analysis, but the problem is that, like all too many analysts, you keep expressing opinions as if they are facts. Here’s one actual fact: When you get into accounting and financial analysis this complex, it’s no longer a black-and-white matter of right or wrong. There isn’t any one right way to perform accounting and financial analysis of a sustained growth company, especially not one as large and varied as Tesla Inc. For example, whether certain aspects of Tesla’s finances are better analyzed using GAAP accounting methods, or non-GAAP methods, is a matter of opinion — not fact. (For those interested, see discussion of that subject in article linked below.)

          Your opinion is that Tesla is “losing” money? That it “lost” $100s of millions last year? Well, that’s just your opinion, and I note that despite your assertion as if that’s a fact, rather than mere opinion, you decline to give us any estimate of how large the so-called “loss” was.

          Very obviously there are a lot of investors, some with very deep pockets, that think Tesla isn’t actually losing money; that Tesla is investing in future growth, with a good potential for that investment paying off.

          If there were not a lot of investors who disagree with you, invstors who have a different opinion, then Tesla wouldn’t continue to be able to borrow the money it needs to fund its investments in future growth.

          * * * * *

          “How Tesla Motors Could Be Profitable if It Wanted To”

          https://www.fool.com/investing/general/2016/03/27/how-tesla-motors-could-be-profitable-if-it-wanted.aspx

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