Tesla Announces $1.6 Billion Convertible Notes Offering
teslamotors.com
teslamotors.com
edit: Thanks for a range of informative replies!
TSLA is an ideal stock for convert debt because it's highly volatile (compared to some other companies) which makes the pricing more attractive and opens it up for a certain class of buyers.
Source - I used to price these for a living.
Source: I used to structure and sell these for a living
"In connection with the offering of the notes, Tesla intends to enter into convertible note hedge transactions and warrant transactions, which are generally expected to prevent dilution up to approximately 100% over the common stock price at the time of pricing of the notes due 2019 and 120% over the common stock price at the time of pricing of the notes due 2021. Tesla intends to use a portion of the proceeds from the offering to pay the net cost of the convertible note hedge transactions. In connection with establishing their initial hedge of the convertible note hedge and warrant transactions, the hedge counterparties or their affiliates expect to enter into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the notes, including with certain investors in the notes."
Get it?
> From the issuer's perspective, the key benefit of raising money by selling convertible bonds is a reduced cash interest payment. The advantage for companies of issuing convertible bonds is that, if the bonds are converted to stocks, companies' debt vanishes. However, in exchange for the benefit of reduced interest payments, the value of shareholder's equity is reduced due to the stock dilution expected when bondholders convert their bonds into new shares.
Tesla has a ~30% short interest, which contributes to the ridiculous volatility of the stock.
Are you sure that this is the direction of cause and effect?
As a TSLA investor who owns several thousand shares, is there any way I can take advantage of this? I'm always looking for a way to generate more cash to acquire more TSLA.
I put cash into our (mine and my wife's) retirement accounts every month, they auto-rebalance it to optimize returns and tax savings.
They have the ability to lock securities in your accounts so their algorithm doesn't touch them, but I asked them to move my TSLA stock to distinct IRA/ROTH IRA accounts just to be safe.
Wow, they expect to be selling half a million
vehicles/year in six years.
That would make make a Tesla a major automaker,
roughly in the same league as household-name auto brands.
There's no shame in being a wildly profitable smaller manufacturer though.
That said, half a million vehicles would make them 1/4th the size of BMW and 1/5th the size of Chrysler. For me, that's "roughly in the same league as household-name auto brands."
(For reference, right now, they are around 1/100th the size of BMW and Chrysler.)
Obviously less than Hyundai internationally, but that might be an easier example to wrap your mind around.
2020 Tesla Vehicle Volume ≈ 500,000/yrMore importantly, Tesla bought the old NUMMI plant from the GM/Toyota consortium to use as their manufacturing facility. The peak production under NUMMI was only 400k cars/year, so they'd have to get an additional 25% utilization out of a facility that was running 3 shifts/day in many areas. I'm fairly skeptical they can do that, especially by 2020.
Going from 60 cars/day (current production rate) to 1,500/day is no small feat.
[citation needed] on the 400k
http://www.cbsnews.com/news/blame-gm-not-toyota-for-nummi-pl...
Peak production at the 370 acre facility on the outskirts of
Silicon Valley topped 400,000 cars and trucks in 2005.
The thing that makes me skeptical with Tesla is the amount of custom work they need to do. Some of the GM / Toyota plants have higher throughput, but that's because they're largely just assembly buildings. Tesla is custom forming many parts on site, far more than a typical assembly building. It would be hard to scale many of those areas without huge investment.
Or open a second factory.
I have a hard time seeing Tesla deploying $5B in CapEx in the next 5 years when they only have $700M in PPE now and $800M cash in the bank.
When they retool for the Gen III 'Model E', I'd expect about $1B in capital investment to satisfy a production level of ~150k cars/year.
The 500k cars worth of batteries would probably be some combination of Teslas, Toyotas, and Mercs. Since the latter two companies have already invested in Tesla, and have working partnerships, they would probably get the batteries for the same price as the Tesla internal transfer pricing. (Mostly speculation on my part) It then wouldn't be a profit center for Tesla as much as it would leverage the scale of a bigger facility to lower tech costs for all three companies.
[1] - http://www.teslamotors.com/about/press/releases/tesla-motors...
[2] - http://reviews.cnet.com/coupe-hatchback/2014-mercedes-benz-b...
Those pesky laws generally prohibit direct sales, not service of the vehicles, so Tesla would still be able to open a full-blown service location, and direct any potential new buyers online.
Their current clientele is a small population of wealthy trend-setters and early adopters. It's unlikely Tesla will ever sell 500,000 units per year over the internet, without a retail location.
But changing arbitrary laws is small issue.
"Tesla will teach those dealerships who have too much influence over the legislature a real lesson by holding that same legislature hostage to achieve their own selfish corporate goals."
Which side Tesla (Musk) happens to fall on is an open question, I think - perhaps you disagree?
Selfish? At least as long as Elon Musk is the CEO of the
company, the main goal of Tesla is to transition transport
to away from non-renewable resources. He was also
explicitly asked that question by an actual shareholder
in a shareholder conference, and the answer was something
on that line.
It may be a beneficial outcome for humanity, but the pursuits are still 'selfish' in the sense that it's not some public interest group influencing the legislature, it's a company that will directly profit from its influence.
You can believe Elon or not, but I think he is not lying about his plans. Simple listen to his reasons for forming SpaceX and Tesla, and how much of his personal wealth did he spent to achieve it.( everything at one point )
Funny the that thing about the tires ;D
Which cannot be too far away for that kind of volume.
So is this factory a sign that Tesla is settling down on the current levels of cell capacity, charging times, weight, etc?
I.e. they don't believe in a breakthrough before 2020, do they?
The one I can think of that doesn't fit is Intel. They continue to innovate while investing in manufacturing.
Factory is supposed to pay for itself before its product becomes deprecated. Looking at how expensive this gigafactory is - how many years will it take before profits from selling li-ion batteries cover the equipment & construction costs?
Some projections say peak output is expected by 2019-2021. Doesn't this imply that today's technology will still be competitive and in demand 6-7 years from now?
I'm assuming gigafactory uses chemicals and tech that powers current generation of Tesla cars. Because if they had something significantly better they would not care about 2019, but would instead die to get it to market ASAP. Not caring about unit price or volumes. Just to prove that it works and to capture the high end market.
And my second assumption is they don't plan to lose money on this project.
Tesla never said they will be building today's batteries in the plant and I would be surprised if your assumption is correct. They likely have projections on their R&D and can also project how long it takes to build massive capacity on what they are building.
All major manufacturers of all complex products are faced with the same challenges. Management must match R&D to production or they will have huge misses. Manufacturing true technologically advance products is tough.
There are many examples of companies that simultaneously invest in R&D while making far out production capacity investments: Intel, all Pharmaceutical companies etc. etc.
If you can think of some companies that invest heavily in R&D, then stop investing in R&D and start investing in manufacturing, I would be interested in learning about them and why.
As for pharmaceuticals - I'd expect their plants to a) be capable of producing multiple different compounds and b) equipment to be modular. Research & clinical trials are expensive, reconfiguring equipment to make newly discovered drug is cheap. Once proven to work, drug can be replicated fairly quickly and cheaply, that's why they push so hard against any patent law reform.
1) making the cars even more expensive (by making) 2) things that have to high potential for fatality 3) things that require lots of engineering, testing and certification for a limited appeal/run (and thus limited profit)
It will be awhile on that convertible, I bet.
The Model X has gullwing(-like) doors.. That's pretty cool, right?
http://i52.photobucket.com/albums/g24/speed_addict/Lambo-Doo...
In any event, they seem more practical than regular doors and are certainly cooler than sliding doors.
These are some pictures of the Model X, I have found. There are no "holes", only arm-rests. The black detail on the second picture must be the window control.
http://d.ibtimes.co.uk/en/full/230436/model-x.jpg
http://b.fastcompany.net/multisite_files/codesign/poster/201...
I hope this isn't referring to the endless debates around whether the reports of Tesla fires is, or is not, on the wrong side of a Poisson distribution of such events... ;)
And will they build the same 18650 packs, or develop something new?
convertible bonds basically have an equity option attached, so the interest rate paid by the issue is lower than what it would be otherwise (because the buyer is getting an option).
Often it is low grade companies that issue convertible bonds (to keep the interest expense they pay down), but it doesn't have to be. Investment grade companies can issue converts as well.