Tesla Announces $500M Common Stock Offering
ir.teslamotors.com
ir.teslamotors.com
[1] http://www.scmp.com/business/companies/article/1846965/tesla...
[2]Flagged HN thread from 3 days ago: https://news.ycombinator.com/item?id=10030101
Tesla makes money on each car it sells (sales exceeds cost of goods sold), but once fixed costs and other expenses like R&D and capital investments are included, it has an enormous loss, so on average it loses about $4000 to $17000 per car (depending on whether you use Unicorn Accounting or Generally Accepted Accounting Practices). The article reported this as Tesla losing $4000 per car, which is accurate in a general/layman's sense but is technically inaccurate.
The trouble with any accounting rules is that it's hard to convert everything on the balance sheet into the same unit. If you don't convert it all, it's really hard to compare balance sheets. If you do convert it all, this conversion may be unfair to one balance sheet more than another. Or at least that's how I understand it...
One example is pricing stock option grants so that you can then add them up with other expenses. I'm sincerely not sure how I'd do that. Here's a critique of what GAAP mandates:
http://www.cypress.com/documentation/ceo-articles/dr-rodgers...
The difference is mainly about leasing agreements for Tesla cars and how much such a lease is worth to Tesla. GAAP was/is definitely too pessimistic. Tesla's own accounting may be too optimistic. I believe Tesla's guess is pretty good. We'll see.
They've broken out the per-unit cost for a Model S and they're posted ~22% profit(feel free to fact-check me on this, I might be a tad off) excluding ZEV credits.
So if Tesla wasn't production constrained(and building out the Gigafactory) they'd be turning a profit by the same logic.
"Total Q2 gross margin was 23.4% on a non-GAAP basis and 22.3% on a GAAP basis."
http://files.shareholder.com/downloads/ABEA-4CW8X0/522530778...
If Tesla were to sell more cars, its average loss per car would go down (and eventually become average profit per car). Unfortunately, Tesla announced that it's cutting production and sales estimates for the remainder of the year, so that's not going to happen in 2015.
The utility of a hybrid is just much higher. You get the gas saving in city drives, and the range on the odd weekend trips. The latest Prius can be charged too: http://www.toyota.com/prius-plug-in-hybrid/ and it cost less than 50% of the cheapest Tesla. The only thing you don't get in these Prius is the look factor, though they look cool enough for many people.
I agree the metric is common, but it is an invalid comparison for Tesla. The other car companies have mature product lines. The model S is their only production line, and they are spending money on development for the Model X and the Model 3.
If any car company were developing 2 vehicles for every 1 they have in production, then it would be a valid comparison. Comparison metrics have to be evaluated in the context of the company's overall life cycle. The art of valuing companies lies in choosing the relevant metrics to compare.
Tesla has lowered their current year estimates from 55,000 to 50,000 to 55,000, due to uncertainty about the Model X go live. And it hit their stock price... However, they have not changed their long term goal or time frame for get their factory to maximum capacity of 500,000 vehicles around 2020.
At 22% profit without credits that means with credits they're making say at least $40k profit per car sold. This is like 1/4 year of sales... but they need ever more money, now? Why? Maybe Model X reservations are cannibalizing S sales? Or they need to throw money at 3 because the competition is going to have an equivalent car out sooner? Or so battery factory comes online before LG Chem's new production?
This doesn't add up for me. It seems to me either their accounting is not accurate or they are seriously far behind the competition.
At $10 a charge (12 cent kWh) that's 50 charges per car for its lifetime. That seems like a pretty low estimate to me on number of charges, especially as the network expands.
The difference to your $2000 works out to $33m (more for the full year). That seems like a significant amount to me.
In the days when AOL sent out disks with their program, it came out years later that they were treating that marketing effort as a capital expense and amortizing those throwaway disks over many years. AOL actually became profitable about six years after it said it did.
I used to have a system which tried to analyze financial statements automatically. I have a database of several hundred euphemisms for "net loss". ("Net income after extraordinary item", etc.) It's embarrassing. The SEC's standardization on XBRL has helped a little with that.
Tesla is an industrial company, and accounting for industrial companies is well understood. This includes growing industrial companies. Upfront expenditures for an industrial company result in real assets, which can be valued. I look forward to reading the prospectus for the IPO.
- You bought a company and now it's worthless - You made money and now you have to pay taxes on it - You bought a bunch of computers and now they're three years old and worth less than when you bought them - You bought something 10 years ago, and, instead of paying for it all up front, you paid over time
This causes it to be moved down in rankings, and if enough people flag it, killed and locked--at least, that's my understanding.
https://i.imgur.com/ruKYVHF.png
http://www.teslamotorsclub.com/showthread.php/51482-Supercha...
I live in the Midwest along the supercharge path. The mall by me has 3 or 4 supercharge stations, which I think is approximately 4x the number of teslas owners living in my city.
About half the time all 4 stalls are empty, about half the time I see 1 car.
Which is "good" in that people on a long trip can get their charge on without having to wait in line. I suspect if I lived in town and drove a Tesla, I would use it a little more often for the free power ;)
Maybe just adding a $5 charge cost would be enough to balance out supply and demand? $5 a tank is still a good deal on a long trip, but hardly worth going out of my way to do (when I can charge for $2 at home)
This is above anything else I've seen about Tesla ever bums me out the most. It is like getting "unlimited" data to find out that you're actually punished at more than 2 GB. It is super lame behavior.
At the end of the day, I feel like I avoided a bullet here, I ended up buying a Mercedes-benz instead...the interior of the Tesla (mainly lack of tactile feedback due to the touch screen, and simple things like there being no button for the sun roof) was just not up to scratch, and potentially a dangerous distraction to the driver, in my opinion.
Setting aside the design differences (the Tesla interior is very modern and stark and has very simple design) the quality and featureset of the Tesla interior is roughly equivalent to a 3-series BMW or an Audi A4.
Which is to say, it's glaringly insufficient for what is usually spec'd out as a 90-120k car.
Let's tilt the field in favor of Tesla and compare only against mid-sized, mid-ranged competitors, which are the 5-series, A6 and E-class. Those have much, much nicer materials, more adjustable seats, features like ventilated seats ... it's hard to believe that this far through the lifecycle the model S interior is so lacking.
If all the electric features are making the car already expensive... maybe the market would not react well to another 10k in price to add some luxury features like ventilated seats.
If things like ventilated seats are really only a few dollars to add, then maybe it was indeed a weird choice to make. But not seeing Tesla currently having a huge glut of inventory to unload, so seems to be filling some kind of market niche ("Not the nicest luxury car, but fast and eco and pretty nice")
The Tesla UI is a big screen. If i was given the problem of "We don't have much experience building car interfaces, and its likely something we'll want to change once we get more experience; what should we do?" the thought of throwing in a big screen that you can auto-update does start to sound pretty appealing.
Having said that, as a driver, the practice of having this style of interface just so the company can produce the cars faster and easier...i find less appealing.
This video shows how to open the sun roof (https://www.youtube.com/watch?v=b5a3n-vTtuU), the fact that this button is more than 1 layer into the UI is pretty insane(Normally the radio is in the place you see the roof in this video, so you're pushing a button just to get to the sun roof slider). I often find myself making this kind of adjustment while driving. Having it in this part of the UI, i found to be a bit distracting and hard to use while performing my test drive.
That may indeed be the case, but there should at least be options. There should be an option for super-adjusto-21way-seats. There should be an option for ventilated and massage seats.[1]
Actually, now that I think about it, the missing features all largely have to do with the seats...
[1] A common feature on S/7/A8
a) You end up with a bazillion options that makes the experience worse for many users
b) The time to ship the product increases a lot
And this is with SOFTware. Adding HARDware options is even harder, as there is tooling and physical widgets that need designed and produced. Even adding an option for 21-way seats would have cost money.
This is a really good point. I agree, the Audi A4, BMW 3 series and, I would add, Mercedes-benz C class are all comparable. Disappointingly I would put the Tesla in that bucket too (but for its price tag, it should be in a much higher class)
I had told myself for the last 3 years "I'll get the Model S when I've got the cash" (I am/was the Tesla fan boy), but after driving it and realizing that it didn't have the upper class features I saw in the much, much cheaper luxury brands, and that the interior quality was seriously lacking, I couldn't convince myself to go ahead with the purchase. I hated having to actually LOOK at the touch screen just to adjust the climate control...i wish it was a physical button. In fact, I fear that this may actually be a grey area in the law and down the road we'll see these types of interfaces become a no-no.
The car i ended up buying was the Mercedez-benz C400 (same as the C300, but larger engine). Sure its no EV...i wish it was...and its a good 30k cheaper (after options I added to my C400) than what I would have gone ahead with the Tesla, but the car itself is in a completely different class of machinery. Essentially I love it, the Tesla was really interesting...but I just didn't love it.
I have a CTS, lagging behind BMW/Audi/Mercedes in interior quality but ahead of the others that claim to be luxury brands. I really liked the P85S I drove and I would probably drive one if I could afford it. The interior was nice enough for me but the way it drives, exterior design and the fact it is electric is what interest me way more than interior quality. The interior quality is sufficient unless you're trying to buy the most luxurious car in that price range. In that case you get the S-Class. For the time being I'm waiting for the Model 3 debut.
Disclaimer: I've never actually been impressed by the C and E class interiors or the dealer experience at Mercedes.
That is exactly what the Mercedes sales rep asked me too :) Honestly, I was willing to spend more to get an EV. In general the whole concept of an EV is just something I have a passion for and want to see being successful. Unfortunatly, the Tesla really just did not live up to the expectations I had...and if I was going to buy a car that was not electric, I did not want to spend the same amount.
Put the Tesla electrics in the C-class and i'd gladly throw an extra 30-40k at it.
Edit: If you have not seen the 2015 C class, i'd suggest checking it out. It is a very big step up from the C class of previous years.
It may have just been the dealer I went to but they seem to be kind of pretentious. Anything I questioned I was wrong because "Mercedes does it the right way". I find this funny considering that Audi is eating up market share.
Personally I found all the dealers out of Tesla, Mercedes and Audi (Unexpectedly not the BMW) to be a bit pretentious, but I guess it comes with the territory.
The design of the Tesla's seat seems to be an afterthought and I found it uncomfortable after an hour and a half with my butt planted in it. In Texas, an hour and a half travel is almost nothing.
Other things about the car's fit and finish, like the rear hatch's tendency to leak water in heavy rain, really turned me off from even considering one.
The quality of the Tesla interior felt in line with a Ford Mustang or recent Chevrolet. Both are incomparable to what Audi delivers in the A4 and up, which in my opinion is also a small step above BMW. Although Audi and BMW don't differ that much in interior quality.
For the previous years models I saw, i would agree. However, I personally felt the 2016 interior for the Audi models i saw was a big step up from the 2015 interiors. I suspect part of this was due to the added pressure by the 2015 C-Class which is also a step up from their previous years.
Moving to America, I found it really interesting how many cars have every possible interior gadget known to man, but the important parts are crap. Not only did my 1996 North American car have a mirror on the passenger sun shade, that mirror had a cover, under that cover was a light, AND that light had a dimmer switch.
Of course, the body panels were built to the nearest 1/4inch and it leaked oil like a sieve, but my god the interior was nice.
I'm happy to see an automaker spending money on the bits that count, i.e. the drive train, rather than do the same drive train thing they've been doing for 50+ years and pretty up the interior.
If your personal choice is that interior > drive train, then that choice is right there for you to make, and you are free to make it.
But: I don't think I'd buy an electric if I couldn't charge at home, so I don't disagree with you there.
Is there reason to believe Tesla doesn't maintain long-term records of every vehicle's entire GPS-enabled driving history?
Automated-everything sounds great until something nefarious happens, but by then it's too late to put the convenience genie back in the bottle.
TSLA is like Bitcoin; no news is bad news.
In most cases it simply didn't work. Fundamentals rule sooner or later, not optics. I was in the no-longer extant Wachovia for instance, where the CEO bought around $1m of stock. It was bought out for a song a few months later after it crashed.
This process is meant to increase the size of Tesla by $500M, by simply putting $500M into its bank account. The people who are providing this money are getting new shares in return. In theory, the value of the new shares should be $500M, and the value of the old shares should add up to the old market cap of the company, and the sum of the new shares and the old shares will naturally add up to the company's new market cap.
There are second-order effects, though. If there is only a fixed demand for Tesla shares, this may reduce the price of shares (and so devalue the shares of existing shareholders.) Conversely, if people think that Tesla is going to make very good use of any new money, then existing shareholders may end up better off.
Is this fair? I mean, you lose power because you have less shares. The share price is only part of the investing story.
If you weren't, your shares are still worth the same amount, so even though your voting percentage has gone down you still have the same value of stock, so it shouldn't affect you materially anyway.
(For instance, when Google IPO'd, they made sure that everybody buying stock in the IPO was irrelevant to control of the company by issuing a different class of shares to the founders/insiders)
You aren't forced to "accept" it.
You owned x/(Tesla^). Now you own x/(Tesla^ + 500M). (Tesla + 500M)>(Tesla) so your share is proportionally smaller. Put another way, you own a share of tesla. The day after the offering, Tesla has 500MM more in the bank and you own a percentage of that money.
Real life is complicated in all sort of ways. Demand for shares does not perfectly trace inherent value (an unknown number). The action could act as a signal to investors to buy or sell ("They need money because they're growing so fast!" or "They're bleeding cash, run!."). But theoretically, it's supposed to be perfectly fair to shareholders
^Tesla = all Tesla assets the day before the offering.
The only reason I see to be happy with the new shares being issued sooner rather than later is if I'm going to keep buying shares, they won't be diluted because it already happened. Otherwise I don't get why would I prefer the new shares to be issued at a lower price. If they raise $500mn at $250 it will take longer to get to $1000 than if they can wait until the stock trades at $500 (because the dilution would be lower in the second case).
Not really, more like:
- Investors holding TSLA think its fair priced at 238.
- Investors buying TSLA think its worth more than 238.
- Investors selling TSLA think its overpriced
Obviously these roles can overlap, but if you are a shareholder whos thinks TSLA its worth more than 238 you should take part in this offering and buy more stocks - even just to avoid the dilution.
I assumed that the likelihood and size of possible dividends is already included in your estimate of what the stock is worth.
i.e. increases in price. If it stayed the same long term there's no point holding it due to the opportunity cost.
This kind of reasoning is probaby why the article mentions Musk himself is buying this round of equity - to give shareholders confidence in the stock price.
Dilution happens when you issue more ownership of a limited resource.
In practise it is not quite so simple, which is why often capital raisings were issued to shareholders as rights to buy into capital raisings, which could be sold and other means, because control is dilutable as a limited resource.
If these shares make money, that will be a bonus.
However, supporting the existing stock price could have an effect - typically the market price influences the price of a secondary offering like this.
It also worthwhile to note that the underwriters will take a cut/percentage of whatever goes to the issuing company.
As you say, the market price has an influence on secondary offering prices, so it affects a company's ability to raise further funds, but buying stock secondhand seems like a fairly indirect way of supporting a company's goals. Just like if you enjoy a band's music, you don't demonstrate your support by buying second hand records...
When you buy Tesla stock on the stock market Tesla gets no money from you - you are actually buying the stock from another entity independent from Tesla. Tesla only receives money when the stock is sold for the first time, by the Tesla Corporation to an outsider.
Saying that a share is overvalued against its "intrinsic" value is not saying the share is overvalued or will go down, it's just saying that it's currently being priced with an expectation the company will be worth more in the future.
It is exactly what it means [1]
> or will go down.
The intrinsic value of a lottery ticket is below the price you pay, it doesn't mean you can never win. That said, nobody knows the intrinsic value. In the case of TSLA you have a range of sell-side analysts telling you it's somewhere between $178 and $400. (Edit: to be fair, probably they are using multiples [2] and not a proper intrinsic value calculation. A DCF doesn't get you very far in the current market, much less so in companies like Tesla. For a discussion based on fundamentals see [3]).
[1] https://en.wikipedia.org/wiki/Intrinsic_value_(finance)
[2] https://en.wikipedia.org/wiki/Valuation_using_multiples
[3] http://aswathdamodaran.blogspot.ch/2014/03/return-to-firing-...
But even if your valuation is remarkably different than the public markets it does not then follow that you should short; this ignores the importance of time in making a good investment decision. This is compounded by the fact that shorts and options are incredibly effective means of losing lots of money in a short amount of time.
I bought stock and options when this was trading at 35 and sold at around 140 as I put my fair market value at about 125 for this company. Would gladly reenter at that price.
I haven't valued Tesla since 2013 but it was overvalued then so it went into the "nope" pile and I haven't looked at it again since.
Tesla right now is a bet that their battery technology will be insanely profitable and have some sustainable advantage over competing technologies. It's an interesting stock to play with as part of an algo strategy because it's so volatile (again, this is typical of young companies), but I wouldn't own TSLA as a buy-and-hold right now. The share price is just too expensive, and they're going to need massive, continued infusions of capital to continue (as evidenced by the article).
Basically, the risk with Tesla is that if they are crazy profitable, their share price likely won't rise all that much because investor expectations are high. If they are not crazy profitable, the share price will drop over time.
"THERE ARE IDIOTS. Look around."
Arguably "mainstream economics" could be nothing more than a religion, and a very dangerous one by its very high though undeserved power.
With new, rapidly growing, highly speculative companies in big markets (auto, space, energy) it becomes very difficult to predict where they'll be in 1 - 5 years. Investors are still (typically) intelligent and will look at what other disruptive companies have done in the past, look at the management team and leadership etc and place a "bet" on the stock. Because these companies are sometimes growing 50% to 100% per year and someone is happy to hold a stock for 3 - 5 years they will pay a substantially high price for stock in terms of _today's_ revenues or profits. It doesn't mean they won't get it wrong - ie if a company falls to growing "just" 40% per year that makes a huge difference 3 years out. It doesn't mean that the stock price for the new stock is any more or less correct than for the older more stable company. it just means it's much more likely to fluctuate over the next 3 - 5 years as risk and upside is better priced in with more knowledge in place.
My experience with Bitcoin has caused me to smile every time this turns-out-it-is-completely-bullshit concept is thrown around
All values are subjective. All of them. There is no "real" or "intrinsic" value (except by consensus agreement of subjective values). The emperor wears no clothes, and there is no rabbit in the hat. Unless we consensually believe there is, that is.
On a higher level, I LOVE Elon Musk, but what made Steve Jobs so great is that he could innovate like crazy and make gobs of cash. Right now, Elon is innovating, but his companies are really struggling to even sniff profitability.
But the expected value of the combined company (where all outcomes are floored at zero) is only $1280 (not $1600), because there's a real chance that one business blows through the profits of the other.
With MPT, you're not necessarily running a business, you're holding securities/assets that cannot have a negative value. (i.e. they can't become liabilities, you can't have a stock or bond that you owe money on)
With a business, the net value can become negative and in some cases when it does, you declare bankruptcy. This is why you'd want to ring-fence/separate out the more risky ventures from your main business, so that it's a separate entity that can rise/fall on its own.
See the case of Target (USA) and Target Canada: http://www.alvarezandmarsal.com/target-canada-co-et-al/
He'll be the market leader in both electric vehicles and battery production - they'll be able to undercut everyone perfectly positioned for when "everyone" is buying electric vehicles.
Tesla has always been a bet on batteries. And if you're going to bet on batteries, why not expand that bet?
Regarding "gobs of cash," Tesla would be profitable now if it weren't pouring money into future expansion. The Model S sells well (given Tesla's size) and has high prices and margins. But that money (and more) is being put into design and production of a new model, and a gigantic battery factory.
I don't think Jobs is a good comparison to Musk. Jobs's recipe for success was to take products that existed and were popular in a niche, and refine them so that they appealed to a wider audience. The Apple II was a friendlier PC (used in the generic sense, not "IBM PC compatible," of course) with mass-market appeal, the Macintosh took existing GUIs and refined them to the limit, the iPod did nothing that existing MP3 players didn't do, but was made to have far greater appeal, and on and on.
Musk, on the other hand, is pushing the envelope. First electric car with a long range. First electric car capable of long-distance travel. First electric car that can compete with gas cars on its own merits. First reusable rocket (still trying).
If they were in the same market (and if Jobs were still alive), Musk's companies and products are the sort of ones Jobs would have been appropriating and refining a few years down the line once the concept is proven and demand is demonstrated.
[1] http://www.google.com/finance?q=NASDAQ%3ATSLA&fstype=ii&ei=j...
Apple is a software company that also creates hardware for their software to run on. They're two businesses under one roof. Hardware is definitely a pretty high risk business too.
Tesla is an electric car company that also creates batteries for their cars to run on.
Tesla has more chance to make higher profits by controlling their battery operation, and also has higher chances of failure. This is the same as Apple and creating their own hardware instead of letting their software run on all hardware. There's differences, but I think your argument doesn't hold much water and has nothing to do with whether Apple or Tesla can be successful businesses.
You sure about that?
[1] http://www.cnbc.com/2015/08/10/tesla-burns-cash-loses-more-t... [2] http://www.bloomberg.com/news/articles/2015-08-05/tesla-fall...
They had significant CapEx and so their revenues - costs worked out to an amount that was $4000 for every car they did sell. Had they sold more, their net loss would have been less, not more.
I had major medical expenses this year and had to dip into my savings such that I ended up spending about 12k more than I brought in this year. I also ate 12 pizzas in the year. Their headline is like me saying "I lost $1k per pizza this year". It's accurate in a sense, but they're not related.