Tesla to raise $1B
ir.tesla.com
ir.tesla.com
A modern car company is as much of a production and supply chain company as it's a product and tech company. I get the feeling that due to Tesla being cutting edge in the tech department it led to all the supply chain/production problems being treated as if they are speed bumps on the way, when in reality they are fundamental core competitive areas for an automotive company. Toyota is not the world's premier automaker because they have cutting edge tech, they are what they are because they build unbelievably number of reliable cars at an unbelievable scale.
The bleeding of cash after so many promises of "not going to raise money again" just shows that their vision is way ahead of their execution ability. Decisions like the terribly executed Falcon Wing Doors on a SUV that delayed production and increased cost and hurt reliability just further gave fuel to all the doubters.
I also have a strong suspicion that Tesla has not been honest with their Auto Pilot 2 and full self driving tech's progress. The current AP2 is an unsafe joke and I have no idea how people are ok with paying $5-10k for a significant downgrade when compared to AP1 because of a non-binding promise that it "might" get upgraded before their lease term is out. Any other automakers would be laughed out of the room for suggesting this kind of sales tactics.
I still believe in Tesla/Elon's end game vision, and I think what they accomplished is nothing short of brilliant, but I think it's a very risky investment at this point and the road ahead is bumpier than many like to admit.
The upcoming Model 3 will be the acid test for Tesla. It will no doubt be a good car, but at this point people should focus less on what the car can do and on how the car will be rolled out, sold and supported afterwards. A wealthy Model S customer may be ok with having the car in the shop after a minor accident for 5 months due to lack of replacement parts, but for an average Joe paying $500/month leasing a Model 3 that would just be the birth of a new BMW customer.
While the 600% is impressive, the year to date performance matches the overall market.
Gotta hit those Model 3 dates to maintain the confidence.
MSCI ACWI Autos and Components was at 3.44% YTD at the end of Feburary while MSCI ACWI was at 5.37%. The S&P 500 is at about 7% YTD return.
Tesla's YTD return more than matches the overall market
https://www.msci.com/documents/10199/f87aad4f-6f38-4878-a149...
What is so significant about YTD?
You can arrange the data in any number of ways to tell a story: A Tesla investment since 2014 has lost money (and been diluted). Go back to 2013 and suddenly it's a goldmine.
Tesla having been a "good purchase" depends on what you paid. But I have a feeling that more people are sitting on a cost basis >$250 than <$100, in which case a TSLA investment has been mediocre.
Historical performance is also not an indicator of future performance. Everyday I'm holding onto the shares is the same as if I made the decision to buy that many shares on that day. If anything the fantastic return would encourage long term investors so far to partially cash out and diversify their risk a bit.
This is a great way to think about holding investments. I remember using this argument to try and convince a family member that they should sell what I considered to be a bad investment. I phrased it as 'If you were forced to sell your shares right now would you use the money from the sale to immediately buy back your shares?'. He responded that no, he wouldn't. Obviously this ignores brokerage fees, but it is a useful thought experiment nonetheless.
Unless you believe in the efficient market hypothesis...
While I'm not a banker, I find with this method looking at investments highly disagreeable. The price of the stock at the time of purchase is the projected future profits discounted to present day. In other words, it is the fundamental value of the firm, which is invariant of its day-to-day fluctuations.
If you have to be watching for the daily upticks, it's a sign the company is either incompetent or is operating in a highly unfavorable environment.
I don't see how any good can be gained from envisaging a purchase price other than your lock-in price.
> I don't see how any good can be gained from envisaging a purchase price other than your lock-in price.
If I have a thing valued much higher than I believe it is worth, surely the logical thing for me to do is sell and buy something else that is valued lower than I believe it is worth. The price I paid for it is completely irrelevant (except, importantly, when it comes to taxes but this may not be an issue, much less relevant for many in the UK).
TSLA is ~$256. If I only think it would be worth buying at $100, then why would I keep the ones I own? The purchase price is a sunk cost.
In the long term, markets are a weighing machine, but in the short term, they are a popularity contest.
In August 1998, YHOO traded under $10/share. In December 1999, YHOO traded at > $100/share, a > 1000% return over 16 months. From February 2001 to February 2003, YHOO traded under $10/share. Markets are fickle.
And to achieve that plan, they have to deal with lots of competition.
If GM decided to do this, it would have many advantages over Tesla: a huge dealership and service network, lots of suppliers, easy financing, and all of the other perks you get when you buy a "normal" car from an established company.
The thing that Tesla is producing, however, is really expensive to build right now. The cost curves are great for it to come down, but until they do they are in the ironic business of selling expensive things with thin margins.
GM would find it harder than it thinks to compete against Tesla with an equivalent product. Just as Tesla is running into challenges scaling up production.
But it's not.
They don't have an automatic mark-up, but car dealers also operate on razor thin margins (the real money is in service and trade ins). However dealers pay their own rent and even spend money advertising. Tesla is on the hook for all of its dealerships, a significant cost that its competitors don't have. In the end I don't think it's such a game changer. It makes sense for Tesla, but doesn't magically make things cheaper.
The only argument against that is one has a badge that says "Chevrolet" and the other says "Tesla". If the Model 3 didn't have the Tesla name, no one would think anything of it. It'd just be yet another compact electric car, yawn, who cares, and then they'd buy the Chevrolet.
The Chevrolet Bolt is similar in price, but I think somebody making a comparison between a BMW and a Chevy would be similarly mistaken. BMW and Tesla are luxury car manufacturer. Chevrolet isn't.
IMHO, the bolt is overpriced. It's a crossover SUV from a manufacturer that is known for making low cost, high-volume cars. It looks like it is most similar to the Chevy Trax, which starts at $21,000.
They are fun to drive, but try a Tesla and then a Audi, BMW or Mercedes and it is a different world inside the car.
Tesla is not a luxury car, just a very highly priced and high performance car.
Developing a long-term-viable car company is hard even when it makes regular old gasoline cars. Tesla also needs to fulfill the Model 3 preorders, and that process could be derailed by a number of issues: manufacturing speed, quality control, factory problems, etc. That's a big challenge for a company that has made small numbers of high-end luxury cars until now.
I'm impressed by Tesla's success so far, but if I were to invest in a car company today, I would rather invest in GM. They are getting into the electric car market big time with the Bolt, and unlike Tesla, they already have realized economies of scale in car production. If the Bolt succeeds, GM could choose to produce a car that would be a good competitor to the Tesla Model 3.
Share prices can be fantastic while a company is horribly, even comically mismanaged. They soar right up until they don't.
The markets can't predict the future. Investors' expectations about the future are priced into the stock, but those expectations are often wrong.
It was supposed to take 2 months, but viola, 6 months later they are still struggling and there are many YouTube videos out there showing how terrible and unsafe it is.
It still lack many features of AP1 such as automatic lane changing and blind spot detection at this point. Lane keeping is also not as stable and safe as AP1 and many videos show that the car like to drift into oncoming traffic.
People look at that recent video of the Tesla car doing a full A to B drive and they're like, wow, that's awesome!
Then, they ask themselves, hmm, I wonder why Google hasn't released anything after a decade of research. And realize too that google had a simple A to B video 8 years ago too... yet 8 years later it's still not ready.
Cars with the second generation autopilot hardware were sold without any autopilot at all. It also had no auto park, no automatic headlights, no automatic wipers, no automatic emergency braking, no side collision warning, no lane departure warning, no automatic lane change, or summon.
A 45Mph speed limited version of autosteer was enabled in an update, and maybe some of those other features. I sadly do not actually own one myself to know.
Wait, does this mean Tesla is currently selling a 100K car with none of those features, just a hopeful promise of them coming soon?
That's... interesting.
Vision statements are predictive instead of descriptive.
Apple can have a vision of building cars in the future but it doesn't change the fact that they are a consumer electronics company today.
Vision is cheap, execution is where the money is at.
I can operate my bagel shop like the CIA but it won't be spying on the Trump Tower through microwaves anytime soon :)
Given the Tesla's SolarCity merge, the associated solar shingles project, the battery gigafactory, the PowerWall, and their grid energy storage projects, I wouldn't invest in Tesla today thinking "Tesla is a car company, and 5 years from now they'll be a bigger car company with new car models!" in the same way that I'd approach Apple.
https://www.youtube.com/watch?v=UZ1XLqc5IUg
I guess it's a good reality check for autonomous cars when you take away the LIDAR toys. One rather important point is that the car often doesn't realize it is screwing up, because quelle surprise, realizing you don't have a correctly detected lane can be just as difficult as detecting one in the first place.
How much value are they expecting to get from riding the "Beta" train? There's a huge difference between their self-congratulatory demos of features and the reality here.
Oh, and you have to pay for this.
I can easily see a new version with Lidar coming along and all those old cars not getting that full self-driving update after all, even in places where the law allows it.
That's an absolute disaster.
In any case, I'm pretty sure there shouldn't be a button that instantly makes your car swerve into the ongoing lane..
That local roads update was an embarrassment, what was Tesla thinking? I mean, they're talking L5 by the end of the year, and this is what their autopilot division has to show for themselves.
Just today I drove by a temporary orange sign saying "X St. closed; use Y St. detour," which I'm sure would have confused a fully autonomous vehicle. I bet we'll get fully autonomous cars to drive on existing roads about the same time we create strong AI.
http://www.theverge.com/2016/9/27/13079472/elon-musk-mars-sp...
Edit: Just for one challenge with no current solution: http://www.nature.com/articles/srep34774
There are others.
He's positioned for LEO cargo, and in the longer-term (I suspect) for potentially surveying and mining asteroids. There is almost literally money out there, for the first people to stake a claim. It's daring, it's risky, but it's possible to do with a combination of human explorers and robotics.
It's not sexy however, and it calls to mind all of the dystopian sci-fi of the last few decades. "We're going to Mars folks!" is just... easier to swallow than... mining space rocks.
People like you and me want to believe in a secure future for the species, which requires getting a self-sustaining group of humans off this planet. It's a powerful dream that could really move some very bright and dedicated people, who might not be similarly moved by the dream of simply gathering more resources for Earth.
Elon Musk, I think, has perfectly blended PR and a real business plan, but the PR and plan are not one and the same. More credit to him, but it's a bit discouraging to see so many people flip the switch on their skepticism out of pure "wanting it to be true".
I hope this doesn't apply to you, but I feel really sorry for people who can't believe in altruistic motivations. It seems people who don't believe anyone works for the greater good often disbelieve because they have only selfish motivations, so imagining someone motivated by altruism or higher order goals sounds fantastical, and they can only understand it as a "trick."
Further, I don't think it is at all clear that those obstacles are insurmountable. They are technical problems. Nasa thinks solutions are possible and worth discussing:
http://www.space.com/29512-mars-mission-radiation-nasa-chall...
He's made some interesting points about using Mars to shield from radiation, but it doesn't matter because they'd be cooked before they ever arrived. Worse, it seems that radiation is going to have an impact on cognition, which is just about the worst thing you can imagine. Dying in your 50's from cancer is tragic, but dying because you stopped thinking clearly before your mission ever truly begins? Wasteful.
The notion of using water as a shielding works at first glance, but then you realize that you'd need a looooot of it, and that you've kicked the problematic can. Now your biggest concern shifts to micro-impacts, which no longer just erode your armor (you'll need armor... expensive as it will be to lift, you'll need it), but open your radiation shielding to vacuum. Presumably you'd have some means to circulate the water through the outer crew quarters, so large parts suddenly freezing and slowly sublimating away strike me as catastrophic.
What we need is a material that is incredibly strong, durable, manages thermal stress, and which can shield against all kinds of radiation (without just cooking the poor bastards with gamma rays secondary to the incident radiation). That material need to be light enough that lifting it into orbit doesn't bankrupt any potential operation, and frankly... no such material exists.
That is just one problem.
Edit: To be clear, I don't think that Elon Musk being something other than altruistic, is for example, malevolent. I think of all the arena in which he could have acted, he chose ones that were potentially beneficial to the species. Not being altruistic doesn't mean that you have to be terrible... most of us aren't altruistic.
In short. :)
Yeah, that's pretty much it. The question then is do you think they can fix the issues that lead to those negative experiences with a little bit of time, and a billion more dollars?
Yes to all of those. Rationally I can no longer justify this investment to be honest, but I like the Koolaid they are selling too much :/
Disclaimer: I'm long on both TSLA and Solar Bonds. Even if I lose it all, I'm willing to take that risk if it gives them a better chance of successfully executing their mission statement.
That whole part of the system is a rent seeking protection racket.
As an aside, my time there was a hugely formative experience for me. Given a $500K budget and armed with nothing more than a little sql, I was able to immediately start saving the company multi-millions of dollars annually. I was considered a big star among the fresh batch of talent they inhaled that year, but I left because I could see the writing on the wall about the industry. Given the bailout and all that, I am pretty happy with that decision.
Wow.
Blah blah make better software blah blah world makes better idiots.
Final Vehicle is concerned with testing and certification and whatever other finishing touches need to be performed. It also operates the repair department, and the 'yard' with all the defect jobs. Our yard was so packed the company was renting new yards away from the factory.
The repairmen who worked in the bays and yard were stone cold experts on the vehicles and they kept written logs. Those logs were typed up and put in the database by the office clerks. These were mostly signal. There were also networked terminals at some stations but not all down the line.
Finding the root cause of an issue was basically like git-bisect. You knew where a part was added and where it ended up. So you just needed to narrow it down. For a high priority issue, I'd go do a visual inspection myself at the mid station before a part got covered by another part. Broken? Go to the mid station between here and start. Not broken, go the other way. We got stumped sometimes, but mostly we could narrow it down pretty fast. For the workers, it's impossible to lose your job so there isn't a care factor about covering up shoddy workmanship.
Tesla have been trying to and they are still running into many problems, many industry veteran hires and tens of thousands of cars sold later.
I have talked to many people who have worked/work in production as well, and unfortunately they don't share with you the same optimism on how easy it is to scale up supply chain for a large scale luxury auto company. Daimler-Benz has had major reliability problems with both Chrysler and Mercedes and it took Mercedes over a decade to get back to industry average, while Chrysler is still in the gutters.
If I had to guess right now, many years after leaving I would guess that Chrysler will eternally be a fail, it's culture is just wrong at every level. Tesla isn't hamstrung by that, or the UAW either (yet).
Except they are. The Model S is 5 years old (even the refresh model is a year old) and they are still running into parts and build issues. It has improved a long way but during the whole process they had to cut the number of interior and exterior colors/trims just to streamline the production. Other manufacturers introduces new fit/finish and trim options along a model's life span and Tesla does the opposite.
Case in point, the original P85+ came with sports trims inside (such as the red piping on the leather seats) and some unique fit and finishes, with unique sports suspensions and chassis tuning. But later on they eliminated all of those and now a top of the line P100D have the exact interior trim and chassis tuning as the cheapest S60 that cost less than half as much, all for the sake of streamlined production.
And even then they can't find parts for when cars need service or are in an accident.
The in 98 along comes that infamous Daimler Mercedes merger where Mercedes basically looted Chrysler to prop themselves up. At that time Chrysler was making money hand over fist with their minivan.
Once bled dry, a lot because most new car projects dried up or worse, the platform sharing using older Mercedes setups, they got sold to an investment firm. There were even claims of value gone missing during that sale.
A more apt comparison is watching GM. After bankruptcy they still pushed out the first generation Volt, the second generation took longer but arrive in 2016. However the real kicked was how fast the Bolt went from conception to production. In 2015 it was shown in concept, Jan 2016 in production form, and in customer hands by end of the same year.
The Bolt on the other hand, seems to addressed all those. The local car show is in a couple of weeks and I hope to see one there.
Totally agree about "The merger of equals". No such thing. The Germans took Chrysler for everything they could, like you said - to prop up product quality disasters like the ML and E class (a coworker went through 5 window regulators on his E-430 over 2 years. I had something break on my ML-320 on average every 8.5 weeks)
My mom bought a Chrysler LeBaron that, in one year of ownership, the brakes, exhaust, cylinder head, a/c and shock absorbers required service. We were later informed by a federal court that her car was one of the "rollback" vehicles. Chrysler denied it and basically told us "see you in court."
What I mean is, you appear to be trying to apply the standard of a very broadly experienced car magazine critic, which yes, will absolutely 100% find a laundry list of grave shortcomings. And they won't matter.
http://www.newyorker.com/magazine/2014/06/23/the-disruption-...
Yes, this is a chicken-and-egg problem. But a real one nonetheless.
I'd say a company like Foxconn is probably a much better example. They are able to mass produce millions of widgets with astonishingly few defects and even begin doing it in secret. Very impressive logistics. If just one component of the iPhone isn't ready the whole line grinds to a halt.
fyi, I cut my teeth on WK1 and WK2. I love JNAP, and Jeep - I found a home there.
This is kind of irrelevant, but somewhat amusing, so I figure I'll tell it. My neighbour (in the middle of nowhere in rural Japan) was some kind of automotive manufacturing expert before he retired. I don't even know his name (he tells me to call him "Tom"), but we go out drinking occasionally. He must have been a big wig because he spent a considerable amount of time in the US and even has a personally signed thank you card from George Bush Sr.
Anyway, we were at the bar and I was telling him about the use of kanban in software development. My wife interrupted and asked what kanban was (because in Japanese "kanban" just means "signboard"). I tried to explain the concept, but she remained confused. He said, "I can explain it very easily". He picked up an empty plate and handed it to my wife. "We're out of fish", he said, motioning to the bar. :-)
I don't get it.
Only, we've caught almost all the tuna in the ocean, so please make sure to ask for something else at the bar.
Edit: Just to be clear, that was not Tom's point. His point was that the plate was empty, so by simply noticing it is empty, we can ask for more fish which "pulls" all the activity that ends up producing fish on our plate. In a kanban system, you only really need to worry about how much inventory you want to carry at each station and the connection to the previous station.
If you don't ask for it you don't get it.
Its just a organized way of building a todo list which has a few features like:
1. Priority.
2. Ability to see the work-item move through various stages of work(Accepted, in-progress, blocked-by, done).
3. Means to track the progress of the work-item.
4. Means to the improve the process through methods described by the process.
That's actually a very meta reply (like that joke about UDP).
But I completely agree with you. I think the Model 3 will end up costing way more that $35k, to turn a profit. The timeline will slip and it won't come out until 2018. The whole solar city deal was premature.
I think Musk knows this isn't going to work, at least for a while. I think he knows Telsa is going to have a more expensive Model 3 and they're going to bleed cash. Telsa will lose money on every sale of the Model 3. I bet money, he plans to ride the stock for the next 5 years until they can get things turned around.
That's Tesla's biggest risk - they can't deliver profitably at the price point they pre-sold at. The Model 3 is an ambitious car to sell for $35K. Tesla is not a "lean manufacturing" operation; their head counts at the auto plant per car sold are currently quite high. They'll probably get that figured out eventually, but meanwhile, they need the high margins of luxury cars.
The timeline will slip and it won't come out until 2018.
Probably. They're claiming "late 2017" now, and new orders won't be processed until 2018.
The whole Solar City deal was premature.
The Solar City operation has political problems. It assumes Government subsidies for solar, which may be going away for political reasons.
Isn't their car operation also vulnerable? Tax credits may be less easy to get rid of, from a political perspective, but I think Trump would be far more interested in promoting cars that run on coal than cars that run on electricity.
So it would be better to have electric vehicles than ICE in its current form, but more power grid usage will likely accelerate other technologies rather than make coal profitable again.
Residential solar costs average out at 15c per kWh, post 30% tax credit. If the credit goes away, the 20c per kWh generation cost is still competitive compared to utility's retail rate. The bet is on solar technologies to continue incremental gains in efficiency, pushing the final price per kWh down.
In the commercial and industrial world the cost can be driven down significantly since the installations are larger (4c per kWh is the lowest I've seen), and the one-time installation costs are recouped faster, so that sector is likely to grow with or without tax credits. It's subject to the same efficiency metrics as consumer-grade tech.
Residential has zero transportation cost, post-installation, and I think those solar roof tiles SolarCity pre-announced is an attempt to blend the solar installation costs into the roofing costs. "You are paying the roofing guy for labor and materials to build/replace the roof anyway, so why not pay our roofing guy to build/replace the roof, and get solar as an incredible bonus" is I think their marketing strategy with that.
[1] https://financere.nrel.gov/finance/content/don%E2%80%99t-be-... [2] http://www.slate.com/articles/business/the_juice/2016/01/sol...
Similarly, the heart of Tesla's tech is its batteries (I imagine they but the motors from someone). After that, outsource everything else and focus on manufacturing and distribution.
I think the choice Tesla has right now is to fix up their supply chain and reliability issues or expand. Musk has chosen "expand". Incidentally that choice also brings focus to the supply chain -- just in a different way.
My concern is that long-term, delivering several years of great performing, flashy but not-luxurious, and very unreliable cars, is going to hurt the company in the long run. Honda and Toyota both either have or have announced vehicles competitive to the Model 3 on price, range and features. Ford already sells a couple electric vehicles at competitive prices. BMW has entered, and so on.
Amazon made the same bet years ago, focus or expand, and after years of no profitability the gamble has played off. However, Amazon also provided good service and product during those years. So far Tesla owners love their cars, even if they spend as much time in the shop as an exotic Italian car.
The other electrics don't have the brand cachet like Tesla, but they can fast follow until they simply overwhelm the much smaller company.
But, while even the iPhone is a minority smart phone these days, Apple makes most of the profits. Tesla might be able to do the same.
I don't see Tesla being the #1 electric vehicle maker in 10 years, but I do see them being a major player in the industry. Musk is also trying to diversify the company in various ways. It will be interesting to see how this pays off.
Right now, having a Tesla is like having a Maserati.
I know zero people who have one, my wife (a structural integrationist) _works_ on people who have them, so I am like two social tiers away from thinking of affording one, which, for me, is like dreaming of that Kawasaki Ninja I had postered on my wall as a ten year old boy.
He, and his team, need to dramatically scale down costs somehow. I read something cool today about Chinese charging stations that swap batteies instead of sitting and waiting to recharge. I wonder if something like that with an attendant would work to extend the battery "life" ad infinitum for grids in other nations.
Seems like his head is on straight though. He took profits and looked up. He said, yeah, I could drive down prices on my car by saturating more, but I'll build rockets that don't waste as much on reentry costs instead. That's smart innovation, that's passing the baton in the 400m instead of sprinting 10m and saying "I win!".
I do think there is stigma (even in my own mind, and I really am a fan of Elon) surrounding borrowing money over and over, but the reality is: almost EVERYONE does this. If you aren't Dow, or Ford, or some huge ass fucking company that has a war chest the size of Dubai, you aren't going to weather the stormy market conditions we are facing as a result of globalization (see Brexit et al for moreon that topic of discussion).
Businesses need floating because they don't exist in a vacuum, they exist because they aren't welcomed by their competitors, in fact, they are actively "sabotaged" by those that stand to lose market share, and that, my friends, is a HUGE problems with mercantilism. Unless we decide to get along, it's not going to get better, and corporate espionage has not lessened in my lifetime, not by a moonshot.
So, yeah, play nice and he and those like him will stop having to borrow money, and maybe he will throw us a bone and make a car that doesn't cost as much as my entire post-secondary education (including grad school).
Peace y'all.
Seems like an unwelcome offer.
I'm not disputing that some of the rules around auto sales are problematic, but it seems to me like the limiter on Tesla's ability to sell cars is its ability to produce them.
"I'm not sure anyone should have made this car," he said at a press conference just hours before the first Model Xs were delivered to VIP customers."
""We probably should have just [modified the Model S]," he added. "There are so many more features and difficult to build parts on [the Model X] than it is necessary for us to sell the cars.""
This is one thing I really don't get about Tesla. Why haven't they made an estate-ish version of the Model S? I'm thinking along the lines of the Mercedes CLS Shooting Brake:
http://images.car.bauercdn.com/upload/28771/images/1752x1168...
It's a very nice looking car, and adds that little bit of luggage practicality that the Model S is missing. The aerodynamics aren't much worse than the coupe, so range shouldn't suffer very much.
This has nothing to do with EVs, it has to do with Tesla wanting to sell cars differently than anyone else sells cars. If Tesla wanted to do a dealer model they could certainly give it a go and be treated no differently than any other auto maker.
"Tesla General Counsel Todd Maron argued that the automaker wouldn’t thrive under a franchise dealership model because independent dealers make most of their profit from servicing cars while electric cars have little long-term maintenance and fewer moving parts."
It is true that a Tesla dealership won't be able to charge for oil changes, but tires, suspension, interior fixes (e.g. power windows or that strange squeak) are still required.
It is an easy fix:. Don't charge much for the franchise given the alleged lower service volumes. How many would show up at a Tesla dealership and then be convinced to buy an ICE car? If possible, write the franchise agreement to prohibit colocation with other ICE brands.
Regarding Tesla, surely I am not the only one waiting for competition. I think the problem Tesla has is that when the giants awake they will outclass them at nearly every level.
It's like thinking you are doing great in your open water swim until the triathletes leave you in their wake. Surely companies who have been honing their skills and optimizing their design, engineering, manufacturing, distribution and support over decades will have non-trivial advantages over Tesla.
The way I see it, building an electric car is significantly simpler than one with an internal combustion engine. All you have to do to see this is take an accounting of the thousands of parts and many fluids you leave out. The design, manufacturing, supply chain, distribution and service costs of having another 1,000 to 2,000 parts in a car are monumental. Any company that knows how to deliver quality, reliable and reasonably priced internal combustion cars will have a laugh delivering electrics at scale.
They know how to do this today. They are all waiting for the same thing: Cheaper, lighter, better energy storage. Recent developments might indicate this could be just a few years out.
Tesla has a problem: It has to achieve scale before that moment in time. Today choices are few and Tesla might have an advantage with Model 3 (if it ships on time and has no problems). In some respects they are the only game in town (range). The minute that changes people are going to flock to other manufacturers.
>Tesla has a problem: It has to achieve scale before that moment in time.
Do they though?
With the gigafactory, they could very well be the company providing the batteries that the big manufacturers are waiting for.
I need to go back a ways on this one. I have been flying model aircraft for decades.
If you go back far enough it was impossible to even consider flying an electric powered airplane because alkaline batteries simply didn't have the energy density.
Sometime later came NiCd batteries and they eventually hit that sweet spot where you could stick a few of them in a plane, put a motor in the nose and fly for a few minutes. I had gliders with 27 NiCd cell packs what weighed in at somewhere around six or eight pounds all by themselves.
A few years went by (6 to 10, don't remember) and LiPo batteries surfaced. Now I could actually fly jets. And the glider with the super heavy 27 cell NiCd pack got a very light and small six cell LiPo pack, a far more efficient brushless motor and performance was out of this world.
Today electric powered model aircraft are probably the majority of the product sold and they include high powered helicopters and even the "impossible" quadcopters.
These transitions were mainly the result of energy storage technology, nothing else mattered until you could carry enough energy at a favorable weight ratio and in a favorable volume.
The companies that brought us these transitions, very much in the spirit of "The Innovator's Dilemma" [1], were not the same companies that provided the older energy storage technologies.
This is where I come full circle to Tesla and the Gigafactory.
Tesla has done a great job with this and it has positioned itself to benefit from scale in manufacturing battery packs with the existing best-in-class energy storage technology. They will, in this regard, do well.
Yet, this will become a significant liability if and when the next step change in energy storage technology comes about. Scale has it's benefits, but it can also kill you.
Again, this is conjecture. Imagine a day within the next 3 to 5 years when someone demonstrates a technology with three times the capacity, in half the volume, with half the weight and none of the longevity problems. We recently saw just such an announcement, although it seems the technology suffers from a power-to-weight issue at the moment.
Imagine someone else finally develops a supercapacitor system that makes current Lithium-based cells look as bad as they made NiCd cells look years ago.
Whoever does that will trigger the inflection point and a massive migration away from internal combustion engines to electric powerplants. Just like it did with model airplanes.
In the model airplane world, the pioneers of electric flight were absolutely skewered by the established (and some new) players in model airplane manufacturing. Most people today don't even know the names of the pioneers.
Tesla could suffer this fate. The Gigafactory could actually become a huge liability. Imagine having such an operation at a time when nobody has any interest in the technology you can produce.
I truly believe other manufacturers are waiting in the wings for this inflection point while they experiment and get ready. I have a gut feeling we are not too far from that moment in time when a significant enough technology shift occurs to make electric transportation viable for the masses.
(At which point, you may ask: What is the point of AP2..?)
On-ramp to Off-ramp
Once on the freeway, your Tesla will determine which lane you need to be in and when.
In addition to ensuring you reach your intended exit, Autopilot will watch for opportunities
to move to a faster lane when you're caught behind slower traffic. When you reach your exit,
your Tesla will depart the freeway, slow down and transition control back to you.Tesla is a battery / energy company.
1/ Basic premise was they keep highlighting their entry into larger and larger markets and so investors keep ponying up $ for the ambition. 2/ First, it was taxis
3/ Then, it was taxis + logistics
4/ Then taxis, logistics, vehicle ownership
5/ Then taxis, logistics, vehicle ownership, autonomous
6/ Then taxis, logistics, vehicle ownership, autonomous, trucking
7 / Then taxis, logistics, vehicle ownership, autonomous, trucking, drones
8/ I might have the order wrong but each spins Uber into addressing an even larger Total Addressable Market
9/ While they never actually own even the first one (taxis) yet. But investors love the ambition and keep ponying up.
10/ Hence, the ponzi scheme of ambition
https://twitter.com/asanwal/status/820365771834531841"
It's hard to say whether Musk is doing something similar or not. Satellites, boring company, mars mission, electrified grid, etc....Obviously, Kalanick is much different than Musk, but I can't help but feel pattern recognition creeping up on me.
Here's the thing about investment: whether you're playing the long or short game, the only way you make money is through stock volatility. And as far as volatility is concerned, TSLA has been fantastic to play over and over again.
Travis on the other hand is apparently running a fraternity that spies on you. About the worst of the worst coming out of Uber.
Musk, by contrast, has show over and over that he cares a lot about doing what's right, starting with the very fundamental purposes of his companies: not profit, but making things better for everyone, with profit as a necessary part of the real goal. To point to a recent quote from his twitter, he had said he didn't care if his participation in Trump's panels hurt his reputation or that of his companies, because it was right and he didn't care what people said. And it seems (and many people close to him have said as much in interviews) that this is very much in line with who he is as a whole. Every time someone has made an accusation against his companies of a customer or employee being shortchanged, he's publicly investigated it and resolved it within a couple days. I recall him saying in one such case that if indeed a contractor had been injured on Tesla property, he would have seen to it that they were completely compensated in every way, even if a court did not compel them to do so, simply because it was the right thing to do.
I hate seeing a company mired in wrongdoing compared to a company like Tesla, which is the polar opposite.
Then we come to this accusation of a "ponzi scheme of ambition." Did your creeping pattern recognition notice that Tesla is being led by the same person who leads SpaceX? I don't understand how people can write this off. No matter what your criticism or doubts of Tesla are, it's simply impossible to deny SpaceX's astounding accomplishments. This is obviously not a CEO who fails to deliver despite unparalleled challenges. Do you truly believe manufacturing another car, after having already succeeded with the Model S, is harder than starting a successful space program from scratch?
Musk doesn't do Ponzi schemes. He builds Paypals and Model S's and rockets that have successfully landed when industry leaders mocked it as impossible.
Your pattern recognition needs work.
What achievement of Musk was "mocked as Impossible"? Now, was those really impossible or even hard enough; or some kind of cheap PR stunt to blow their achievements out of proportions?
The same has been said (and continues to be said in this thread) of the ambition to revolutionize the automotive market with a compelling affordable electric car.
Cheap pr stunt? What? How the hell is it even possible to blow SpaceX's accomplishments out of proportion? What they've done is indisputably astonishing. Are you trying to minimize it?
A great many people said? Where? And more importantly, why? For what reasons did they say it was not possible? Was it impossible by laws of physics?
What "breakthrough" in physics did spacex make that made this suddenly possible? How come we never hear of any such breakthroughs, but only about these PR stunts?
As far as your other demanding questions, no breakthroughs in physics have been necessary to make reusable launch possible. People have constantly made predictions that somehow physics precludes reuse, let alone fast turnaround reuse, from being possible. But that has never, ever been the case. Still people (who ought to know better) will continue making such ridiculous statements. And yes, SpaceX has disproven a lot of these myths.
Privately developed orbital rocket (i.e. not based on government missile parts, etc): Falcon 1, done. Privately developed capsule return from orbit: Dragon, done. Vertical landing recovery of a first stage for an orbital rocket: Falcon 9, done.
First landing on an autonomous ship: Falcon 9, again, done.
In less than a month, they'll also do their first orbital flight on a reused first stage.
Lesser-known accomplishments by SpaceX: Merlin 1D has a thrust to weight ratio of about 180-200 in its latest incarnation. That's dramatically better than the next-best, the NK-33 (at 137). And it's a big reason they've been successful at recovering so many stages without a prohibitive performance penalty. And it accomplished this by using deep propellant subcooling, which had never been done before except in some subscale tests.
Supersonic retropropulsion of the first stage is also something that had never been done before. It's a key enabling technology for Mars landings, and NASA was scared to baseline it for any of their Mars architectures and couldn't afford the tens of millions for a dedicated test. SpaceX gave them the data for free (in exchange for some in-kind services like data collection, but no money). Now every NASA human-scale Mars lander concept assumes the use of supersonic retropropulsion. This is a big change.
Crew around the Moon is not a PR stunt but a revenue source for SpaceX. Red Dragon is not a PR stunt but a key in SpaceX's (and the world's) ability to land large payloads on Mars and test the ISRU technology needed for sustainable crewed Mars missions.
Raptor, which has already had some test fires, is a truly scifi engine. It'll be the highest performance engine (in terms of chamber pressure, which is a key metric for thrust to weight ratio, and especially Isp for a given propellant combination, and also for thrust from a given engine size and thus for manufacturing efficiency) ever. A full-flow staged combustion engine, two-stage turbopump. It's insanely high performance and will get similarly high thrust-to-weight ratio as Merlin in spite of using a less dense propellant.
The ITS will dwarf all other launch vehicles in terms of raw size, raw thrust, raw payload, and especially its fully reusable upper stage/spacecraft combo.
And it's not even that SpaceX are the first ones to imagine these technologies (although some details are novel), it's that they're actually doing them. And that's a big difference. There are virtually no good ideas in aerospace that were not at least imagined by the end of the 1960s, but the vast, vast majority have languished. There have been several other abortive attempts to develop a low-cost private launch company, and (beside Orbital, which has a very different company mindset now) SpaceX is essentially the first successful one.
There will be others, but they were catalyzed by SpaceX. SpaceX's high churn rate has fertilized the whole American rocket industry. And this is very good. Even if SpaceX fails now, Blue Origin will succeed where SpaceX has prepared the ground. (Blue Origin essentially /cannot/ fail, since it's bankrolled by Jeff Bezos, who has more money than God.)
Surely they might have mentioned a couple of reasons. Care to share?
Lol.
But this same thinking applies to almost everything Musk does that people think can't be done. For things in the future, consider Hyperloop and ITS.
1. First, I haven't heard many people argue that they think Musk's end state isn't viable. That is, Musk has already proven you can build a great electric car, the question is just whether he can solve the production issues and scale up (especially battery production) fast enough before he runs out of money. But if he does get there before he runs out of money, people agree he will have huge moats around his business with his technology, brand desirability and the gigafactory. Contrast this with Uber, where a lot of people think that in the end state (when VC money stops subsidizing every ride) that it will essentially be a commodity business with very poor economic fundamentals.
2. Uber has had story after story of fundamental problems with their corporate culture, while everything I've read about Tesla appears to be almost the exact opposite.
Tesla has created products that hundreds of thousands of people use, millions want, and hundreds of millions admire. Tens of thousands of people work in their factories. To many of us, their products hold a promise of a better future. SpaceX is reopening a chapter of human exploration that nation states had closed. Literally the most powerful organisation in human history, the United States, had all but given up on it. In my mind, landing a rocket is one of the most astonishing technological feats by humanity in decades. And it was done by a startup.
Now, I don't know what you spend your days doing, but I cannot compete with Musk. And I am just talking about his achievements until now, not the potential future ones.
I get that from an investor point of view, Tesla might have created little of value if it bankrupts soon. Eventually, though, all companies bankrupt or close in other ways, and so will Tesla. But the EV revolution that Tesla started will not stop. The cars are still there, the ideas have been proven. Is the comparison with ponzi schemes really a good one?
They might gamble too high and loose big time, but i wouldn't call it a ponzi scheme.
Also, it looks like Tesla would use a portion of the money to inflate their share prices via a small buyback. The after market trading so far make this strategy look successful.
So at the end of a day: Tesla is raising capital without diluting their shareholders and reducing their share values and giving up much control. Also the maturity date of 5 years is rather interesting. I wonder if it correlates with their internal projections and their ability to pay that money back by then.
"Tesla is basically taking on a loan in form of a convertible notes."
"So at the end of a day: Tesla is raising capital without diluting their shareholders and reducing their share values"
Convertible debt is in fact dilutive. It's even specifically accounted for when calculating Diluted Earnings per Share : http://www.investopedia.com/terms/d/dilutedeps.asp
If TSLA drops and T3 are delayed, many consumers might panic and not oder their car creating a vicious circle.
> Concurrently with this offering of notes, we are offering 968,993 shares of our common stock (or up to 1,114,341 shares of our common stock if the underwriters of that offering exercise their option to purchase additional shares in full), in an underwritten offering pursuant to a separate prospectus supplement. The closing of this offering of notes is not contingent upon the closing of the concurrent offering of common stock, and the closing of the concurrent offering of common stock is not contingent upon the closing of this offering.
Pretty sweet deal if your stock price doesn't go up and you only have to pay minimal interest.
Here's an example that lays out a similar structure and accounting treatment: https://www.sec.gov/Archives/edgar/data/1084961/000119312513...
So Tesla is shorting TSLA?
They're also offering at least $250 million in common stock as part of this round. And the notes are convertible so if it becomes profitable to convert them those will result in dilution as well.
A less charitable reading is that no single lender wanted to write the debt. A billion isn't substantial...
If you owe a bank $10MM and you default on the loan, you have a problem.
If you owe a bank $10BB and you default on the loan, the bank has a problem.
The banks you see on the front page of the prospectus are not lenders in this transaction, they are underwriters. They are executing transaction and distributing the converts to the institutional investors (long-only and hedge funds). At any rate, underwriters and investors will have exactly zero leverage over Tesla following transaction (debt holders have no voting power).
> would use a portion of the money to inflate their share prices via a small buyback
Not at all. They are concurrently offering common shares, so buyback would make zero sense (i.e. buying and selling shares at the same time). They plan to use proceeds for general corporate purposes (Model 3!) and to buy a call spread they will overlay on top of the convert to synthetically increase the effective conversion premium above the premium that convert will price at. This is done to reduce potential dilution down the road.
> Tesla is raising capital without diluting their shareholders...
Correct - this convert will likely fly off the shelves and the conversion premium will be high (perhaps up 30-40% from tomorrow's close). On top of that, they will enter into the call spread that will bring the conversion premium to up 50% or 75% (depending on the structure they pick) from tomorrow's close.
> Also the maturity date of 5 years is rather interesting
This is standard duration for convertible debt. Generally they are structured with 5 year or 7 year duration, but 5 years sell better (pricing is also tighter).
Overall, smart deal for Tesla and net positive for shareholders.
http://www-03.ibm.com/ibm/history/ibm100/us/en/icons/system3...
quote from Thomas J Watson Jr.:
“The expense of the project was indeed staggering. We spent three quarters of a billion dollars just on engineering. Then we invested another $4.5 billion on factories, equipment and the rental machines themselves. It was the biggest privately financed commercial project ever undertaken.”"
(note $5 Billion number was in 1964, inflation-adjusted, that is many billions more)
That's an immense spend by IBM, however lots of big companies spend in the 11 figures on projects.
Exxon is spending $20 billion in the next five years to expand its oil refining and chemical operations along the gulf coast.
Las Vegas Sands is planning to spend at least $10 billion just to build its Japanese operation.
Verizon spent $25 billion or so over 12 years trying to build out FiOS.
Wanda Group in China is spending $15 billion to build a Disney park competitor.
Apple's total cost every time it builds a new iPhone is in the tens of billions including its ahead-of-time purchasing commitments.
If I were a Tesla investor I'd want to hear more about how Design for Automation is going. If you plan to automate vehicle assembly in a cost effective manner (as Musk has indicated), your components and your assembly operations must be designed for that automation.
Tesla has had notable problems getting suppliers to understand and implement their plans (BorgWarner? - original transmission for the Roadster; Mobile Eye - self driving components; Falcon wing door component supplier).
Tesla regularly asks suppliers to do things that no other car company has asked them to do (see list above). Design for Automation is a new requirement for many components, so this may be a challenge for suppliers, and thus Tesla.
Tesla may win this gamble, or they may not. It will be interesting and educational either way.
In other companies the ones innovating are the minority and people dwell on past successes.
I'd rather work at an innovative company than for GM.
GM has a side bet on electric cars in the form of a joint venture to build electric cars with LG, and another side bet in the form of a joint venture to build hydrogen fuel cells with Honda.
Tesla is making a VERY big bet that a vertically integrated, highly automated, battery electric carmaker will be able to take an increasing amount of market share.
To be clear, I'm extremely impressed with what Tesla has accomplished so far - if Musk accomplishes what he plans, manufacturing will never be the same.
Like I said above, it will be educational to see what happens.
In about a year of ownership, this is the 3rd time I've lost the car for about a week. I probably should have brought it to the shop 3-4 other times, but I let the issues build up.
They've had to replace all sorts of parts on my car, including the entire driver's seat. Even basic stuff like my phone playing audio doesn't work half the time. The driver's side wing mirror quit opening. I've had to reboot the car 10+ times in order for the dashboard display to work. The gull wing door opened into a ceiling and left a scratch. The hood opened into a ceiling and left a scratch. My windows have quit going up three times. Most of the trim / sealing / etc is coming off, misaligned, etc. I probably sit here and think of 10 more problems.
Anyway, I knew I was buying a v 0.1 car and I’m generally happy with it, despite the problems. Their service has actually been amazing, but that's kind of the point of my post:
If the Model 3 has anywhere near the same level of problems as my X, at 10x the scale, Tesla is doomed. How could this possibly be even remotely cost effective on a lower-margin Model 3?
I bought a new model mini cooper a few years back right after f56 came out and ran into issues like: USB port would not charge a Verizon smartphone, Car would occasionally stall and would need to be put in park to start again, Replaced rear seat, air bags.
It sucks, but it seems like the sort of last minute post release bug fixing that happens all over in software.
Is that a Model X issue? What would you expect to happen in another car?
What happens is, you lift the tailgate a little bit and then the car takes over and opens the tailgate the rest of the way -- far higher than a person would do in a room with low ceilings. I let go of the tailgate and had no real way to stop it from opening itself the rest of the way into the ceiling.
I have an S, which I think they got just about right. I actually just drove it back from the service center, but the problems I've had have been fairly minor and the sort of thing you might expect from any car.
I'm hoping that the strict cost target for the 3 will mean that it's simpler and and more reliable. Certainly there won't be crazy-ass doors to go wrong. I agree that the 3 must be a lot better for the company to survive.
By the way, when you say the hood opened into a ceiling, do you mean the tailgate? The hood is still manually operated, unless I missed some news.
I have shopped a model S and besides the electric drivetrain it is not really that nice of a car compared to an E class or a porsche panamera - The interior is weak as far as fit and finish. As soon as the the germans offer a similar product on the high end ( and with GM already offering a full electric on the low end ) tesla is done.
People are buying CUVs due to low gas prices. The electric buzz is already wearing off.
> EVs are the future, and they're only going to continue to replace gas-powered cars.
Then the fact that the "electric car novelty will wear off" is a given. By definition, electric cars can't both be the norm and a novelty at the same time.
Whether or not Tesla survives is getting less and less important every day (unless you are a shareholder).
Sure, Tesla as a company may not take off as some people expect, but they have already had a huge impact on the automotive industry and the American Collective Consciousness.
will rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the notes, (in other words, they're not senior to anything no explicitly listed as junior, or any existing debt)
will rank equally in right of payment with any of our unsecured indebtedness that is not so subordinated (including our Existing Convertible Notes),
will be effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness and will be structurally subordinated to all indebtedness and other liabilities (including trade payables) of our subsidiaries...
That's a rather junior senior note.
None of this matters unless they go bust, in which case it really matters.
It is also correct that as a car manufacturer, owning a battery producing company and selling to the rest of the industry, is a competitive advantage.
It is not correct that building both of these companies from scratch, in parallel, is the way to do it.
Focus on building cars an become the leader in that, then buy Panasonic or a flailing manufacturer.
Or become the leader in battery technology, and buy a car company couldn't get on the EV train fast enough and turn it around.
Tesla is spreading itself too thin, losing focus and eventually competitiveness and then, control
You really don't get rich off of building commoditized foundational parts like battery. Any competitive edge you have is going to be short lived.
Despite the success of the Prius, Toyota made a decision to focus exclusively on fuel cell technology and wasted 10 precious years. They lost that bet, and now they need access to Tesla's superior EV technology to catch up with the competition. Tesla has no experience with the formidable supply chain and production issues involved in building cars on a large scale. This is one of Toyota's great strengths.
Unfortunately, there seems to be some bad blood between Toyota and Tesla management. I suspect this may have prevented consideration of such a partnership.
(Disclaimer: I just decided to sell my modest investment in Tesla stock.)
By 2019 they want to double that rate to 10K/week... but that assumes there are 10,000 people a week that want to buy an EV at (according to Mr. Musk) an average price of $42,000 or more -- significantly higher than the average new vehicle selling price.
Right now, less than 2500 people a week buy any type of electric or plug-in hybrid car of any make or model in the entire country. So Tesla needs to quadruple demand for electric vehicles and then capture all of it within ~21 months to meet their targets. By 2019 they'll also be up against a bevy of EVs from those other auto makers, likely at lower price points. The 2018 Nissan Leaf, with 200+ miles of range and ProPilot (limited) self-driving capabilities might even beat the Model 3 to market, and will almost surely be cheaper.
What valuable IP does Tesla have to license out that would terrify auto makers?
There are plenty of other suppliers of EV motors, chargers, inverters, control systems, battery cells, battery packs and battery management systems. LG Chem's nearly reached price parity with Tesla/Panasonic (and has several gigawatt-hour-per-year scale factories of its own, with more in construction). BYD, Foxconn, Boston Power, Samsung SDI, SK Innovation, etc are bringing in 150+ GWh per year of EV battery production capacity by 2020.
Their "Autopilot" software is built on Intel Mobileye (V1) and Nvidia's DRIVE PX2 (V2) platforms, which any other car company can license. The Supercharger network doesn't seem to offer anything technology wise that isn't matched by the Combined Charging System (CCS), which is rolling out 350 kW chargers throughout 2017, with the US government's backing. So what do they have that their competitors would value enough to license from them, knowing they're funding the competition?
https://en.m.wikipedia.org/wiki/Chevrolet_Bolt
It doesn't have self-driving technology. But that will come to Chevrolet or some other manufacturer.
Apple and Google were smart to stay out of the car making business. The established players are experienced and the margins are low and it's tough to compete. Partnering to make software and systems for the car industry is a better place to be.
I hope they figure out car production by 2019.
"Interest rates up: converts down
Interest rates down: converts down
Volatility up: converts down
Volatility down: converts down
Apple strudels up: converts down
et cetera"
Converts are complicated. For one, nobody is fighting for you post-issuance. You don't (yet) hold stock, so the Board doesn't think you're pretty. Yet your bonds will be subordinated, making them swim like equity. This leads to all kinds of fun [2] when markets fail to maintain monotonicity.
Monotonicity means if a line is going up it keeps going up; never down (and vice versa) [3]. A graph for the Empire State Building with the floor number on the X axis and the height of said floor on the Y axis would be monotonically increasing. If I bent the building into a U shape, that graph would not be.
If you graph pay-offs for people in your company as a function of the stock price, you want it to be monotonic. That means interest are aligned. If your CFO makes a million dollars when the stock tanks, he's going to want the stock to tank.
Let's consider HappyCo. HappyCo has issued 10,000 shares of Common Stock. They trade at $100 per share (a $1MM market capitalization [4]). HappyCo issues 1,000 convertible bonds that can be turned into one share of Common Stock in exchange for $120 per share. To keep this easy for now, let's say HappyCo issue these converts secretly, i.e. the market can't price them in before exercise.
If the stock price is way above 130 everyone wins. If the stock price is below 130, converts lose. (Stockholders also lose.)
But what if the price is exactly 130? The market, thinking there are 10,000 shares outstanding, weighs the company in at a $1.31MM market cap. But then--dun dun dun--everyone converts. Holy shit, 1,000 new shares! At what price does this new share count (11,000) yield a $1.31MM market cap? 119.09 per share. At 129 pre-conversion, the $1.29MM company trades at 129 per share after accounting for the converts (nobody converts). At 130 pre-conversion it trades at 118.18 post-conversion. It takes us until 141.90 pre-conversion to get back to 129 post-conversion. The price goes monotonically up, but the stockholders do okay, then worse, then better again. Monotonicity was broken. An evil shareholder learning of the converts might prefer a pre-conversion price of 129 over 140.
This may seem silly. Nobody secretly issues stock [5]. The market would start pricing the converts in as the stock price approached the conversion price. How does it do that?
Options! A convert is a bond married to an option. (People once made a lot of money arbitraging converts against the issuer's stock, bond and options markets [6]). You get all the legal complexity of bonds [7] entangled with the mathematical complexity of options [8]. As I said, fun [2].
But bankers would just price things properly at the outset to ensure they maintain monotonicity, right? Well, they try to. But look at the variables in a common option valuation equation [9]. Rates, volatility, dividends, et cetera. Each of these changes the balance for converts holders. (For example, if dividends go up one might want to convert sooner, i.e. at a lower price. What if taxes go up at the same time? Who knows! Fun [2]!)
In a perfect world, each variable would iterate, one by one, like an Excel spreadsheet that isn't complaining about circularity. Investors would, one by one, plug new numbers into their models to get a clean answer. Unfortunately, we inhabit a reality where more than two aspects of it can change simultaneously.
Upshot: converts commonly ram through their boundaries all the time. When this happens, everyone converts. Actually, not everyone since each investor has a different break-even conversion price. An insurance company, with lower borrowing costs, will convert differently than an individual investor on margin. Similarly, an invest trading out of a tax-deferred IRA will convert differently than one trading straight. Fun [2]!
TL; DR Converts a lots of fun [2] for financial theoreticians, fun for market makers and hedge funds, a little less fun for bankers and an affordable source of entertainment for all.
[2] http://dwarffortresswiki.org/index.php/DF2012:Losing
[3] https://en.wikipedia.org/wiki/Monotonic_function
[4] http://www.investopedia.com/terms/m/marketcapitalization.asp
[5] http://sharesleuth.com/investigations/2012/12/small-companie...
[6] http://www.institutionalinvestor.com/article/1027772/boy-won...
[7] http://www.treasurer.ca.gov/cdiac/debtpubs/handbook.pdf
[8] https://en.wikipedia.org/wiki/Black–Scholes_model
[9] https://en.wikipedia.org/wiki/Black–Scholes_model#Black.E2.8...
How can financial markets function efficiently when such basic information is suppressed?
Generally, converts have much lower interest than straight debt because they offer equity upside to investors once the stock goes above the conversion price. Tesla is high volatility stock, so the convert pricing will be attractive for the company (low coupon / high conversion premium) because that embedded option is valuable to convert investors.
Sure, they could increase production with current profits form sales but it would slow them down.
(I don't know how likely they are to hit that goal by the end of 2018, but they're trying.)
Is this like Solar Bonds that SCTY used?