$184.48

[jdevo2004]

In May 2013, we also sold warrants relating to the same number of shares of our common stock with a strike price of $184.48 that could separately have a dilutive effect on EPS to the extent
that the market price per share of our common stock exceeds $184.48.

Does anyone who is more investment minded have some insight into what this means for us and stock prices when/if Tesla reaches this stock price?

More info can be found here: http://files.shareholder.com/downloads/ABEA-4CW8X0/2666491184x0x683938/21f1fee5-a449-4171-b459-24bee1e62c7e/Potential%20Dilutive%20Shares%20for%202013%20Convert%20and%20Warrants.pdf

 

[Causalien]

It means that once the share price reaches above $184. There's going to be a large number of warrants that will be converted to common shares (this depends on the warrant holder's choice). At which point, the profit will be divided by a large number of shares. Which means that the profit per share will be smaller than expected. The impact of this will probably not be known until the quarterly report after such an event. I've seen the media lock on to different parts of the quarterly report. Some zooms in on Revenue, some on net income and some on earnings per share (The actual impact). Usually, for something that will cause an explosive gap up of 10% or more like we've seen previously, investors require all 3 to beat expectations.

 

[DaveT]

The warrants act as option calls and most likely won't get exercised early by the holders as they hold a time/leverage premium. It's like having a 2018 LEAP. There's very little reason to exercise that early.

I wrote more about this in this thread:
TSLA convertible notes and warrants

"Now, there's another misunderstanding some people have and that is with warrants. Tesla issued warrants for 2018 where warrant purchasers could exercise their warrants for TSLA stock at a strike price of $184.48. The warrants are completely different than the convertible notes. The warrants act like an option call for the purchaser. So, think of it like Tesla sold option calls to generate cash. They then used the cash generated from those option calls to buy hedges to offset dilution caused by the note conversion (thus the note conversion doesn't dilute total effective shares). So, in the end it's only the option calls (warrants) that Tesla sold that will dilute shares.

The warrants (ie., acting like option calls) have an expiry date of March 2018. Think of them as March 2018 LEAPs at a strike of $184.48. Tesla sold $50.9 million worth of these warrants (think of each warrant as costing about $25 each for the purchaser, so it would be like giving Tesla $25 for a Mar18 184.48 strike option call). When exercised this will dilute TSLA's shares by 2 million shares.

For the warrants, I don't view early exercise as a big concern or risk. Think of it as if you're in the purchaser's shoes. You bought a Mar18 184.48 option call for $25, and now it's worth a lot more. Why would you want to exercise it early? That would be like exercising a LEAP option call early. Rather than exercising it early, you'd rather just sell it. Thus, I don't foresee many of these warrants to be exercised early and view it as a non-issue for TSLA price action. Further, even to exercise it early TSLA stock price would need to be at least $184.48 + $25 (purchase price) in order just to break even. But at that point, the warrant (ie., option call) is worth way more just to sell it because of the time value and the leverage the warrant brings. My conclusion, the warrants are inconsequential to TSLA's stock price action until maybe after their exercised in March 2018."

 

[ppl]

The warrants act as option calls and most likely won't get exercised early by the holders as they hold a time/leverage premium. It's like having a 2018 LEAP. There's very little reason to exercise that early.

I wrote more about this in this thread:
TSLA convertible notes and warrants

"Now, there's another misunderstanding some people have and that is with warrants. Tesla issued warrants for 2018 where warrant purchasers could exercise their warrants for TSLA stock at a strike price of $184.48. The warrants are completely different than the convertible notes. The warrants act like an option call for the purchaser. So, think of it like Tesla sold option calls to generate cash. They then used the cash generated from those option calls to buy hedges to offset dilution caused by the note conversion (thus the note conversion doesn't dilute total effective shares). So, in the end it's only the option calls (warrants) that Tesla sold that will dilute shares.

The warrants (ie., acting like option calls) have an expiry date of March 2018. Think of them as March 2018 LEAPs at a strike of $184.48. Tesla sold $50.9 million worth of these warrants (think of each warrant as costing about $25 each for the purchaser, so it would be like giving Tesla $25 for a Mar18 184.48 strike option call). When exercised this will dilute TSLA's shares by 2 million shares.

For the warrants, I don't view early exercise as a big concern or risk. Think of it as if you're in the purchaser's shoes. You bought a Mar18 184.48 option call for $25, and now it's worth a lot more. Why would you want to exercise it early? That would be like exercising a LEAP option call early. Rather than exercising it early, you'd rather just sell it. Thus, I don't foresee many of these warrants to be exercised early and view it as a non-issue for TSLA price action. Further, even to exercise it early TSLA stock price would need to be at least $184.48 + $25 (purchase price) in order just to break even. But at that point, the warrant (ie., option call) is worth way more just to sell it because of the time value and the leverage the warrant brings. My conclusion, the warrants are inconsequential to TSLA's stock price action until maybe after their exercised in March 2018."

I agree but short sited. Would have preferred short term dilution to think of the cost in stock when exercised yrs from now

 

[DaveT]

I agree but short sited. Would have preferred short term dilution to think of the cost in stock when exercised yrs from now

Actually the secondary was on great terms for Tesla. Think of it like this. As Tesla, you can raise $312m by selling 3.4m common shares (at $92/share). Tesla management thinks about it, and says okay. Then, they're told they can raise another $600m with minimal dilution (add only 2m shares to total outstanding shares at a future date). It's a no-brainer for them to take it.

The way that happens is by selling convertible notes (ie., $600m worth) but they hedge the dilution of the convertible notes by buying hedges (ie., derivatives). To offset the cost of the hedge they sell warrants. So, in effect the convertible notes don't dilute shares at all because they're hedged. The only thing that dilutes in effect is the warrants when they're exercised (approx. 2m shares). In the end, Tesla gets an extra $600m in cash by committing to pay 1.5% interest on the notes and accepting a 2m share dilution at a later date.

 

[ppl]

Actually the secondary was on great terms for Tesla. Think of it like this. As Tesla, you can raise $312m by selling 3.4m common shares (at $92/share). Tesla management thinks about it, and says okay. Then, they're told they can raise another $600m with minimal dilution (add only 2m shares to total outstanding shares at a future date). It's a no-brainer for them to take it.

The way that happens is by selling convertible notes (ie., $600m worth) but they hedge the dilution of the convertible notes by buying hedges (ie., derivatives). To offset the cost of the hedge they sell warrants. So, in effect the convertible notes don't dilute shares at all because they're hedged. The only thing that dilutes in effect is the warrants when they're exercised (approx. 2m shares). In the end, Tesla gets an extra $600m in cash by committing to pay 1.5% interest on the notes and accepting a 2m share dilution at a later date.

Yes but they later give 2 mil share worth per hap 500 each worth total 1 billion

 

[CapitalistOppressor]

Yes but they later give 2 mil share worth per hap 500 each worth total 1 billion

On what basis do you think that 2 million shares of Tesla would be worth $1b in 2018 if they do not have the $600m right now to grow their company?

 

[sleepyhead]

Non-GAAP EPS is calculated using fully diluted shares, so it doesn't matter if someone exercises their warrants today or in 2018; same goes for the convertible bonds. Fully diluted shares means that you are assuming that everyone converts into common shares.

I still stand by what I said that wall street doesn't care about GAAP earnings, and I think that Q2 was proof of this. Kevin99 - I am interested in your opinion on this topic now that we are post Q2 results.

Ironically Tesla's Q2 GAAP EPS loss would have been smaller if everyone exercised their warrants and converted their bonds.