Short-Term TSLA Price Movements - 2015

[30seconds]

This is how I read it. The underwriters have a call option. They've got the challenge of selling 2.7M stock. If they can trade in such a way as not to drive down the price of the, but allow it to climb as much as possible, then the call option is their reward. This motivates the underwriter's traders to fetch the highest price possible for the shares offered.

I'm not sure that this create a special opportunity to buy 30 day call options. It seems pretty hard to push the price up while selling 2.7M shares.

Also it might seem the underwriter's call option would motivate analysts at GS and MS not to talk the stock down. In law, there is supposed to be a wall of separation between the traders and analysts at GS and MS. So in principle, the analysts are independent. Even so, it's probably prudent for these analysts not to say anything good or bad while this call is in play.

If this is like most IPOs or Follow-Ons the underwriters have an optional over allotment used to stabilize the market post offering. These are actual shares, not an option. If they are sold Tesla receives the proceeds minus the underwriter's commission. Higher the price, the more money for everyone - but, and this is real, - the underwriter's first desire is to keep the stock above the original offering price for a reasonable amount of time. So what happens is that the underwriters can also buy shares on the open market to support the stock. If they do so they can sell them later and not exercise the overallotment. It all depends on the market.

The reason why the underwriter may not just want to sell the overallotment is that the large institutional clients that the underwriter sold the initial follow-on shares to may not be happy if the sales drives the price lower. Remember that these are very big banks selling to very big fund. If the bank behaves badly it doesn't take much for the fund to tell them to screw off next time, which makes the traders at the bank (who have an active role in IPOs & follow-ons) and investment banker's bosses very, very unhappy.

 

[Johan]

@30seconds: You're describing exactly how the FB IPO went down. There was a huge amount of support buying by the underwriters the first 2 or 3 days to keep price at or above $42 (IIRC the IPO price). The underwriters didn't "dump" their shares, instead they were buying more on the open markets to keep up the price.

A few weeks after FB was down to around $23 I believe. Now it's $94. Go figure.

 

[drinkerofkoolaid]

JB Straubel presented at Kent Presents, in Kent Connecticut yesterday. Does anyone know of any website that covered what was said? Is there a video anywhere?

 

[mrdoubleb]

So since this is a Sunday, the Mod Gods may allow me to go off topic a bit on something that is only sort of related to TSLA short term price movements.

As you know Tesla is showcasing the P90D this weekend at the Monterey Car Week. So I was searching for any early reviews or dashcam videos of this and i was shocked (in a good way) to see that the 3rd most viewed Tesla video on YouTube (number 1 & 2 are the same except PG 13 vs R rated version) is that little piece on the metal snake charger that went viral little over a week (!) ago. Coincidentally, it just took over that infamous fire video of the Model S burning.

Now the only reason I am mentioning this here is that while we were all worried about the ER, and the secondary and how all this effects the SP on the short term, we have to realize we are only a small fraction of the world obsessing about that. In the meantime, out there in "reality", Tesla has once again obtained a billion dollars worth of free publicity that just keeps on engraving the "coolness factor" of the brand.
~

 

[jhm]

There seems to be a lot of confusion about the underwriter's option. Here is the specific language in the SEC filing:

To the extent that the underwriters sell more than 2,694,934 shares of common stock, the underwriters have the option to purchase up to an additional 404,239 shares from us at the offering price less the underwriting discount.

Clearly it is an option to buy shares at a predetermined price. Thus it is a call option. Moreover, the underwriters must sell a specified number of shares before they can exercise this option. Thus the option is an incentive.

 

[Johan]

There seems to be a lot of confusion about the underwriter's option. Here is the specific language in the SEC filing:



Clearly it is an option to buy shares at a predetermined price. Thus it is a call option. Moreover, the underwriters must sell a specified number of shares before they can exercise this option. Thus the option is an incentive.

I think any confusion was more about whether it would be likely they'd exercise the option right away, pocketing about $4 per share, when selling that many shares on the open market may very possible depress the stock price which in turn might anger some of the people they sold the core part of the offering to.

 

[AlMc]

So since this is a Sunday, the Mod Gods may allow me to go off topic a bit on something that is only sort of related to TSLA short term price movements.

As you know Tesla is showcasing the P90D this weekend at the Monterey Car Week. So I was searching for any early reviews or dashcam videos of this and i was shocked (in a good way) to see that the 3rd most viewed Tesla video on YouTube (number 1 & 2 are the same except PG 13 vs R rated version) is that little piece on the metal snake charger that went viral little over a week (!) ago. Coincidentally, it just took over that infamous fire video of the Model S burning.

Now the only reason I am mentioning this here is that while we were all worried about the ER, and the secondary and how all this effects the SP on the short term, we have to realize we are only a small fraction of the world obsessing about that. In the meantime, out there in "reality", Tesla has once again obtained a billion dollars worth of free publicity that just keeps on engraving the "coolness factor" of the brand.
~

Curious: Anyone know if it has the full AD like the cars did at the D event?

- - - Updated - - -

I think any confusion was more about whether it would be likely they'd exercise the option right away, pocketing about $4 per share, when selling that many shares on the open market may very possible depress the stock price which in turn might anger some of the people they sold the core part of the offering to.

I agree. Since this is in the investor section I think many were trying to get a handle on whether the underwriters would be trying to depress, stabilize, or push the price higher. The way I read things they have incentive to push higher or at the least try to stabilize the price.

 

[jhm]

I think any confusion was more about whether it would be likely they'd exercise the option right away, pocketing about $4 per share, when selling that many shares on the open market may very possible depress the stock price which in turn might anger some of the people they sold the core part of the offering to.

That's fair. They've got 30 days to exercise the option. So they can decide what they think is the optimal time to exercise.

 

[AlMc]

Have we heard if the electrical issue at Fremont has been resolved?

 

[30seconds]

underwriters always, always, always are trying to support the share price at the offering price or higher. IPOs or Follow-Ons where this isn't the case are viewed as failures (despite the fees) as the original buyers are angry, the company isn't happy (b/c their investors aren't happy) and all the other banks who didn't participate will be using this as a case study to other clients on why not to pick Bank A. The investor part and the bank competitor parts are very important - investment bank bonuses are combination of revenue brought into the bank and the bank's relative position to other banks on the deal tables.

There are definite exceptions to this - see AXON most recently, but the banks who pushed that deal get a black eye in terms of future IPO / investor relations.

 

[mrdoubleb]

Have we heard if the electrical issue at Fremont has been resolved?

Bonnie has reported in the news section that it came back on today.

 

[Thumper]

Does anyone know if/how the Chinese port explosion affects Tesla?

 

[aznt1217]

Does anyone know if/how the Chinese port explosion affects Tesla?

Shouldn't really. I thought about this a lot... if there were indeed cars there... no problem -- insurance will handle damage. There are also other ports in China so it shouldn't be too bad. Tianjin is in the Northern part so Tesla can always reconfigure their channels to adjust their allocations.

 

[Dwdnjck]

How is it that B of A/ Merrill Lynch can participate in this offering in good conscience when they know that Tesla shares are worth only $180?

 

[doggusfluffy]

Tesla can't defy rules of mass auto production | Las Vegas Review-Journal

Elon Musk: workaholic, tough boss - Business - The Buffalo News

Luxury car makers look to U.S. as China teeters

 

[mmd]

How is it that B of A/ Merrill Lynch can participate in this offering in good conscience when they know that Tesla shares are worth only $180?

"Conscience" is a foreign word on Wall St. Once they eat the slice of this pie, may be BofA will also raise their price target to some high number. They already did remove their most bearish Tesla analyst and raise PT from $65 to $180 in one shot, all in expectation of this slice. BofA missed out big time in last year's $2.3 billion financing for the Gigafactory.

But BofA is not alone. JP Morgan also has a sell rating currently.
Tesla Motors (TSLA) - Stock Predictions Price Targets

 

[doggusfluffy]

I'm perfectly calm Dude. Calmer than you are.
Tesla investors need to chill out for a couple of years - Quartz

That flashratings link is handy. I'm losing track of who said what when all the time.

 

[CorneliusXX]

Why is Tesla up 3% in pre market? is there an announcement today?

 

[ev-enthusiast]

Why is Tesla up 3% in pre market? is there an announcement today?

Did MS just upgrade TM PT to $465!?

 

[Johan]

Why is Tesla up 3% in pre market? is there an announcement today?

Edit: MS Upragde. Also Mr. Market digesting the news of the offering and (finally) reaching the conclusion that it's a good thing overall.

(drax7 in this thread said Elon is nuts for buying his own offering, I don't understand why that would be nuts. He believes in his company and he wants to maintain a certain ownership so he buys the offering, what's strange about that?).