(2,7788 times 447.21 = $894,42. I see $1,240.29)
Essentially (after correcting the math it's correct, but more complex since the detailed terms of the hedges and warrants have never been fully disclosed) The warrant strike price is $512.66 for the 2019 notes and $560.64 for the 2021 notes. So I assume you are posing a hypothetical for 2019 notes.
My presumption has been the hedges/warrants operate contemporaneously (and only) with a conversion. If so, I think it looks more like:
Note holder receives for each note value worth $1,667.28 (2.778 x $600):
-$359.87/share
in cash from Tesla or $1,000 ($359.87 x 2.7788)
-Tesla decides how to settle the amount betwee $1,667.28 and $1,000 or $667.28:
-if all shares, that's 1.112 shares ($667.28/$600). Tesla buys 2.7788 shares from the hedge counter-party for $359.87/share, pays the hedge parties $1,000, transfers 1.112 shares to the holder to settle the remaining $667 of value owed to the holder and has 1.6668 shares remaining to settle with warrant holders. At that point, the warrant is worth 2.7788 shares, so Tesla can issue an additional 1.112 shares or pay them $667.28 to extinguish the warrant holders rights. Tesla might also be able to negotiate privately a purchase of just 1.112 shares/note from the counter-parties and settle with the hedge/warrant counter parties privately with no dilution. (FWIW, Neroden has convinced his/her self that the warrants can not be exercised until the notes' maturity.)
-if all cash, Tesla pays the an additional $667.28 to the holder in cash and there is no dilution. What happens between Tesla and the hedge/warrrant counter-parties is unknowable since details of those transactions have never been disclosed, but at that point Tesla has a counter-claim against the hedge/warrant counter-parties on $424 of the $667 paid to the note holder.
-if a combination of shares and cash above the principal amount .ie. $667.28 there are an infinite number of scenarios.
Bottom lines:
- if the share price is $600, Tesla will have to pay back in value from some combination of shares and cash $1, 243/ $1,000 note [ $600 - ($512.66-$359.97)] = $447.3 x 2.7788
- if the share price on any note issue is converted at or below the conversion value, neither Tesla nor the hedge/warrant counter-parties are harmed. Tesla repays the note with $1,000 in cash.
-if the share price on any note issued is converted above the conversion value but below the warrant strike price, Tesla is indifferent, but the hedge/warrant counter-parties are exposed and potentially for more than their receipts from the hedge/warrant transactions.
--if the share price on any note issue is converted above the warrant strike price, Tesla is exposed for the difference between the share price and the warrant strike prices times the number of shares at par on the respective issues. If the difference is settled in shares it will be dilutive.
-the four existing convertible note issues will never provide Tesla net new value in capital. Paraphrasing the Phram filter guy, they can pay the excess above the warrants in cash or in shares.
