2017 Investor Roundtable:General Discussion

[GoTslaGo]

This isn't being issued by Tesla, its a MS product put together to be sold.

Yep, page 22: (MS)

"The proceeds from the sale of the securities will be used by us (Morgan Stanley) for general corporate purposes. We will receive, in aggregate, $1,000 per security issued, because, when we enter into hedging transactions in order to meet our obligations under the securities, our hedging counterparty will reimburse the cost of the agent’s commissions. The costs of the securities borne by you and described beginning on page 3 above comprise the agent’s commissions and the cost of issuing, structuring and hedging the securities."

My parenthesis

 

[Paracelsus]

See page 8 of the note prospectus.

Looks more like they will establish a SP base price (let's say 250).

If the SP drops to below 60% (150) then their contingency clause kicks in and you can lose it all.

If the SP remains between 150 to 250 then you collect interest at 11.5% per month for 3 years.

If SP shoots to the moon, the notes are callable, you get your principle back plus the last month interest (and whatever interest you got before that).

This is a quick read

Thanks for this. So would MS benefit from a share price below 150 or a share price to the moon in the very near future based on these clauses?

 

[Jonathan Hewitt]

Yep, page 22: (MS)

"The proceeds from the sale of the securities will be used by us for general corporate purposes. We will receive, in aggregate, $1,000 per security issued, because, when we enter into hedging transactions in order to meet our obligations under the securities, our hedging counterparty will reimburse the cost of the agent’s commissions. The costs of the securities borne by you and described beginning on page 3 above comprise the agent’s commissions and the cost of issuing, structuring and hedging the securities."

After reading it again I've decided "us" is MS...

 

[racer26]

Yep, page 22: (MS)

"The proceeds from the sale of the securities will be used by us for general corporate purposes. We will receive, in aggregate, $1,000 per security issued, because, when we enter into hedging transactions in order to meet our obligations under the securities, our hedging counterparty will reimburse the cost of the agent’s commissions. The costs of the securities borne by you and described beginning on page 3 above comprise the agent’s commissions and the cost of issuing, structuring and hedging the securities."

After reading it again I'm thinking "us" might be MS...

OK. So then this is not the cap raise we have been looking for.

 

[SwTslaGrl]

It could be an underlying Tesla bond, prepacked by MS.

"a traditional security, such as a conventional investment-grade bond, and replacing the usual payment features (e.g. periodic coupons and final principal) with non-traditional payoffs derived not from the issuer's own cash flow, but from the performance of one or more underlying assets." An Introduction to Structured Products

 

[racer26]

It could be an underlying Tesla bond, prepacked by MS.

"a traditional security, such as a conventional investment-grade bond, and replacing the usual payment features (e.g. periodic coupons and final principal) with non-traditional payoffs derived not from the issuer's own cash flow, but from the performance of one or more underlying assets." An Introduction to Structured Products

Clear as mud.

Man, I hope Tesla IR does something soon and announces the cap raise everyone is expecting. This low-volume floating around the 250 area for days at a time with both sides seemingly skittish to make a significant move until real news happens is getting boring.

 

[Papafox]

These are the words that strike me as very relevant in the summary terms (I am no expert, so please correct me if I am wrong):

If, on any redemption determination date, beginning on the third scheduled business day preceding June 20, 2017, the determination closing price of the underlying stock is greater than or equal to the initial share price, the securities will be automatically redeemed for an early redemption payment on the related early redemption date.

This tells me that if the stock price is above the March 17 price (let's say $250) at the time any of the determination dates (as early as June 2017), then the security would be paid in full (plus any interest earned in quarterly periods). So, the structured investment is really an insurance policy for MS, Tesla, or whoever gets the proceeds, that the stock price of TSLA won't be trading below $250. If it is trading below $250, interest is paid on a quarterly basis, but once the stock price exceeds $250 on one of the quarterly redemption dates, the security is paid off and that's the end of things.

If this structured investment is indeed designed to benefit Tesla, then the supposition would be that Tesla might want to do their cap raise after the 1Q ER. If that's their plan, then they expect the stock price to be higher at that point and the structured investment to be paid off. If, however, there's a suprise dip in the economy and TSLA is trading below $250, then selling enough of the structured investment certificates would provide enough additional liquidity to Tesla for them to complete Model 3 preparations while awaiting a stock price that looks more attractive for an equity raise.

That's my take

 

[FredTMC]

Well shoot. TSLA will need some big help to get to $250 for the close...

Outlook not too good.

Come on bankers... work it..

 

[kenliles]

Does anyone else have the concern that the market may be reacting to a potus non compos mentis scenario?

I'm concerned it's not

 

[dennis]

I think that Trip Chowdry is prone to oversimplification and wildly inaccurate prognostications that historically are all over the map. I would take anything produced by him with a large grain of salt.

I agree with your assessment of Trip. But as I said I am trying to reconcile the low guidance with US delivery dates moving to May 1-2 months before the Q1 end date. The only explanation I can come up with is that Tesla is production constrained at 47-50K for 1H17. Thoughts?

 

[dennis]

Anybody know when we heard about increased staff/parts ordering commensurate with going 3-shifted on the final assembly line?

Seemed strange to me that at the time of the shutdown, Tesla said there would be no impact on 1Q17 results because they'd 'added production days to compensate', when the factory is already operating 7 days a week.

But; 8-10 days of shutdown at the 4Q16 rate would be equivalent to 16-20 shifts, or about 3 weeks of the shifts made up for by 3-shifted operation.

Of course, that ignores lower throughput due to training on the first part of that. Seems to me that if the factory shutdown prepared it for 3-shifted operation, then the shutdown could be made up for by the end of 1Q17.

The third shift was first mentioned by Elon in response to the UAW guys claims. He also spoke of reducing overtime so we can't know how much additional production capacity is being added, if any. There isn't much time left in the quarter to "make up" for lost production. Plus we have Tesla's guidance for only 47-50K deliveries in 1H17.

10.5 weeks @ 2100 yields production of 22K vehicles at most.

 

[esk8mw]

Does anyone think the MS notes have anything to do with monetizing Tesla solar?

I just haven't seen anything like these before so I'm grasping at straws.

 

[TMSE]

Does anyone think the MS notes have anything to do with monetizing Tesla solar?

I just haven't seen anything like these before so I'm grasping at straws.

I was under the impression that these new MS notes are new Tesla debt instruments, so obviously I am wrong.

 

[ZenMan]

The third shift was first mentioned by Elon in response to the UAW guys claims. He also spoke of reducing overtime so we can't know how much additional production capacity is being added, if any. There isn't much time left in the quarter to "make up" for lost production. Plus we have Tesla's guidance for only 47-50K deliveries in 1H17.

10.5 weeks @ 2100 yields production of 22K vehicles at most.

I think the low guidance for deliveries is because Tesla is going to load up the delivery pipeline. If the delivery pipeline is totally full (close to 15K vehicles), then deliveries will happen much more predictably and the delivery specialists have a consistent volume of cars each day of each week, rather than cramming 2/3 of a quarter's deliveries into the last two weeks of a quarter.

 

[geneclean55]

I've been puzzling over the disconnect between Tesla's seemingly low forecast of 47K-50K 1H17 deliveries and US deliveries of new Model S and X moving to May one to two months ago. Then I found this today:

Shutdown was 2/20 supposedly to 2/28. But if we are to believe this report nothing was produced last week, and 1/2-2/3 volume this week. Plus I thought we were told that production would be at 2,400 per week by last December, not 2,000-2,100.

My takeaways:
- Tesla is production constrained in Q1, but at a production level well below the optimistic forecasts I have been reading on TMC
- Tesla is optimizing for the Model 3, not for Q1/Q2 S & X production. This is a good thing long term, but there could be some short term stock price pain associated with the reporting of Q1/Q2 numbers.

I see multiple entries on the Model S tracker spreadsheet for cars that entered into and also completed production last week.

 

[Papafox]

Does anyone think the MS notes have anything to do with monetizing Tesla solar?

I just haven't seen anything like these before so I'm grasping at straws.

One clue that can't be ignored is that the securities are automatically paid off any time TSLA exceeds the March 17 stock price on any subsequent determination date, the first of which occurs in June. So, this money is merely to last Tesla until June, unless the stock price is down, and then it's to last for a longer period of time, but likely not more than a quarter, because the stock price will most likely be higher than the March 17 price before long if Model 3 stays on track. I can't think of a use that makes sense, other than providing some insurance of additional money in the bank until the equity raise takes place.

 

[TMSE]

Jim Cramer, a legendary market manipulator and a Goldman Sachs henchman, is dissing TSLA on Mad Money today. He is claiming that TSLA has lost its luster and on its way downwards to $160. He is recommending F and GM instead as they have supposedly made a golden cross.

Tesla's Cyclical Winter of Discontent: Cramer's 'Off the Charts'

It looks like dark forces are trying real hard to suppress stock price. This could very well be the single most important sign of the bottom.

 

[jhm]

These are the words that strike me as very relevant in the summary terms (I am no expert, so please correct me if I am wrong):

If, on any redemption determination date, beginning on the third scheduled business day preceding June 20, 2017, the determination closing price of the underlying stock is greater than or equal to the initial share price, the securities will be automatically redeemed for an early redemption payment on the related early redemption date.

This tells me that if the stock price is above the March 17 price (let's say $250) at the time any of the determination dates (as early as June 2017), then the security would be paid in full (plus any interest earned in quarterly periods). So, the structured investment is really an insurance policy for MS, Tesla, or whoever gets the proceeds, that the stock price of TSLA won't be trading below $250. If it is trading below $250, interest is paid on a quarterly basis, but once the stock price exceeds $250 on one of the quarterly redemption dates, the security is paid off and that's the end of things.

If this structured investment is indeed designed to benefit Tesla, then the supposition would be that Tesla might want to do their cap raise after the 1Q ER. If that's their plan, then they expect the stock price to be higher at that point and the structured investment to be paid off. If, however, there's a suprise dip in the economy and TSLA is trading below $250, then selling enough of the structured investment certificates would provide enough additional liquidity to Tesla for them to complete Model 3 preparations while awaiting a stock price that looks more attractive for an equity raise.

That's my take

That sounds about right. It is fancy pit option for MS that raises initial funds presumably so they can hold tesla shares for up to three years. For this upfront cash they pay interest only as long as they need to and only as long as the deal is not going terribly south for them.

An investor who is willing to write a put on Tesla and hold cash to secure that put would potentially be interested in this product from MS. In lieu of proceeds from sale of a put, the investor in this product would receive upto 10.5% coupons.

 

[Zhelko Dimic]

One clue that can't be ignored is that the securities are automatically paid off any time TSLA exceeds the March 17 stock price on any subsequent determination date, the first of which occurs in June. So, this money is merely to last Tesla until June, unless the stock price is down, and then it's to last for a longer period of time, but likely not more than a quarter, because the stock price will most likely be higher than the March 17 price before long if Model 3 stays on track. I can't think of a use that makes sense, other than providing some insurance of additional money in the bank until the equity raise takes place.

@Lump and @jhm already said it, this has nothing to do with Tesla, this is MS selling packaged set of options and taking $42 out of every $1000, by using TSLA stock and TSLA options.

If I'm not explaining it well, please read first few comments in reddit below, they do a great job of explaining it. MS could have as well used AMZN for this same thing,and perhaps does all the time, but this time it packaged TSLA options into structured product:

Tesla note issued by Morgan Stanley. 11.5% per year for 3 years • r/teslamotors

 

[rallykeeper]

An investor who is willing to write a put on Tesla and hold cash to secure that put would potentially be interested in this product from MS. In lieu of proceeds from sale of a put, the investor in this product would receive upto 10.5% coupons.

Agreed (this just has a more predictable outcome than simply writing a put option).

Just so everyone is clear here, though; this is just a derivative issued by Morgan Stanley (which is backed by underlying derivatives on Tesla Stock and guaranteed by Morgan Stanley's balance sheet).

Like Lump and GoTslaGonote above, Tesla is not in any way involved in this transaction and will receive no proceeds whatsoever.

Edit: What Zhelko said! (I took a while to finish my post...)