How Elon Musk might make $920M in Tesla debt go away

https://www.latimes.com/business/autos/la-fi-hy-tesla-convertible-bonds-20181115-story.html

by chollida1 • 8 years ago

44 17 8 years ago

latimes.com

mnw21cam• 8 years ago

Web site blocked.

traderjane• 8 years ago

I use Firefox with ad-blockers and it worked just fine for me.

danso• 8 years ago

The LATimes (formerly of Tribune) and other Tribune-media properties block EU traffic because of GDPR: https://digiday.com/media/u-s-sites-continue-block-european-...

elektor• 8 years ago

https://outline.com/SzKTuJ

Here you go.

softbuilder• 8 years ago

Tl;dr - that debt is in convertible bonds and if the stock goes up a few bucks most holders will presumably opt to convert to owning Tesla stock.

Doesn't that just dilute the stock?

tedsanders• 8 years ago

Yes.

rcMgD2BwE72F3• 8 years ago

Which is why Musk said repeatedly that they will reimburse the debt with cash flow.

rtkwe2• 8 years ago

Only if they have to issue new stock to cover the conversion. I imagine the company has these shares in reserve.

bryanlarsen• 8 years ago

"Outstanding shares" in the definition of earnings per share et al only count shares held by shareholders, not shares held in the treasury. So it is dilution whether the shares came from a reserve or new issuance.

clairity• 8 years ago

based on a quick peek at their financials, it seems tesla has zero treasury stock in reserve, so the conversion would be fully dilutive.

rcMgD2BwE72F3• 8 years ago

If conditions are met, and all bondholders convert, Tesla would suddenly gain $920 million worth of much-needed financial flexibility. To spark a conversion, Tesla needs to boost its stock price to $359.87 or higher at some point in the three-month period between Dec. 1 and Feb. 28. The higher the price goes, the more likely holders will convert.

Funny, the strike price ($359.87) is already below the current stock price (360.47)

(Under the bond agreement, Tesla can choose to pay the bonds off in cash, rather than exchange debt for stock. But given its cash needs, that’s highly unlikely.)

Elon already said he intends to paid back the debt with cash rather than convert. They confirmed on the last earning call that they plan to pay back all debt with cash flow, and ramp up to 500K Model 3 per year with minimal spending (i.e no more cap raise).

If this happens – while the competitors start facing troubles switching to electric, with plummeting profit margins, their market cap will reach a point where they can buy out a competitor. I bet they'd start by acquiring Panasonic cell manufacturing activities though, to further accelerate their tech lead. Remember that they own 60+% of global car battery production today, and their share continues to rise as they ramp up Model 3 (only 1/3 of the 1rst Gigafactory capacity is built yet, and the Shanghai plant is already under construction). Now, wait for the production of Model Y, the Semi and their upcoming Megapowerpack…

Tesla's market cap has surpassed BMW and Daimler in the past two weeks. Someday, Wall Street will recognize that Tesla is the first (and only?) company to have crossed the chasm to all-electric, and maybe even realize that Tesla owns a big part of the renewable energy business thanks to multiyear technological advance and multi-industry economies of scale.

rtkwe2• 8 years ago

Funny, the strike price ($359.87) is already below the current stock price (360.47)

Not any more (as of 1:15pm EST) the stock price is $357.30. either way the exact minute to minute price now doesn't particularly matter because we're outside the window.

sulam• 8 years ago

Where is this cash coming from?

toomuchtodo• 8 years ago

Tesla reported a $312 million profit for the three months that ended Sept. 30, thanks to a surge in production and sales of its Model 3 sedan. The company has long promised that the model would help make electric vehicles and Tesla itself a mass-market phenomenon.
Tesla ended September with $3 billion in cash compared with $2.2 billion at the end of the previous quarter. The company generated $881 million in free cash flow — cash produced through operations less capital expenditures. “The cash-flow number is impressive,” said David Whiston, an auto analyst at Morningstar. “That’s a lot of cash for a company their size.”

Disclaimer: I own a Tesla and a chunk of TSLA stock.

https://www.nytimes.com/2018/10/24/business/tesla-third-quar...

xbmcuser• 8 years ago

80k cars x 45k avg price is around $3.2 Billion cash coming in a quater. Usually they get 2-3 months credit from suppliers. So unless Tesla spends $2-3 billion at once or the demand for its cars drops dramatically the crash crunch is unlikely to come. Tesla is selling each car at a profit so unlike tech unicorns more sales doesn't mean bigger loss.

How Elon Musk might make $920M in Tesla debt go away

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