Short-Term TSLA Price Movements - 2015

[The Blue Owl]

It's not being used for the MX but consider the following:

IF the Model X ramp up looked to be in time for significant Q4 deliveries, it's highly probable that news would move the share price up. An opportunistic management team would wait until then to raise capital (more capital and/or less dilution).

In other words, if the X ramp up looked smooth this wouldn't be the most opportunistic time to raise capital. Therefore, it's a net new indication the X ramp up may indeed be slower than anticipated

Another way to look at it is that, if the Model X launch and subsequent scaling up go without a hitch, their cashflow would be good enough and they wouldn't need to raise capital at all. On the other hand, if they do hit a bump in the road, they will need additional capital, except that at that time it will be a bad time to raise, as the stock will no doubt be lower. So it's better to raise now, but only the amount they'd need to weather that storm, which explains the small size of the offering.

 

[Noble Ninja]

It's because the market reaction in the past few days was bracing for a larger round of capital raise (more dilution than 2.1mm shares).

^ This. Market priced in a larger cash raise. Now it is correcting.

Is it possible that this stream of attack against TSLA has been to obtain a low price for the offering?

I was under the impression that the past week's downtrend was entirely due to an overreaction and fear-mongering about the now ranged guidance for this year's delivery of 50,000 - 55,000 vehicles from the ER conference. Perhaps the underwriters of the stock offering wanted a cheaper market price and "worked in the background" to spread FUD.

Technically, there should be some resistance around the 246.80 level. If we break and close above that level by a dollar or more I think it will be a very bullish signal.
However, there is also a case for resistance at 251 and 257.

How are you getting those resistance points?

The most difficult car in the world to build could probably mean the most difficult ramp in the world. Safety first, raise cash. More cash implies less risk .

This makes a lot of sense. It's about hedging your bets and it is the logical thing to do.

 

[jhm]

It's not being used for the MX but consider the following:

IF the Model X ramp up looked to be in time for significant Q4 deliveries, it's highly probable that news would move the share price up. An opportunistic management team would wait until then to raise capital (more capital and/or less dilution).

In other words, if the X ramp up looked smooth this wouldn't be the most opportunistic time to raise capital. Therefore, it's a net new indication the X ramp up may indeed be slower than anticipated

You are making the argument that Tesla is trying to time the stock market. 1.65% incremental shares is trivial dilution. It does not matter whether $500M is raised at $240 per share or $300. So there is no material value to Tesla as a business in holding out for higher share prices. That sort of speculative market timing is fantasy for traders, but it means very little for Tesla. I believe Tesla is making this move at this time on the basis of operational planning, not an attempt to game the stock price.

 

[eepic]

I was under the impression that the past week's downtrend was entirely due to an overreaction and fear-mongering about the now ranged guidance for this year's delivery of 50,000 - 55,000 vehicles from the ER conference. Perhaps the underwriters of the stock offering wanted a cheaper market price and "worked in the background" to spread FUD.

Actually this isn't a bought deal, so underwriter's don't actually buy in themselves rather merely offer it to investors (institutional and/or retail). In fact, they usually get something like 4% of the proceeds as commission, so all else equal it would be in their favour if the price of the 2.1mm shares was higher.

 

[Gtoffo]

In other words, if the X ramp up looked smooth this wouldn't be the most opportunistic time to raise capital. Therefore, it's a net new indication the X ramp up may indeed be slower than anticipated

Only certain thing in life are death and taxes... nobody can be 100% certain of a complex launch such as that of the Model X. Some risk will always be there and it must be managed.

 

[eepic]

You are making the argument that Tesla is trying to time the stock market. 1.65% incremental shares is trivial dilution. It does not matter whether $500M is raised at $240 per share or $300. So there is no material value to Tesla as a business in holding out for higher share prices. That sort of speculative market timing is fantasy for traders, but it means very little for Tesla. I believe Tesla is making this move at this time on the basis of operational planning, not an attempt to game the stock price.

Part of their fiduciary responsibility for any management is to be opportunistic with stock price and cash positions (secondary offerings when high, buybacks when low). Deepak/Elon absolutely time the market in a broad sense - if I recall correctly, they have themselves used the word "opportunistic" in past conference calls when asked about capital raises. Raising capital after the $30 to $90 move in 2013 was not by coincidencce, as an example.

I agree they could have too much uncertainty into direction to justify holding off raising a capital cushion now - but that's sort of the point: if they strongly believed the MX was going to be a knock out of the park with a smooth ramp up, they would likely wait until the configuration/unveil in 1-2 weeks if the odds were good for better pricing.

 

[ZachShahan]

We must assume Elon and Deepak had mostly already decided to raise capital at the time of the ER call and that the size of the round had been decided.

In those few days it is improbable that their estimates regarding Model X production have changed much. So I would consider their statements regarding Model X and Cash flow to be a good estimation of what they are actually expecting today.

This "small" raise feels more like a security margin than a necessity to me.
It corresponds exactly to 1 extra quarter of free cash flow at current levels (TSLA Quarterly Cash Flow Statement - Tesla Motors Inc. Quarterly Financials). Considering they have 1 billion in the bank they now have 3 quarters of runway at current expense levels. Only 2 quarters of runway meant that if anything went wrong with Model X they would have been cutting it extremely close. With 50% more runway they have derisked the launch significantly.

There was notable pause during questions about raising cash. I imagine they were being very careful about how they answered.

 

[The Blue Owl]

I agree they could have too much uncertainty into direction to justify holding off raising a capital cushion now - but that's sort of the point: if they strongly believed the MX was going to be a knock out of the park with a smooth ramp up, they would likely wait until the configuration/unveil in 1-2 weeks if the odds were good for better pricing.

As I said above, it's also possible they think they wouldn't need to raise at all if the Model X launch is perfect. If so, the only reason they would raise is for the possibility that it won't go that great, in which case now is the best time to raise. It is the best move to buy insurance now, even if they strongly believe the launch will be successful. I think this hypothesis is supported by the small size of the raise, and by Elon's comments on the earnings call when he said that they don't need the cash, but it would make sense to raise for de-risking purposes.

Not to mention, if the launch is a success, they can always raise more later ("opportunistically"), to accelerate their growth. For now, they raised only the minimum amount they needed to prepare for any weather.

 

[ZachShahan]

Another way to look at it is that, if the Model X launch and subsequent scaling up go without a hitch, their cashflow would be good enough and they wouldn't need to raise capital at all. On the other hand, if they do hit a bump in the road, they will need additional capital, except that at that time it will be a bad time to raise, as the stock will no doubt be lower. So it's better to raise now, but only the amount they'd need to weather that storm, which explains the small size of the offering.

This.

- - - Updated - - -

I'm not complaining but it makes no sense that people see Tesla as less risk after a new offering. They clearly can do this anytime they need to do it, so there really isn't more or less risk today. Don't tell whoever is buying that though.

The market. You know what they say...

 

[MitchJi]

It's not being used for the MX but consider the following:

IF the Model X ramp up looked to be in time for significant Q4 deliveries, it's highly probable that news would move the share price up. An opportunistic management team would wait until then to raise capital (more capital and/or less dilution).

In other words, if the X ramp up looked smooth this wouldn't be the most opportunistic time to raise capital. Therefore, it's a net new indication the X ramp up may indeed be slower than anticipated

Maybe they timed the offering for September because they expect the SP to rise after the MX launch which they are planning to be before the offering.

 

[mdemetri]

Part of their fiduciary responsibility for any management is to be opportunistic with stock price and cash positions (secondary offerings when high, buybacks when low). Deepak/Elon absolutely time the market in a broad sense - if I recall correctly, they have themselves used the word "opportunistic" in past conference calls when asked about capital raises. Raising capital after the $30 to $90 move in 2013 was not by coincidencce, as an example.

This! Along these lines, I find it very curious why they did not do the raise before the ER when the stock was 10% higher and they knew they were going to report reduced guidance. As Elon avoided answering the question about another capital raise during the call, it means they were already thinking about doing one. So again, why not before the call??? The only logical answer I can think of is that the risk around the Model X ramp has increased since the call, not decreased, forcing their hand. Does anyone have any other thoughts?

 

[jhm]

Use of Proceeds

People need to read the Use of Proceeds statement again. The first part indicates the expected proceeds and the terms of the underwriting. Here's that portion:

We estimate that our net proceeds from the sale of the shares of common stock in this offering will be approximately $492.6 million, after deducting underwriting discounts and commissions and estimated offering expenses that we must pay. If the underwriters’ option to purchase additional shares in this offering is exercised in full, we estimate that our net proceeds in this offering will be approximately $566.5 million, after deducting underwriting discounts and commissions and estimated offering expenses that we must pay. The estimated net proceeds are based on the assumed public offering price of $238.17 per share, which was the last reported sale price of our common stock on August 12, 2015. Each $1.00 increase or decrease in the assumed public offering price of $238.17 per share would increase or decrease, as applicable, our net proceeds from this offering by approximately $2.1 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus supplement, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each 1.0 million increase or decrease in the number of shares offered by us, as set forth on the cover page of this prospectus supplement, would increase or decrease, as applicable, our net proceeds from this offering by approximately $234.7 million, assuming that the assumed public offering price of $238.17 per share remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

So let me point out two fact. First, the commisions for underwriters is about 1.5%. At 238.17/share, 2.1 M shares gross $500.157M, but Tesla nets $492.6. The $7.557M is commission to underwriters, about 1.5%.

Second, the underwriters hold a 30 day call option on 315,000 shares, which is 15% of 2.1M. This call option motivates the underwriters to sell the shares in such a manner not to destroy shareholder value. But as shareholders we need to consider the value of call option. Considering that call option have recently lost value since ER and the stock is trading at bearish sentiment. This specific timing means the the value of the underwriters' call option is relatively low.

Any shareholder who might think that Tesla would get a better deal timing the market for something closer to a new ATH needs to consider that the call option to underwriters as just such an opportune time would be much more costly to shareholders than it presently is. So the cost of Tesla trying to time this offering is facing higher implied volatility at another time which drives up the value of the call option to underwriters. So from a transactional cost point of view it makes sense to offer the stock while implied volatility is low.

For what it's worth, Sept 12 call options with strike $237.5 traded at about $10.10, and the $240 strikes did not trade yesterday but had a closing price of $8.50 the day before. Thus, the market value of underwriter call would be between $9 and $10 per share. So on 315,000 shares, this was worth $2.8 and $3.1 to underwriters aND shareholders. Presently, those calls are trading at $12.71. So the value to underwriters has gone up about 33%. If we were well into our hype cycle such options would have cost shareholders much more than they presently do.

Indeed, this may well be why the recent CC was so much anti-hype. The underwriters would have made off with more shareholder value had management hyped the stock.

 

[jhm]

Part of their fiduciary responsibility for any management is to be opportunistic with stock price and cash positions (secondary offerings when high, buybacks when low). Deepak/Elon absolutely time the market in a broad sense - if I recall correctly, they have themselves used the word "opportunistic" in past conference calls when asked about capital raises. Raising capital after the $30 to $90 move in 2013 was not by coincidencce, as an example.

I agree they could have too much uncertainty into direction to justify holding off raising a capital cushion now - but that's sort of the point: if they strongly believed the MX was going to be a knock out of the park with a smooth ramp up, they would likely wait until the configuration/unveil in 1-2 weeks if the odds were good for better pricing.

My understand of the word "opportunistic" may be different from yours. I think of is as simply taking advantage of opportunity as they occur. This is in opposition to exercising foresight and planning. Anticipating that a better or worse opportunity may present itself at sometime in the future is speculation, not opportunism. When they did there opportunistic capital raise at $90, they took that opportunity because it had presented itself, not because they had previously anticipated that the stock would actually go there, and certainly not because they had manipulated the stock to go there.

So if Tesla has been opportunistic in this capital raise, it is not because they think the stock will do one thing or another at some point in time, but simply that is good for Tesla to have this cash on hand at this point in time.

The opportunities that Musk is playing relate to business opportunities not stock price opportunities. So I want to resist any kind of interpretation that this play is commentary on the stock price. This is about Tesla, not TSLA.

And to be clear the opportunistic capital raise when the stock price was at $90 was to scale up manufacturing of the Model S. The opportunity was that demand was much bigger than anyone had anticipated, and more capital was needed to meet that demand. This was a business opportunity more than it was a stock price opportunity.

 

[hershey101]

People need to read the Use of Proceeds statement again. The first part indicates the expected proceeds and the terms of the underwriting. Here's that portion:



So let me point out two fact. First, the commisions for underwriters is about 1.5%. At 238.17/share, 2.1 M shares gross $500.157M, but Tesla nets $492.6. The $7.557M is commission to underwriters, about 1.5%.

Second, the underwriters hold a 30 day call option on 315,000 shares, which is 15% of 2.1M. This call option motivates the underwriters to sell the shares in such a manner not to destroy shareholder value. But as shareholders we need to consider the value of call option. Considering that call option have recently lost value since ER and the stock is trading at bearish sentiment. This specific timing means the the value of the underwriters' call option is relatively low.

Any shareholder who might think that Tesla would get a better deal timing the market for something closer to a new ATH needs to consider that the call option to underwriters as just such an opportune time would be much more costly to shareholders than it presently is. So the cost of Tesla trying to time this offering is facing higher implied volatility at another time which drives up the value of the call option to underwriters. So from a transactional cost point of view it makes sense to offer the stock while implied volatility is low.

For what it's worth, Sept 12 call options with strike $237.5 traded at about $10.10, and the $240 strikes did not trade yesterday but had a closing price of $8.50 the day before. Thus, the market value of underwriter call would be between $9 and $10 per share. So on 315,000 shares, this was worth $2.8 and $3.1 to underwriters aND shareholders. Presently, those calls are trading at $12.71. So the value to underwriters has gone up about 33%. If we were well into our hype cycle such options would have cost shareholders much more than they presently do.

Indeed, this may well be why the recent CC was so much anti-hype. The underwriters would have made off with more shareholder value had management hyped the stock.

^^^This... More people on these forms need to read the details and post after giving things some thought instead of just jumping the gun and screaming the sky is falling.
Thanks jhm for your insight

 

[FredTMC]

Pulled back. Hopefully rally into close

 

[30seconds]

People need to read the Use of Proceeds statement again. The first part indicates the expected proceeds and the terms of the underwriting. Here's that portion:



So let me point out two fact. First, the commisions for underwriters is about 1.5%. At 238.17/share, 2.1 M shares gross $500.157M, but Tesla nets $492.6. The $7.557M is commission to underwriters, about 1.5%.

Second, the underwriters hold a 30 day call option on 315,000 shares, which is 15% of 2.1M. This call option motivates the underwriters to sell the shares in such a manner not to destroy shareholder value. But as shareholders we need to consider the value of call option. Considering that call option have recently lost value since ER and the stock is trading at bearish sentiment. This specific timing means the the value of the underwriters' call option is relatively low.

Any shareholder who might think that Tesla would get a better deal timing the market for something closer to a new ATH needs to consider that the call option to underwriters as just such an opportune time would be much more costly to shareholders than it presently is. So the cost of Tesla trying to time this offering is facing higher implied volatility at another time which drives up the value of the call option to underwriters. So from a transactional cost point of view it makes sense to offer the stock while implied volatility is low.

For what it's worth, Sept 12 call options with strike $237.5 traded at about $10.10, and the $240 strikes did not trade yesterday but had a closing price of $8.50 the day before. Thus, the market value of underwriter call would be between $9 and $10 per share. So on 315,000 shares, this was worth $2.8 and $3.1 to underwriters aND shareholders. Presently, those calls are trading at $12.71. So the value to underwriters has gone up about 33%. If we were well into our hype cycle such options would have cost shareholders much more than they presently do.

Indeed, this may well be why the recent CC was so much anti-hype. The underwriters would have made off with more shareholder value had management hyped the stock.

I'm not following, at a higher share price Tesla could have sold fewer shares (and have a smaller underwriter call) to raise the same amount of money. Plus I don't think this call works like a typical call option. It allows the underwriters to sell more shares than the initial target. The company receives the additional proceeds from the sale and the underwriters receive additional commission. Since underwriter commission is based on $$ raised and not # of shares it wouldn't matter to them if Tesla raised at $238 or $270.

 

[Drax7]

Money is earmarked, not commingled with others, that seems unlikely though i am certain its budgeted for the projects mentioned.

 

[eepic]

People need to read the Use of Proceeds statement again. The first part indicates the expected proceeds and the terms of the underwriting. Here's that portion:



So let me point out two fact. First, the commisions for underwriters is about 1.5%. At 238.17/share, 2.1 M shares gross $500.157M, but Tesla nets $492.6. The $7.557M is commission to underwriters, about 1.5%.

Second, the underwriters hold a 30 day call option on 315,000 shares, which is 15% of 2.1M. This call option motivates the underwriters to sell the shares in such a manner not to destroy shareholder value. But as shareholders we need to consider the value of call option. Considering that call option have recently lost value since ER and the stock is trading at bearish sentiment. This specific timing means the the value of the underwriters' call option is relatively low.

Any shareholder who might think that Tesla would get a better deal timing the market for something closer to a new ATH needs to consider that the call option to underwriters as just such an opportune time would be much more costly to shareholders than it presently is. So the cost of Tesla trying to time this offering is facing higher implied volatility at another time which drives up the value of the call option to underwriters. So from a transactional cost point of view it makes sense to offer the stock while implied volatility is low.

For what it's worth, Sept 12 call options with strike $237.5 traded at about $10.10, and the $240 strikes did not trade yesterday but had a closing price of $8.50 the day before. Thus, the market value of underwriter call would be between $9 and $10 per share. So on 315,000 shares, this was worth $2.8 and $3.1 to underwriters aND shareholders. Presently, those calls are trading at $12.71. So the value to underwriters has gone up about 33%. If we were well into our hype cycle such options would have cost shareholders much more than they presently do.

Indeed, this may well be why the recent CC was so much anti-hype. The underwriters would have made off with more shareholder value had management hyped the stock.

This analogy is inaccurate, secondary market and primary market economics are not equal...

Illustrating with a simple example:
(1) If the offering is at $238, Tesla would receive 2.1mm x $238 = $499,800,000. The option would yield an additional 315k x $238 = $74,970,000. That's a total of $574,770,000 less fees.
(2) If the offering is at $265, Tesla would receive 2.1mm x $265 = $556,500,000. The option would yield an additional 315k x $265 = $83,475,000. That's a total of $639,975,000 less fees.


Scenario (2) is strictly better for Tesla and its coffers, regardless of where the prices trade after. A simpler way to think of it is Tesla giving them a call option at a higher strike price (worth less) if the offering price is higher. In other words, there's no advantage to the business offering at a lower price.

 

[drinkerofkoolaid]

1) Whatever people or institutions buy shares from this offering will likely buy more shares over time.
2) Most people, banks, and funds that hold a large stake in Tesla, have been accumulating shares.
3) I find it very interesting that a former Senior Advisor from Tiger Global (Karthik Sarma), who now has his own fund, SRS investment management llc, has a very large portion of his fund invested in SolarCity. (This might be relevant for Tesla)

 

[Chickenlittle]

This! Along these lines, I find it very curious why they did not do the raise before the ER when the stock was 10% higher and they knew they were going to report reduced guidance. As Elon avoided answering the question about another capital raise during the call, it means they were already thinking about doing one. So again, why not before the call??? The only logical answer I can think of is that the risk around the Model X ramp has increased since the call, not decreased, forcing their hand. Does anyone have any other thoughts?

I am glad they did not. I do not believe it would have been ethical to have that knowledge and raise the money. I believe institutional investors and small investors would be angry and suspicious in the future. I don't believe musk would act like that