Tesla Repays Department of Energy Loan Nine Years Early
teslamotors.com
teslamotors.com
TSLA rose on the news despite diluting shareholders is because coupled with the announcement, Elon Musk mentions that he will personally put an additional 100mil into the secondary offer; and general exuberance that TSLA will use the cash for more infrastructure build-out, a la Google, Yahoo during their heyday's. Make no mistake, this is as much a PR ploy by Tesla to pump up their offering.
It's incredibly smart for Musk and company to raise money in a very favorable environment as TSLA climbed from 45 to 90 after earnings. However, it remains to be seen if they can be still profitable. Note that they are still selling each car at a material loss; and only managed to show a profitable quarter by trading green credits they gained from their manufacturing. To truly scale, they need to either drive down the production cost of their cars down and broaden their market as there are only so much supply of carbon-emission credits on the market.
Disclosure: I trade TSLA options on volatility, without any directional bias.
Secondly, if he is successful and manages to bootstrap and entire electric car industry from the ground up, what kind of effect do you think this innovation is going to have on the world? Think of the massive investment in geopolitical resource availability that will be mitigated by the diversification of fuel options for auto transport.
He already hit one home run with PayPal, hit a triple with SpaceX, and might steal home with Tesla. He's a star player in a very sparse field of real innovators right now.
Disclosure: I also trade TSLA options, but I'm quite bullish on the company.
I love what Musk has done post PayPal, but no reason to rewrite history here.
That's false.
It's very hard to say if PayPal would have succeeded without him. For one, it would have probably been much harder for PayPal to raise 100 Mio without the X.com merger. They got that amount shortly before the dotcom crash, so it was crucial for their survival.
That's rather inaccurate. Musk's company was X.com and Thiel/Levchin/Noseks's was called Confinity. They had a 50/50 merger in early 2000, and at first the new company was called X.com.
Furthermore, Confinity[1] was doing Palm Pilot payments under the PayPal brand[2], while X.com was working on internet money transmission over email. Which idea was more useful in the long run? (hint: if you chose Palm Pilot's - you're wrong)
Much of the disinformation stems from a book called the "The Paypal Wars" written by a Thiel fanboy, that is embarrassingly biased. Musk writes:
"The only negativity in recent years was due to a book called The PayPal Wars, written by a sycophantic jackass called Eric Jackson. This guy was one notch above an intern at PayPal in the first few years of the company, but gives the impression he was a key player and privy to all the high level discussions. Eric couldn't find a real publisher, so Peter funded Eric to self-publish the book. Since Eric worships Peter, the outcome was obvious - Peter sounds like Mel Gibson in Braveheart and my role is somewhere between negligible and a bad seed. However, to his credit, Peter didn't realize the book would be as bad as it was and apologized to me personally at a Room 9 board meeting at David Sacks's home in LA."[3]
Post-merger it's hard to say who did what exactly, and Levchin for example was instrumental in Paypal's anti-fraud system, a key development that allowed the company to navigate around a potentially ruinous situation.
The bottom line is, 3 hyper-smart guys (Thiel, Levchin and Nosek), don't give away essentially 50% of their shares to some someone else (X.com) on a whim. This was a calculated and deliberate decision. Similarly, it's unlikely Musk would have succeeded alone either, and thus why they are all called co-founders of PayPal, Inc.
[1] http://en.wikipedia.org/wiki/Confinity
[2] http://www.halplotkin.com/cnbcs029.htm
[3] http://gawker.com/230076/an-alternate-history-according-to-e...
Regarding the name, PayPal the product -- which included a web app and not just the Palm Pilot product -- launched before the merger. I remember evaluating both x.com and paypal when I was in high school selling computer parts on auction -- at Haggle.com.
Finally, starting your comment with "Sigh, blah blah middlebrow blah blah" just kind of makes you seem.... yeah.
It must be fun to give more weight to the side you support.
> It must be fun to give more weight to the side you support.
No, actually an interview with Musk is a primary source, too. You realize "primary source" is an actual thing and not just something I made up? Are you trolling or just being argumentative for no reason?
but there is no money to be made on any market for that..
In order to have mass transit, you need to have the MASS part. Mass transit only works in areas with sufficient population density and predictable traffic patterns to make the investment in that infrastructure worthwhile. Electric cars, however, help extend the reach of the existing electrical infrastructure into transportation.
In the area where I live, we have extensive commuter and long-haul rail. I also saw two different Tesla cars on the road in my neighborhood.
The first portable computers were large, heavy, and expensive. Given the technology curve and the total addressable market of transportation, I'd expect we will see much more attention to that solution given the wall we've hit with hydrocarbon based transportation.
Elon predicted $200M capex in the next quarter, mainly to complete tooling and optimize factory processes. He clarified that they are not looking to scale the manufacturing process any further than its current level (400-500 cars/wk).
Stock price is up because Tesla only had $200M in cash equivalents available, which is a pretty small number for a car manufacturer, especially one looking to develop a new model (Model X) for a 2014 release and expanding charging/sales/service infrastructure.
Disclosure: I think technical trading is bullshit.
It was a capitalist regulation in California designed to provide financial incentives and produce more revenue for innovative green companies. Companies have the option to develop their own green cars, buy credits, or else cede the California market to competitors. Those incentives have been very successful. There are far more new models of low and zero emissions vehicles than ever before.
Remember the popular Saturn EV-1 from fifteen years ago? It and other green vehicles were killed because California removed its regulations mandating production of low emissions vehicles.
Voluntary my ass. If they don't pay what happens? Your fined. Its a tax. It is paid by consumers because they buy cars. If anything its California's way of having people in other states fund their initiatives.
I guess kudos can go to Musk for making sure his company is positioned physically and product wise to make the most from it. It is a disguised transfer from one company to another facilitated by the state. It is not voluntary if a fine results
However, my point wasn't about whether the government could be changed, how it could be changed, or what it could be changed to; but that its monopoly on the use of force doesn't make the actions people take based on its rules voluntary.
All of the companies paying these credits are paying them because they choose to do business in that market.
Sure, it's not voluntary, but then again neither is most of the stuff that producers of things do. The consumer demand is the taskmaster, and thanks to government regulations, so is the public interest, in the form of policies designed to reduce carbon emissions and pollution.
I think unqualified free market advocacy amounts to basically a wish for there to be consumer interest only, without any system for representing public interest that uses any signal other than money. But taken to its extreme, the absence of any system to balance the money signal can lead to things like buying up lakes to dump in, or buying up all the judges in a town, just because you can pay off enough people. In a completely free market, if you are rich enough, you can theoretically buy enough institutions and mercenaries and set up enough corrupt judges to let you kill people for fun.
Look, everyone is part socialist, part capitalist, part communist, part fascist, part anarchist. Just don't fall into the trap of thinking your current favourite blend of these colours is the one true path. If there's one thing you learn looking around the world, there are many blends that have proven to work comparatively well. (And others that clearly don't.)
Abuse of wealth should still be a problem, but that doesn't require the government micromanaging that wealth.
It is strange though because it is often the people who acknowledge or advocate the use market approaches who later complain about them when they are put in practice.
(Note: I'm not saying the approach is wrong, I'm just explaining the position. Personally, I still haven't found anyone making a decent libertarian position on the issue. The only ones I've read/listen boiled down to "I'm not a climatologist, but I'm pretty sure it's not a real problem")
http://en.wikipedia.org/wiki/Externality
For example, if HSBC knowingly funded murderous, criminal gangs around the world, they should be allowed to finance killing because it helps them pursue profit?
http://www.rollingstone.com/politics/blogs/taibblog/outrageo...
Car companies had a clear choice. They could give up one profitable market or they could take appropriate actions contributing to the cause of reducing smog-related deaths in California. There is a very huge public cost for eliminating these regulations, as was PROVEN to everyone in the 1990s when most green cars were killed on the spot when earlier regulation ended.
#2 is incorrect. They did not mandate fuel efficient cars to reduce consumption. They mandated a certain percentage of zero and near zero emission cars. As an electric vehicle owner, I can reassure you that this does not automatically result in more miles traveled.
Wouldn't it be more green for our society to pay for mass transit instead?
But apparently the only way to get something done is through companies and the market...
Is that true? I know the company overall would not have turned a profit without the credits but was under the impression that they currently had positive gross margins on the Model S.
Edit: my bad. Seems the net income was slightly positive last quarter (with regulatory credits included, without them it's a big old negative).
From 10Q: >During the first quarter of 2013, we recognized $67.9 million in ZEV sales, which contributed to our gross margin.
http://ir.teslamotors.com/secfiling.cfm?filingID=1193125-13-...
I don't get your negativity here. The fact that a major green tech company working with government support is able to shift financing over to the private market is, indeed, a remarkable feat and is absolutely something they have a right to crow about. The government, too — it's an example of a progressive system working as designed.
As for PR's impact to stock price...TSLA is 70% institutional owned. Anybody with a material stake in the company is savvy enough to know that they're not suddenly self-sustainably cash-flow positive.
I didn't get the negativity. He was just stating a reasonably deduced thought.
As urbandictionary puts it, "a weasel-y, thought-terminating phrase that is supposed to lend gravitas to a weak position in an argument. Used by doomsayers and the overly dramatic."
It didn't read as negative.
It definitely has a negative connotation.
"Make no mistake, this is as much a PR cunning plan or action designed to turn a situation to one's advantage by Tesla to pump up their offering."
? A synonym may be trick. But the definition you cited fits what was happening perfectly without intending the synonym. Synonyms aren't always interchangeable due to nuances in meaning differences.
Unless they just don't like having debt outstanding which seems understandable... though with debt that cheap...
See http://www.businessinsider.com/elon-musk-borrows-150-million...
There is says that the loan requires Musk to have a 65% ownership of the company which of course is expensive to maintain when they are raising money.
Dilution doesn't care who does the diluting - a share issued to Elon Musk dilutes as much as a share issued to TIAA-CREF. Regarding the double down, I do not believe Elon Musk's commitment to Tesla was in doubt previously. Its effects were probably limited to the marketing of the issue.
More critical is: (a) TSLA maturing to where it can issue debt (albeit, of the convertible type), (b) its extrication from a volatile political situation, and, (c) its new liquidity buffer. I do not think it is appropriate to characterise it as a "PR ploy". As you mentioned, they are still unit loss-making - that those losses need to be financed is more than superficial.
Can't we celebrate a company, that was called out as a bad stimulus target during the presidential debates actually paying back all their loans ahead of time? If there was one place I hoped I could go to celebrate an innovative company's success, it would be HN.
I take particular issue with, "Make no mistake, this is as much a PR ploy by Tesla to pump up their offering."
Paying back $450mm in loans isn't just a "ploy" - it's actually raising the money and sending it back to the taxpayers. And, at the same time, doing something innovative and forward looking - building electric cars - which, (look at Fisker) - is NOT a slam dunk, even with green credits.
I, for one, am applauding Tesla today. We can do that without saying that they will be successful in everything, and in the future. But today they are.
Posts that provide insightful explanation about the story? Yes, less of that and more unqualified positive gushing, please. There is nothing wrong with offering an informed opinion, even if (especially if) it's not in full alignment with the prevailing attitude of the hivemind.
I'll be the first to call out unqualified gushing, but if that's what we're calling a factual account of a company paying back a loan I simply have to disagree with you.
> Can't we celebrate a company, that was called out as a bad stimulus target during the presidential debates actually paying back all their loans ahead of time? If there was one place I hoped I could go to celebrate an innovative company's success, it would be HN.
It's right there in black in white: "I don't like that we have posts that aren't strictly celebratory in nature" (at least about Tesla). For the record, I'm most definitely a fan of Tesla and have utmost respect for the company, but that didn't stop me from appreciating the critical view of this story that was offered by noname123 (in which I learned some things I didn't know about).
Musk/Tesla aren't without their issues, and, as John Siracusa showed us on "Hypercritical" - you can simultaneously appreciate something but still point out all of its flaws in glorious detail -but it's the frequent reflex to use the pejorative when describing intent or action, even on a good day like this, that brings down the tone of conversation.
It is not a bad thing, after all it is a smart move and one done so by good businessmen. But blindly assuming they are doing this from the good of their hearts "because we want to do the right thing and pay back our government" is just naive. I don't think you should consider the above as a negative comment either, there are those among us who value the business rational behind the decision, and don't get caught up in the PR fluff. I think everyone here respects and admires what Elon Musk is doing, and doing well.
It's important to take time to celebrate victories, ours, and the people/organizations we look up to.
The HN problem is with middlebrow dismissals at the top of threads. I'd submit that the comment at the top of this one is neither "middlebrow" nor dismissive.
They payed back their loan to the tax payers by taking out a loan from someone else, not by selling a car at a profit and making a successful product.
Without agreeing or disagreeing that it was a ploy or not I will say that my gut to "Pr ploy" is actually positive since success with PR is an essential ingredient to success overall. I don't look down up it in any negative sense at all.
I disagree. This is actually the kind of posts that makes me want to check into HN. The poster knows what he talks about and he shares his view on the matter.
For comparison, read the Reddit comments about the same link: http://www.reddit.com/r/technology/comments/1evskd/tesla_rep...
.. and next time, please skip the fallacy of attacking something irrelevant, i.e. what kinds of posts you like and what you think fits on HN, instead of the argument itself.
Notice: I'm only annoyed by the first two lines of your post, the rest I think is a valid argument.
For example, at one point Musk said 10% of their revenue was from selling carbon credits they get for each car they sell to other car companies.
What's difficult for me is there's no place where you can get a decent summary of the kind of government programs Tesla relies on or takes advantage of.
I'm not sure that's entirely accurate. I'm looking at their quarterly results for Q1 2013: gross profit was $96.3 million, but the ZEV credit sales were only $67.9 million for the quarter. Unless I'm missing something, it would appear that they are profitable even without taking the ZEV credit sales into account.
"During the first quarter of 2013, we recognized $67.9 million in ZEV sales, which contributed to our gross margin. ZEV credit revenue should decline in future quarters relative to our automotive sales as we grow our sales outside the United States and earn fewer credits on the 60 kWh Model S battery variant for those sales that occur in the United States. Other regulatory credit sales recognized during the first quarter of 2013 were $17.1 million." (1Q2013 10Q, p. 22).
$67.9 + 17.1 = $85M in revenue from ZEV + other regulatory credits. Presuming these credits have a nominal cost-I would imagine they're almost 100% margin, given that they're pieces of paper--that leaves $96.3 - 85 = $11.3M in gross profit from selling cars.
NO. It's awesome that a private company sold stock that is hot because they're doing well to pay back public debt. Good for fucking them. People wanted to buy it because they see it as valuable, and they paid back the American people with some of that money. Good for them, period.
People who are interested in views that are contrary to the mainstream and don't want HN to become an echo chamber.
People who value critical, insightful analysis and discussion by people who are willing to question the "party line" of a particular product's marketing department and fan club.
People who don't care about catering to the whims of people who can't stand to read "negative" things on the internet.
> NEGATIVE SHIT
I question this characterization of noname123's comment. The third paragraph I read as healthy skepticism, not negativity for its own sake. It's certainly information that a responsible investor would want to carefully consider.
The comment certainly wasn't "shit," it was well-thought-out and informative. The commenter certainly did his homework.
The problem isn't pointing out these facts - it's framing them as THE narrative and in a purely negative light.
Agreed that sustainable profitability is an open question: because Tesla knew they would be raising more money after their first profitable quarter, they could pull put all the stops for maximum profitability, and go back to spending more once the round was in the bank. Will that happen? Unclear. But when you raise money you usually spend it.
The DOE loan was an attractive low-interest loan. Why would they repay it early? Because the DOE loan had restrictive agreements that prevented Tesla to stay competitive.
From page 44 of their May 10th Quarterly Report SEC Filing:
"Our DOE Loan Facility documents contain customary covenants that include, among others, a requirement that the project be conducted in accordance with the business plan for such project, compliance with all requirements of the ATVM Program, and limitations on our and our subsidiaries’ ability to incur indebtedness, incur liens, make investments or loans, enter into mergers or acquisitions, dispose of assets, pay dividends or make distributions on capital stock, prepay indebtedness, pay management, advisory or similar fees to affiliates, enter into certain affiliate transactions, enter into new lines of business and enter into certain restrictive agreements. These restrictions may limit our ability to operate our business and may cause us to take actions or prevent us from taking actions we believe are necessary from a competitive standpoint or that we otherwise believe are necessary to grow our business. In addition, our DOE Loan Facility also contains a variety of customary financial covenants, including covenants related to current ratio, leverage ratio, interest coverage ratio and fixed charge coverage ratio. We modified certain of these covenants in February 2012, September 2012, and again in March 2013."
Thanks for digging that up though, I was wondering why they refinanced it, as I assume the interest rate was pretty good.
Going by that logic, the democrats care about the "99%" and are against pointless wars. :-)
Who do you think GOOG will turn to for the driverless cars? A big player or a little guy that can still grow in a shrinking market?
Assuming that's true, I'm not sure whether I should be proud of Tesla, ashamed of our Government, or angered at other car companies. Probably all three...
That being said, the government needs to sell at something like $75/share to make their money back, but it's at $33 as I write this.
Source: http://www.fool.com/investing/general/2013/05/09/when-will-g...
From the linked article:
"This program is often confused with the financial bailouts provided to the then bankrupt GM and Chrysler, who were ineligible for the ATVM program, because a requirement of that program was good financial health."
Maybe Tesla really did mean "We're the only American company who received an ATVM loan to pay it back." But, if so, they're being intentionally misleading.
So they "paid" their debt with something that 1) isn't worth enough to cover their debt and may never be 2) gives the government a financial interest in continuing to keep them afloat.
Pretty nice deal if you can get it.
But given that, it was _excellent_ government policy to guarantee loans to the automakers, just from a cost/benefit perspective. And there's no shame in not going above and beyond the repayment terms of a loan - but good for Tesla for doing so (and great marketing).
Also, guaranteed loans for automakers might be excellent compared to other government policy, but given that Ford didn't take a loan, and there are many foreign companies which didn't need loans, the existence of any benefit from subsidizing more poorly-run automakers is questionable.
FWIW, Ford's CEO disagreed, which is both why he went to Congress in 2008 to argue for the bailout, and defended the bailout in 2012 as having been good for the country, the industry, and Ford even though Ford wasn't a direct beneficiary [1].
[1] http://articles.latimes.com/2012/apr/19/news/la-ol-ford-ceo-...
You do realise that care companies are one of the most asset-heavy companies in the world right? Nobody would have been able to pick up the pieces in a credit-crunch recession. Independently of that, there would still have been a long period between the shutdown of the company and it being picked up, and in the meantime tier-N companies would all suffer greatly as well.
All the pieces? No. But some. With a chance at picking up an additional 10+% of the US market, you don't think Toyota or similar could get enough credit to buy a couple factories and hire the better half of the laid-off workers?
The automotive sector is one of the few manufacturing industries which hasn't totally packed up its bags and moved out of the USA entirely. They employ a lot of workers in politically important states and have powerful labor unions.
I live in an area that's been through tough times when a lot of industry went overseas c. 1980-2000, and much of the local political attitude is "government should do whatever it takes to keep plants from closing" -- not just among those directly employed by automakers and dozens of smaller suppliers, but among the entire community, since there's a feeling that dollars from those factory jobs indirectly support every local business.
I feel that the automotive bailout was a direct bribe to communities like mine, to calm the anger over the Wall Street bailouts by giving us a piece of the pie.
I think the whole thing stank, and voted accordingly -- not that I have any illusions that the current or future US government is or will be any better than it was in 2008-2009.
If Tesla is the home run that this ATVM program made possible, maybe it doesn't matter if all the rest end up defaulting on the loans (which this article doesn't even imply, Tesla seems to have just paid back the loan early). Obviously the economics of government loans aren't exactly the same as those of VC investments, but making the large-scale production of electric cars economically feasible is a huge accomplishment that seems like it'd be worth the cost of this whole program.
To keep it short, the bailouts of both the auto sector and the banks were bad, but probably the least bad of a bunch of very worse options. The moral hazard problems with both of them are significant. (It's personally good to fail at the same time as everyone else, because you get bailed out, while we really want systems where failures are independent.)
You mean like the +20% currently unemployed in Detroit? The best thing about Detroit is that one day it will be used as a case study of why entitlements don't work out the way people think they do.
As for Detroit, its problem has nothing to do with entitlements. Detroit was never New York or San Francisco, after all, in terms of entitlements. The midwestern industrial cities all have the same problem, and it's not entitlements, it's the automation of American manufacturing. Optimists tell me that its a good thing and any day now there will be new jobs for these folks, but looking at cities like Detroit, Buffalo, etc, that have been gutted for decades now doesn't make me optimistic.
In terms of if GM had gone bankrupt, I think any supplier that was competitive at the time would still be here today. They may be supplying their goods to a different manufacture along with some other hardships, but companies that are competitive and in control of their workforce can make those changes when the time comes.
"ONLY AMERICAN CAR COMPANY TO HAVE PAID BACK GOVERNMENT"
I'm not so sure Elon isn't writing his own copy.
http://www.reuters.com/article/2013/05/15/us-tesla-stock-idU...
I'm not a market economics kind of guy but I don't see how this is any kind of special achievement. Surely any other car manufacturer could have done precisely this?
Incidentally, they did issue corporate debt (a form of a loan, sure), but also issued more equity as well.
The difference between a 'convertible note' and a 'loan' is that in a convertible note turns into its conversion when 'due.' Basically it turns into stock at the value of the amount borrowed plus interest.
There is a fascinating Convertible Note generator that you can run on the Wilson Sonsini web site [1] which I recommend doing if you are at all interested and read all the text about why or why not you might want choose one set of terms over the other.
[1] http://www.wsgr.com/WSGR/Display.aspx?SectionName=practice/t...
Regardless of how they raised the money the had a debt that they needed to pay and they did which is more then i can say about most companies. "Tesla will be the only American car company to have fully repaid the government."
All other companies only care about their stock and how to make more money the last thing on their mind is paying back their debts and the government lets them get away with it because their "too big to fail".
Let me tell you something ...there's no such thing that is the result of their bad decisions and if they don't fail they will repeat the same mistakes again and again because they can.
On the other hand, when brand value (save Ford) for the domestics is strikingly low, maybe he's throwing punches exactly when he needs to.
At this point better PR, and a mention on the six o'clock news seems worth it.
Look no further than how TrueCar had to pivot their business model in a short period of time in order to comply with the cold backhand of dealers. It's a juggernaut, sadly.
I'm rooting for Elon to turn it on edge.
If the government had not provided this loan Tesla would have gone bankrupt and the US would have lost a significant high-tech asset. 99% of the time the market is more efficient than government, but that other 1% counts for a lot.
The problem with that argument or complaint is the evidence against it...
"The Energy Department has said that losses in the $34 billion loan portfolio amount to about 2% of the total."
This program might be a success so far, I cannot speak to past government investments which might back the "right wing" view better.
I thought they fully repaid the government too. Maybe I'm confused?
If you doubt that pollution is bad, that's another story, but you're in the minority and outvoted.
Its not like paying to have your own trash picked up. When you pay to have trash picked up you can choose a company, you can do it yourself, you can produce no trash etc.etc.
Why should one pay companies to make cars they will never buy? One that has never added his 5cents to the pollution is beyond reason. But then again democracy is just another form of tyranny.