Elon asked Google to buy Tesla for 6bil in 2013

[SteveG3]

and the games of embellishment and "telephone" among the press kicks in...

"That was back in March of 2013, when Musk asked his friend and Google co-founder and CEO Larry Page to rescue his struggling luxury car company from bankruptcy,... Tesla sales were slumping, rumors of dangerous glitches spread like engine fires and even Musk himself admitted that “The world of mouth on the [Model S] sucked.”

http://finance.yahoo.com/news/time-tesla-almost-bought-google-154928035.html

 

[SBenson]

To my (bullish) mind, the bottom line of this story is very positive for Tesla: there is real interest in buying the company. That fact puts a floor under the stock price.

I took it even broadly.

Musk is capable of creating good outcomes even in dire circumstances.

My investment in Tesla (effectively in Musk) made all the more sense when I read the article.

 

[Cosmacelf]

Yipes, that book excerpt and resulting publicity certainly hasn't hurt the stock price!

 

[jvonbokel]

There were deferrals, but many for legitimate reasons: many wanted the MC red (which required the paint shop upgrade I believe) and others wanted coil instead of air suspension. Both caused a lot of deferrals. Also, the 40's had to wait for a long time. Many were delayed because P85's were prioritized. Some, like me, who ordered a P85 were surprised to be able to get their car as early as Jan when they were expecting July/Aug.

Just for the sake of completeness, it wasn't only P85s that got prioritized. As they were only building 85's with air suspension at the time, and the rush to get cars out by the end of the quarter, I was contacted on 12/3/12, despite having only placed my reservation 5 months earlier, on July 5th. I wasn't expecting to hear anything until Spring or even Summer of 2013, but they told me they thought I could get my car by the end of the year. It wound up being a couple weeks after that, but still several months ahead of my expectations, and I think of my car as pretty sparsely optioned.

To me, that's part of what lends credence to the idea that they were running very short on cash at some point, and pushed a lot more folks to lock in their orders and convert reservations to sales.

I think as many have already said, the timeline of events may not line up perfectly, and the terms dictated by Elon suggest he wasn't nearly as desperate as the author would have you believe, but I still think there's a lot of truth in the story overall. Perhaps Tesla had other options for raising cash, but they were less preferable for various reasons, so Elon considered the safest form he could, getting it from someone he trusted to let him continue his master plan. The main thrust to me is that a deal was in place, and I think most would agree that's accurate, we're just skeptical that it was out of such desperation.

 

[Yggdrasill]

I would think that we aren't very skeptical of the deal itself because the terms seem fairly reasonable given the situation Tesla Motors was in. If he'd been claiming that Elon was trying to sell the company for 500 million dollars, I don't think anyone would take him seriously.

 

[uselesslogin]

OK guys I found a comment from Seeking Alpha of all places that actually makes sense as to what may have been happening, and then in turn makes it likely Elon would have talked to Google:

In terms of how close Tesla came to bankruptcy in or about late February 2013, here is the story as I understand it. The US Department of Energy had, in its credit facility with Tesla, mandated a minimum cash level to be held by Tesla. I think it was $150 million.

The DoE contacted Tesla and said that it would have to announce that it was not in compliance with the terms of the credit facility. Tesla understood immediately the catastrophic implications if this were allowed to happen. The media would have picked up this shortfall something to the tune of “Tesla defaults on its loan.”

If that had happened, many of Tesla’s deposit holders would likely have asked for their deposits back. The whole thing would have snowballed, probably in not much more than 24 hours. For all intents and purposes, Tesla would have been bankrupt immediately.

So what happened? In a stroke of genius, Tesla’s management immediately contacted the requisite DoE officials, before the DoE sent out the notice to the media. It managed to persuade the DoE to hold off on any such announcement of Tesla having fallen short of the credit facility’s covenants, until Tesla could report the cash balance at the end of its quarter.

Elon demanded that Tesla show a profit for the quarter. Even if it were only a single dollar, that would be enough. 100% of the company’s focus was going to be on delivering cars by March 31. The last delivery was made only minutes before Midnight.

During that time, Tesla worked night and day to deliver the requisite number of cars, in order to show a profit. I forget the precise numbers, but it would have taken something like 4,500 or 4,700 cars. Tesla delivered something around 4,900 -- a couple hundred more. A profit of something like $11 million was shown, when the company reported earnings.

And what an earnings report it was! The stock basically doubled within days. At that point, Tesla could immediately turn around, raise new money, and as a result refinance the DoE loan. Mortal crisis averted.

And the rest is, as they say, history. Until now, anyway.

That actually sounds plausible. Maybe I'll still buy the book.

 

[ItsNotAboutTheMoney]

OK guys I found a comment from Seeking Alpha of all places that actually makes sense as to what may have been happening, and then in turn makes it likely Elon would have talked to Google:



That actually sounds plausible. Maybe I'll still buy the book.

If true it certainly would have been a Tesla killer.

 

[jvonbokel]

OK guys I found a comment from Seeking Alpha of all places that actually makes sense as to what may have been happening, and then in turn makes it likely Elon would have talked to Google

If I could give some rep points to Anton Wahlman for that post, I would. That makes a lot of sense to me. I could even see why they might (not saying they did) idle the plant for a week or two to save cash and help towards the goal of showing profitability.

This paints a picture where they were not in a dire position directly, but indirectly they were, because of the potential bad news at a time when there was not enough margin for error to absorb it.

Still no rebuttal via Twitter a day after the news broke...

Maybe I'll still buy the book.

It'll be interesting to see if the book lays the story out in better (more accurate) detail than the excerpt, which is naturally chosen to get people's attention.

 

[mdemetri]

OK guys I found a comment from Seeking Alpha of all places that actually makes sense as to what may have been happening, and then in turn makes it likely Elon would have talked to Google:



That actually sounds plausible. Maybe I'll still buy the book.

But is does not fit with the Q4 2012 and Q1 2013 reports, which state that they had $221 million in cash at the end of Q4 and $231 million in cash at the end of Q1. This appears to be in full compliance with the $150 million requirement from DOE.

 

[Johan]

This is absolutely true. Happy to hold a private conversation about it, but not going to blast it out across the net. It was handled very discretely (obviously, since you don't recall it ).

I only recall a big dip in the stock price when Rawlinson and Nick Sampson were announced as "having left" but were they fired?

 

[bonnie]

I only recall a big dip in the stock price when Rawlinson and Nick Sampson were announced as "having left" but were they fired?

I don't believe they were fired, no. I have no direct or second hand knowledge.

 

[Krugerrand]

I only recall a big dip in the stock price when Rawlinson and Nick Sampson were announced as "having left" but were they fired?

I think both left quite early in 2012. And if I recall correctly, it was reported that Rawlinson went go home for family stuff.

 

[CapitalistOppressor]

Just for the sake of completeness, it wasn't only P85s that got prioritized. As they were only building 85's with air suspension at the time, and the rush to get cars out by the end of the quarter, I was contacted on 12/3/12, despite having only placed my reservation 5 months earlier, on July 5th. I wasn't expecting to hear anything until Spring or even Summer of 2013, but they told me they thought I could get my car by the end of the year. It wound up being a couple weeks after that, but still several months ahead of my expectations, and I think of my car as pretty sparsely optioned.

To me, that's part of what lends credence to the idea that they were running very short on cash at some point, and pushed a lot more folks to lock in their orders and convert reservations to sales.

I think as many have already said, the timeline of events may not line up perfectly, and the terms dictated by Elon suggest he wasn't nearly as desperate as the author would have you believe, but I still think there's a lot of truth in the story overall. Perhaps Tesla had other options for raising cash, but they were less preferable for various reasons, so Elon considered the safest form he could, getting it from someone he trusted to let him continue his master plan. The main thrust to me is that a deal was in place, and I think most would agree that's accurate, we're just skeptical that it was out of such desperation.

Yes. Tesla started aggressively shaking the reservation list bush starting in December 2012. There were mass emails requiring customers to configure, including people with ridiculously high reservation numbers.

Even in December the aggressive move into the list was so anomalous that mass cancellations or deferrals was the most handy explanation available, with the only real competition being from unknown batching concerns causing Tesla to reach deep into the list.

But the batching explanation was always pretty weak since you'd expect batching to only come into play AFTER configurations, so now you are having to assume large numbers of configured cars that Tesla didn't want to produce immediately for some reason.

Anyways, that process only lasted a couple of months and then suddenly there were no more configuration demands and walk up customers were getting very short turn arounds if they weren't ordering paint or 60kWh or whatever. At that point the question was reduced to deferrals or cancellations (obviously there were some of both, but what was the balance?), with the assumption being cancellations until it became obvious that the money was still on the books.

You'd think that it'd take just simple arithmetic to figure out how many reservations $100m (or whatever) in the reservation account represents, but there were foreign exchange issues, Sig's had different requirements, Model X reservation lists, possible appreciation etc. Still, when I tried to do the math I always ended up with a number far smaller than what was in the account unless I assumed huge numbers of Model S deferrals, which clinched it as the likely answer to what happened to the reservation list.

 

[Cosmacelf]

OK guys I found a comment from Seeking Alpha of all places that actually makes sense as to what may have been happening, and then in turn makes it likely Elon would have talked to Google

That DOES sound plausible and in fact would answer a nagging question I've had about Elon's financing strategy.

After the stock price spiked to $100/share, Elon very quickly put out a convertible debt offering to raise about $1B. At the same time he announced that he was repaying the $450M DOE loan early and indeed ended up paying prepayment penalties.

The stated reason ("We just felt we owe it to the American people to pay back their loan") always felt like weak tea to me. This is a company that could make very good use of an extra $450M, and they had 10 years to pay it off. Standard operating procedure is to keep any and all cash, even if you don't have a use for it - you never know when you'll need it.

But if Elon just had the fate of his company hanging in the balance by the capricious use of one of the loan covenants, well, I can well understand his desire to get that existential risk off his back.

 

[jvonbokel]

The stated reason ("We just felt we owe it to the American people to pay back their loan") always felt like weak tea to me. This is a company that could make very good use of an extra $450M, and they had 10 years to pay it off. Standard operating procedure is to keep any and all cash, even if you don't have a use for it - you never know when you'll need it.

I felt like that was just the PR-friendly reasoning, but the real reason (or one of them) was that the DOE loan had warrants that would have vested over time, and Tesla was able to eliminate those by repaying early.

The PR-friendly reason was a legitimate one though, because there were (ok, still are) occasional media stories labeling that Tesla as "government subsidized", despite it only being a loan and not a grant.

 

[pinguhk]

1
too bad that Google did not buy it they missed out a very good product.
If they did buy it I bet it would not be what it is now.

 

[neroden]

S That lost momentum was thanks to well defined issues (service, winter performance/Broder, QA issues, concerns about warranty, resale value, or any of the many other mini-dramas that everyone was talking about in the threads that winter).

I remember in particular the lack of manufacturer-approved snow tires, and the lack of availability of snow tires on delivery... I would actually guess there were a bunch of deferrals made in the winter specifically to get the car delivered outside the snow season! If that helps with understanding the deferrals.

 

[jvonbokel]

This is the first comment I've seen from Elon on the subject.

Bloomberg I think somewhat overstated the situation. I did have very informal discussions with Google, but it never came to the point where Google made an offer. The Bloomberg article made it sound like they made a $6 billion offer for Tesla. That is not the case.

Source: Elon Musk Takes Uncustomary Humble Tone for Tesla's Sales

Btw, I think the title of that article is a sort of clickbait-y. Elon said "we’ll be a little bit above 50,000 cars", and they are assuming that means less than the guidance of 55k. I think he was just trying to put their goals in context of the overall industry, and used a rounder number.

 

[Lump]

Ashlee Vance stands by his near bankruptcy claim...

Did Tesla nearly go bankrupt without investors knowing?

http://www.sfgate.com/business/article/Did-Tesla-nearly-go-bankrupt-without-investors-6239762.php

 

[Cosmacelf]

Well, if Ashley Vance is correct, that pretty much removes the mystery of why George Blankenship left. Not handling the deferred orders, then not telling Elon about it, then having Elon hold an all hands executive meeting and directing all executives to dig in would be enough for me to fire the guy responsible for the mess.