Tesla Raises More Money Than Expected, Offering Jumps From $1.6 To $2 Billion Due To Demand

FEB 28 2014 BY JAY COLE 30

Tesla Nets The Proceeds From The Largest US Bod Offering In Over 2 Years

Tesla Nets The Proceeds From The Largest US Bond Offering In Over 2 Years

A week after Tesla beat the industry estimates for profit in their 4th quarter ($46 million ex-items), the company detailed their plans to build a “Giga factory.”

Teslaa's Giga Factory Will Be Located in One Of These 4 States - Let The Bidding Begin!

Tesla’s Giga Factory Will Be Located in One Of These 4 States – Let The Bidding Begin!

This factory, which is to be located in one of 4 US states (Arizona, Texas, Nevada and New Mexico), will someday be able to produced enough packs to supply 500,000 cars.

But to pay for this factory (estimated to cost as much as $5 billion – with Tesla kicking in $2 billion of that over 5 years), as well as development of the next gen car, Tesla announced they were going to have a convertible bond sale in order to raise $1.6 billion.

Turns out the market liked Tesla’s terms – and future prospectus – as investor demand was incredibly strong according to the sale report from FT.

In the end the offering was raised to $2 billion and with a provision for an over-allotment that could make the offering reach $2.3 billionAlways nice to get an extra $400 to $700 million that you didn’t ask for.

Details of the offering:  Tesla sold $800 million of their 5 year note and $1.2 billion in the 7 year.  The 5 year notes have a coupon payment of 25 basis pts, with the 7 year paying 125 basis points.  Both the 5 and the 7 have an equity conversion premium of 42.5% (ewhich quates to about $360 per share).  At the underwriter’s discretion, the offer can expand by a further $300 million.

Of note:  Tesla’s previous offering last May was also oversubscribed, and was expanded twice.  Those notes carried 1.5%, with a 35% conversion.

This deal is the largest US convertible bond sale in over 2 years.

Financial Times

Categories: Tesla

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30 Comments on "Tesla Raises More Money Than Expected, Offering Jumps From $1.6 To $2 Billion Due To Demand"

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but I’d rather it be in my state of Arizona, now that would be sweet.

and Jan Brewer could be in the National news some more.

Who wants their business that generally appeals to more folks on one end of the political spectrum, stuck in a state that is constantly being divisive with one controversial legislative issue after another coming from folks on the other end of the political spectrum?

Any state that keeps drawing repeated threats of economic boycotts from the same folks who make up a large part of your customer base, effectively has removed themselves from the list of serious candidates.

Thx Nix,
what state are you from?

Everything about the Giga Factory is huge and not just for EVs. Feels like the very early stages of affordable renewable energy storage.

Affordable? How much do you or anyone here know about energy storage industries? Li-ion is not as affordable as Lead-based solutions which only get better and cheaper over time. Since they are not mobile, weight is not a factor. This is where a lot of people give too much credit to this project. The industry already has major players and has a set cost per stored Ah which is dropping. The problem is the analysts who talked up the matter on CNBC did so without talking about the existing grid storage market which is quite well established, in some cases with pumped hydro, for decades.

It’s amazing that investors are buying those notes. You get 0.25% interest for five years, with the option to convert them into TSLA stock at $360 (or into cash, if Tesla feels that would be better for the company). At $360 share (and with the extra shares from this offering), TSLA would be valued almost as high as GM. Which means this is only a good deal if you seriously think that Tesla will be selling as many cars as GM 10 years from now, and will be able to do that without having to further dilute ownership to build more factories. Elon Musk is clearly a genius at predicting bubbles and investing in them before everyone else does. Here’s hoping he also knows how to run a car company.

Tesla is not a car company. It is an energy company soon to be manufacturing batteries. The car is a side bet.

For batteries to become big business in the energy sector, they need to last tens of thousands of cycles, 25 years, and cost $50/kWh at most.

Mechanical work through gasoline costs ~$0.35/kWh ($4/gal, 40 MPG, 3.5mi/kWh). Amortized batteries plus $0.12c/kWh retail electricity can beat that. OTOH, firing up a cheap, inefficient, mostly idle natural gas power plant when needed has a marginal cost of about $0.05/kWh. That’s an order of magnitude tougher to compete with even if charging was free.

Cars are a much more profitable market for batteries than grid storage.

Why? If they last 12 years and cost $100 a kWh BEVs will rule the roost. Your numbers would be phenomenal if achieved but they are a bit of overkill.

It is simple calc on cycles. Figure 1 cycle per day. That doesn’t sound so bad.

Most EVs will cycle less than once per day on average. Some Tesla owners with a short commute need only cycle once a week or maybe few days. The owners manual says to keep the car plugged in when not driven but it isn’t a requirement to charge up after each drive.

I’m not sure if you understand my post.

Those numbers weren’t for EVs. Indeed, they are overkill for that. I was giving numbers for grid storage, addressing the claim that the “car is a side bet”.

Mint, I once read an employee of NRC suggesting the in/out economic cost of commercial storage can work at $200/mwh. So, not counting wholesale cost of getting it to the battery, the marginal additional cost would be about $.02. The key is in the arbitrage of peak-shaving, where rates can swing by more than $.10/kwh, hourly, and demand charges can be avoided.

Tesla has shown nothing in this arena, up to and including the gigafactory, when it comes to commerce. Just residential, expensive chemistries. And refurbed car batteries won’t be a major bottom line helper. They have to close the lithium / lead gap, however big it is, before modeling cash flows, IMO. Residentially, they also have to make behind the meter $50-100k thousand dollar PV/Battery systems a good chunk cheaper.

..sorry, make that $.20 marginal adder, showing some ways to go. Still, watching swings in the different ISO’s, there are definitely opportunities to store, even at these costs, which could work. Maybe the volumes aren’t there, or IOW times power prices jump this high, but I suppose a point is not just to track $/kwh to make storage, but the volume and price of kwh those investments translate into. I don’t know enough about chemistries to know if Lithium’s cycles, or other benefits improve that chemistry’s appeal, dollar for dollar.

0.25% is the coupon rate if the bonds are bought for face value. I don’t think that’s necessarily the case. They may have to sell $2B worth of these bonds to raise $1.8B.

This does indeed seem like a clever solution. I thought TSLA’s high share price would make a stock issue more attractive than bonds, but maybe Elon is worried about losing voting power through dilution, and he’s said that he doesn’t want to be bought out before bringing the EV to the mainstream. The use of convertible bonds seems to be the best of both worlds: he raises funds now, and dilution only happens if the stock goes through the roof (in which case the company’s success is virtually assured).

This is another investment product that is a PITA to figure out.
I looked at convertibles years ago and………
you better know what your doing.

So if you buy $1,000 worth of the notes now, what are they worth in 5 years?

$1000 + coupon. However, most likely all who buy them will trade them on the bond market, just like the last bonds. Holders who bought these now will hot potato them out unto the “cloud” of investment firms out there. The stock price pps pop recently was to gain tremendous interest. I think next we see it slowly slide back to $200 or below as these bonds work their way into the bond market. Nobody bought these bonds to “hold them”.

Also remember last year’s bonds will be convertible in Q2 now. And the company will dilute some shares and use some cash to those holders who choose to convert now and hold the shares for possible near term trade. He who believes the pps of TSLA will go to $300 or higher near term may have been mislead by what just happened this week.

[eyes glazing over]


BMW and Daimler Benz have market caps far greater than GM and sell far fewer vehicles.

GM right under 10M and BMW about 1.8M. Mercedes sells 1.7M light duty vehicles plus their heavy truck unit.

It is not about number of units sold but profits.

And in Tesla’s case estimated future profits.

While I would love Tesla to build the factory in Texas, I doubt it will happen. They aren’t allowed to sell cars in Texas; their boutiques can only show the cars, and representatives will sidestep any questions of cost and financing. And the Texas dealers association will fight them every step of the way. Lot’s of money on the line for dealers.

That’s why Texas is on the list. The Giga Factory is a powerful bargaining chip to get the Texas legislature to reconsider the franchise rules. Only something as big as the Giga Factory could offset the powerful “good-ole-boy” Texas dealer lobby. Interestingly, this approach would actually play well with the Texas governor’s often touted “open for business” policy.

Tesla needs to resolve the distribution problem in Texas since it is one of the largest vehicle markets in the country.

I just saw in interview on CNBC with the Texas dealer association president. He was pissed and said Tesla is a speck on the automotive sales in Texas. The association will not bend to their requests of bribing using the battery factory. He implied the Governor is one their side. We shall see about that.

Did anyone call him on that, asking him why if they’re just a speck why they have to fight them off so aggressively?


Including Texas, if it doesn’t win will serve as a future reminder to be more open to innovators. Texas is a big energy state and a Gigafactory is a game changer for the energy indudtry. Just being a contendered generates press on the opportunities that Tesla offers. Important voters will be following with interest.

Besides being in the running for a Tesla factory, Texas is also in running for a future SpaceX launchport.

That would be funny as hell if Tesla built in Texas but Texan’s can’t buy a Tesla.
Employ a few thousand people but none of them can buy the product they make from within their state….lol

NADA is a pile of s***!


An embarrassment of riches for Tesla. A few days ago some negative comments about Tesla’s funding, are immediately blown out of the water, when it is clear that their convertible bond offering will be oversubscribed, allowing them to raise even more money.
Midas Musk is the golden boy.
In an odd way the Texas ADA, might be doing Tesla a favor. That is if Tesla just got it’s way in everything it was trying to do it might slack off. In other words they are being kept on their toes by learning how to fight against associations such as the Texas ADA. Understanding how these good ole’ boy networks operate, along with the intractable powers of the old guard will be useful for them as they mature as a company.