A Theory on this Week's Announcement

[Citizen-T]

So, here we are again. Elon postpones the Supercharger announcement to next week and claims there is something else in store for us this week.

What could it be? To be honest I have no idea. But, despite the fact that I have a life (really I do!) I spent some time thinking about this, and I came up with a theory. Vet it for me please.

On May 8th, in celebration of knock-out earnings (an event we are all quite familiar with) Elon tweeted:

This tweet was mostly met with praise, but one snarky fellow couldn't help but deliver an underhanded dig:

To which Elon replied:

I noticed this at the time it happened, but didn't think much of it. I certainly didn't think that anything was imminent. After all, while Tesla is in a pretty good spot, they don't have the cash to be knocking off that government loan.

But, then the short squeeze came. Oh man did it come. With it, a ton of short seller money was poured into the share price, inflating it. Making it artificially high I'd argue. There are calls from analysts and investors to do an offering, to capitalize on the spike before it is gone. But on the conference call Elon said there was no plan for an offering, and if he were to do it, it would be as insurance against a hiccup, not to pay down debt.

I don't think this week's announcement is an offering. If they weren't even talking about it a week ago, then the chances of them pulling it together in time to do it this week is very unlikely. There's a lot of paperwork that goes into these things. Still, Elon's twitter conversation kept nagging at me.

Then, when I was out running tonight, a thought hit me---Elon's options! We were all over this weeks ago when the stock was in the 40s. Remember, before the financing announcement? Remember how we were thinking Elon would exercise those options he had just earned by making the company profitable? We thought that he was going to turn around and pay off the loan? But, remember how the math didn't quite work out? Remember how there wasn't quite enough money there to pay it all off?

Well, the stock has doubled since then. I think there is enough money now.

Wouldn't that be great? Right now the stock price is inflated, no doubt. All the shorts that have been all over Tesla from day one are rolling around on the floor in pain. A whole new batch of "smarter" shorts have taken their place (remember there are no shares available for shorting right now) betting that this thing has topped, ready to grab all that money that the last set of shorts lost. Then here comes Elon, and kicks them while they are down.

Not only does he pay off the loan without diluting shareholders---he changes the valuation entirely---perhaps making the current stock price a perfectly justifiable valuation (imagine, a debt free Tesla!). He would have effectively used the shorts own money to eliminate Tesla's debt. Now that is just embarrassing. Finally, that whole new set of shorts that took their place? Yeah, time for them to run for the hills.

It sure makes for a good story. I don't know if this is what is going to happen or not, but man---it would be EPIC.

 

[nikwest]

+1

But would The math be right? Is it possible? And After all it's Elon's personal options. Would he do that? That's quite more than putting your money where your mouth is.

 

[AudubonB]

Can you pencil out his tax consequences for exercising those options? No - no one except his tax man and very slightly possibly Mr Musk can - but they would certainly be One Ugly B***h.

Other than that, you've posited a lovely possibility. Yowza.

Try this on for size: Doesn't the government also have a warrant for a gazillion shares at $8? (Answer is, yes, they do....but I don't remember how many gazillions it is). Were that to be exercised, in addition to your fine scenario, then (1) all sorts of hot air goes pfffft out of the naysayers wrt government intervention, and (2) capital stock goes up nicely.

 

[Citizen-T]

+1

But would The math be right? Is it possible? And After all it's Elon's personal options. Would he do that? That's quite more than putting your money where your mouth is.

You know, any other CEO and I'd say "no way". But Elon...yeah...I think he'd do it. He is really after these shorts. He wants them bankrupt and disgraced.

Cramer sees it, Elon wants their heads: Cramer: Behind Tesla Furious Advance

It's not like he wouldn't benefit from it. The move would make his other shares far more valuable. It's really an "investment".

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Can you pencil out his tax consequences for exercising those options? No - no one except his tax man and very slightly possibly Mr Musk can - but they would certainly be One Ugly B***h.

Other than that, you've posited a lovely possibility. Yowza.

Try this on for size: Doesn't the government also have a warrant for a gazillion shares at $8? (Answer is, yes, they do....but I don't remember how many gazillions it is). Were that to be exercised, in addition to your fine scenario, then (1) all sorts of hot air goes pfffft out of the naysayers wrt government intervention, and (2) capital stock goes up nicely.

Sh*t you are right. And that means they can also take those warrants off their balance sheet. Remember the got to remove a ton of liability from their sheet this quarter because of the loan payment they made. Imagine if they could take it all off.

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Also, Tesla would get some cash from the deal. Elon does need to buy those shares for like $6.60. I think it was close to $50M for Tesla.

 

[c041v]

Can you pencil out his tax consequences for exercising those options? No - no one except his tax man and very slightly possibly Mr Musk can - but they would certainly be One Ugly B***h.

Other than that, you've posited a lovely possibility. Yowza.

Try this on for size: Doesn't the government also have a warrant for a gazillion shares at $8? (Answer is, yes, they do....but I don't remember how many gazillions it is). Were that to be exercised, in addition to your fine scenario, then (1) all sorts of hot air goes pfffft out of the naysayers wrt government intervention, and (2) capital stock goes up nicely.

I just skimmed the 10-K and could only find 5100 shares being warranted to the DOE @ $7.94, which is a far cry from a gazillion. I must be missing something.

I did also notice that the last quarter of the second 4% they awarded to Elon becomes available after the successful delivery of the 10,000th Model S.

Citizen might be onto something...

edit: Further digging suggests 3,090,111 shares under the DOE warrant (pg. 106 in the 10-K)? This is not my strong suit

 

[Citizen-T]

If I were Elon, I'd happily pay a few hundred million dollars to not have to ever hear that my company is being propped up by the government again. :biggrin:

 

[nikwest]

If I were Elon, I'd happily pay a few hundred million dollars to not have to ever hear that my company is being propped up by the government again. :biggrin:

This DOE loan seems to be a real American night mare. I guess we here in 'socialist' Europe don't quite understand. After all it is a loan and not free money. Btw. I never heard anybody complain about the 7500$ tax return...

But I agree it sounds like repaying the loan ASAP through short's money would make a great story. Actually an awesome story

 

[Citizen-T]

This DOE loan seems to be a real American night mare. I guess we here in 'socialist' Europe don't quite understand. After all it is a loan and not free money. Btw. I never heard anybody complain about the 7500$ tax return...

But I agree it sounds like repaying the loan ASAP through short's money would make a great story. Actually an awesome story

In good times it wouldn't have been such a big deal. The problem is right now people are hurting (you know, by American standards) and they want to blame someone other than themselves. The fact that Tesla's loan wouldn't cover the toilet paper bill for our federal government is lost on most.

 

[Johan]

This would be a wonderful turn of events, for all the reasons discussed so far in this thread. I too would be very eager to know the tax concequences. In effect Elon would infuse about $50M with his options excercise and then he would sell enough of the stock on the open market to raise another $450M which he would then give to Tesla??? That is a cash gift? Or would another way to do be that instead of him giving the money to Tesla, they could instead issue som new stock at the current price which he then buys from Tesla (a lot fewer share than when he buys them at $6).

 

[brianman]

Btw. I never heard anybody complain about the 7500$ tax return...

Then you haven't been looking hard enough. It's been a political football and has been criticized on this forum (somewhat) periodically.

 

[haid]

This week's announcement: 10K Model S produced

I think it is far more likely that Elon will release that Tesla has produced and perhaps delivered 10,000 Model S sedans.

I read in the forums some time ago that Elon gets some sort of stock option grant tied to producing 10K vehicles. And think about it, they produced 2K+ vehicles last year, and nearly 5K vehicles in Q1. So anytime now, they should be crossing the 10K threshold.

It also explains why Elon changed the order of the last two announcements. They just got there about a week early.

 

[vgrinshpun]

Linking my post on 10,000th car and Elon's associated options:

Upcoming Announcements - Page 2

Doing the math, in order to pay off the whole $495M Elon would need to sell close to all of the option shares (approx. 6.2M of them)assuming $80 pe share average gain.

This would be brilliant move by EM, and excellent guess by Citizen-T! BTW, this might have already had happened, given yesterday's heavy volume and and drop from $97 to $83.

Buckle you seat belts, starting next week, we might not see sub $100 price ever again.

 

[FVO]

If this would be true it would be the trade of the year!

 

[haid]

"This would be brilliant move by EM, and excellent guess by Citizen-T! BTW, this might have already had happened, given yesterday's heavy volume and and drop from $97 to $83."

If true, someone should print up a "three dimensional chess" champion card for Elon

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The actual EM boast is: "Business is like a multidimensional probabilistic chessboard. The rules aren't set, and the same moves don't always make you win. A lot of people can be really good in a set-piece battle; my biggest differentiating skill is I can invent new pieces."

http://www.businessweek.com/magazine/content/11_19/b4227076914379.htm

 

[adiggs]

This would be a wonderful turn of events, for all the reasons discussed so far in this thread. I too would be very eager to know the tax concequences. In effect Elon would infuse about $50M with his options excercise and then he would sell enough of the stock on the open market to raise another $450M which he would then give to Tesla??? That is a cash gift? Or would another way to do be that instead of him giving the money to Tesla, they could instead issue som new stock at the current price which he then buys from Tesla (a lot fewer share than when he buys them at $6).

I don't see Elon giving the money to Tesla as a gift (if for no other reason, giving money to a company actually sounds like it could be painful). But I imagine it could be arranged to be the next best thing to a gift - Elon buys newly issued Tesla shares in a private placement. Maybe even prices them to be real friendly (simple math - 4M new shares @ $100/share plus the ~$50M from the option exercise). That's the next best thing to a gift and accomplishes the end result we're discussing.

 

[Norse]

I really do hope so. And I hope they use the Money to expand in that case. Tesla have they superior Technology in the world, and should produce more cars than 21k cars a year. If someone dont bring Money to the table to make that possible, its really weird to me. If Musk does this, he will get the Money back.

 

[Rla]

Wow, sounds a bit too exceptional to ever be true. But let's hope Elon thinks like Citizen-T

 

[Johan]

I don't see Elon giving the money to Tesla as a gift (if for no other reason, giving money to a company actually sounds like it could be painful). But I imagine it could be arranged to be the next best thing to a gift - Elon buys newly issued Tesla shares in a private placement. Maybe even prices them to be real friendly (simple math - 4M new shares @ $100/share plus the ~$50M from the option exercise). That's the next best thing to a gift and accomplishes the end result we're discussing.

I agree: From Elon's POV it would not be a gift but an investment, but from the IRS's point of view just giving the money would qualify as a gift I presume. Hence your's and my suggestion of an issuing of stock at (or above) market price as compensation for the cash infusion.

 

[aznt1217]

Definitely onto something, but lets not get our expectations to high like all of us do during these announcements. Under promise and over deliver per se...

I don't think it's a stretch because he already plowed his money into the company when both his companies were on the brink of failure, so I'm sure he can do it when they are doing well. Getting rid of the payments, monthly interest, and stigma attached to Tesla and other companies who took loans from the DOE just might be worth it. The narrative would be pretty incredible and great PR for Tesla Motors.

A move like this would benefit future consumers as well. That personal guarantee comes to mind.

Well... Here's to hoping.

 

[Cattledog]

adiggs - Thanks, I was looking for the right mechanism and that sounds like it, as long as it's within regulations.

I remember, perhaps an interview (60 Minutes), where Elon was asked about the federal loan and he said to the reporter, "I personally guarantee it", to which the incredulous reporter said something like, "You personally guarantee it?!?" And Elon said, "Yes, I'll guarantee to repay it myself" (paraphrasing, not quoting).

This idea would come full circle on that. It's in his DNA, to do things no one has done before. I'm all in to this concept.