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Might be Time for Another Subsequent Offering of New Shares

Discussion in 'TSLA Investor Discussions' started by Curt Renz, Jul 6, 2013.

  1. Curt Renz

    Curt Renz Active Member

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    The share price has gotten high enough to again consider a subsequent offering of new shares. If not now, then perhaps after the July 24[SUP]th[/SUP] earnings report if it boosts the price. More cash in the treasury could speed up production of Model S, installation of Supercharger stations, creation of stores & service centers, and introduction of new models. As was the case with the May offering, I’d expect the benefits to overcome dilution concerns and result in even higher share prices.
     
  2. AudubonB

    AudubonB Mild-mannered Moderator Lord Vetinari*

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    Might be, and although I'm not necessarily opposed to the idea, I'm wondering if you can come up with a similar situation in the modern era when a firm dipped into the capital markets on a similarly frequent basis. As a GENERAL rule, that's not viewed with lots of equanimity.
     
  3. zeron

    zeron Member

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    Batteries improve 5-8% every single year. Every day that they simply survive is a huge win for future prospects. Theres no point in growing faster than research and improvements in batteries can progress.
     
  4. Curt Renz

    Curt Renz Active Member

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    That may be a valid point. However, some of the fresh funds could be used for battery R&D.
     
  5. Palpatine

    Palpatine Banned

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    Tesla has $700 million in the bank, very low debt and is very near cash flow neutral.
    I see no reason for them to do any dilution of the shares right now.

    If they have enough in the bank for:
    1) Model X development and production line setup
    2) Gen III development
    3) Supercharger rollout

    Those are the main 3 capital intensive projects for 2014. I doubt they will go back to the market to raise money until they are down to $400 million in the bank or so.
     
  6. Curt Renz

    Curt Renz Active Member

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    I understand. But if an innovative company is in the midst of disrupting established industries, the market's view may be more sanguine then it would generally be.

    - - - Updated - - -

    You may be right. I hope so. My OP was actually a message to Elon that at least one shareholder would not be upset if he were to consider another offering.
     
  7. FredTMC

    FredTMC Model S VIN #4925

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    Is earnings call confirmed to be on July 24th? I've seen no official announcement.
     
  8. Curt Renz

    Curt Renz Active Member

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  9. DaveT

    DaveT Searcher of green pastures

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    #9 DaveT, Jul 6, 2013
    Last edited: Jul 6, 2013
    I would imagine a better time to do another offering would be after they reach 25% gross margin. Maybe after they release 1Q 2014 results in May 2014. I'd think their stock price would be higher then. Also, I don't see them having any super capital-intensive projects in the near-term that would need a secondary offering. Even with the current money they've raised, they can speed up Model X production (if they wanted), speed up Supercharger, etc. Also, with Gen III I think it's more of a time issue (they need at least 3 years to get the battery costs right) than it is a capital issue.
     
  10. 100thMonkey

    100thMonkey Member

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    I would think that is true only to a point, the point where advances in fast charging and the proliferation of charging stations makes advances in capacity less important ... I'm in the middle of a 2,000 mile road trip and I'm encouraged enough to say we are on the verge of dramatic change occuring, far beyond the 5-8% annual jump in capacity. IMHO, the lack of Supercharging stations and more adapters (CHAdeMO) are about the only thing holding back a rapid transition, that and speeding up gen3 prospects.

     
  11. aronth5

    aronth5 Long Time Follower

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    For 2014 I think only 2 of the 3 are capital intensive projects
    1) Model X development and production line setup
    2) Supercharger rollout (and I would add battery swap test station(s))

    Gen3 is unlikely to be capital intensive until 2015. Next year's focus is Model X.
     
  12. EVNow

    EVNow Active Member

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    I think the latest round was viewed sympathetically because they got rid off the fed debt. I don't think a fresh round would be welcomed by current institutional share holders. I can see another round next year.
     
  13. evme

    evme Member

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    Unlikely and pointless. And there is the biggest issue,the % share Musk has. If they do another offering, Musk can't just take out another hundred million personal loan like that. There isno way Musk is going to give up veto powers. The best time for them to do another fund raising would be prior or shortly after the Gen III release. At that point Musk will probably hit enough quotas to qualify for his performance based shares and Tesla can do a major offering that will fund the Gen III sedan and suv roll-outs, the 2nd model s and the new roadster. At that point stocks will be worth a lot more then today too and Musk would still retain his veto power in the company without spending a penny.
     
  14. Palpatine

    Palpatine Banned

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    What is the nature of his veto rights? I thought he owned less than 30% of the stock. Is it a special class of stock? I have not looked into it enough to know.

    I don't think his percentage ownership of the company really matters so long as he remains a significant 10%+ owner.
    So much of the value of Tesla, SolarCity and SpaceX is linked to Elon Musk himself that he has full control.
    I think there is definitely a premium traded in the stocks of SolarCity and Tesla because of Elon.
    If he resigned or died in an accident, the stocks would likely crash.

    He is worth a huge sum for just the free advertising he brings.
    Other companies can only dream of getting so much free media from their CEO.
     
  15. maekuz

    maekuz Member

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    #15 maekuz, Jul 8, 2013
    Last edited: Jul 8, 2013
    We have to consider that after the calendar quarter ending on September 30, 2013 the convertible bonds will probably be changed to shares because there is a strong possibility that we will be above the threshold of 130% of the initial conversion price ($124.52). For the convertible bonds and the conversion mechanism see the prospectus here: http://ir.teslamotors.com/common/download/sec.cfm?companyid=ABEA-4CW8X0&fid=1193125-13-226108&cik=1318605

    The conversion rate for the notes is initially 8.0306 shares per $1,000 principal amount of notes. Bonds were sold for $660 million. That leaves us with 5,300,196 new shares.

    On top of that there are warrants in place that allow the hedge counterparties to acquire up to up to approximately 4.8 million shares of Common Stock at a strike price of $184.48 per share. See here: http://ir.teslamotors.com/common/download/sec.cfm?companyid=ABEA-4CW8X0&fid=1193125-13-231437&cik=1318605

    In case that you expecting a share price of $184.48 (and beyond) this fall then we are faced with a dilution of roughly 10 million extra shares. In the end this would be a good thing because Tesla would get rid of the 1.5% yearly interest on the $660 million of the convertible bonds. But i don't think an additional offering of new shares anytime soon on top of that would be needed or in the interest of existing shareholders.

    EDIT: The yearly interest on the convertible bonds is $9.9 million (or $2.475 million per quarter). If Tesla can get rid of it this capital expense could be used for a lot of superchargers or R&D.
     
  16. RoyP

    RoyP Member

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    No, not necessary now. But future secondaries will happen as higher prices come.
     

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