Hockeythug was referring to reproductions of the SEC language regarding risks. That is standard boilerplate stuff. The Discussion of the $411 million is new material. Your thoughts on the $411 million are indeed pertinent to this thread.
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Hockeythug was referring to reproductions of the SEC language regarding risks. That is standard boilerplate stuff. The Discussion of the $411 million is new material. Your thoughts on the $411 million are indeed pertinent to this thread.
The most important piece of info in the Reuters article is:
"If the two third-quarter payments are subtracted from the mid-year cash balance, Tesla would have $2.1 billion left over. The company on Wednesday told analysts it planned $1.75 Billion in the second half of the year on capital expenditures."
This seems to imply Tesla needs to do a capital raise very soon, line in Q3 or Q4.
"If the two third-quarter payments are subtracted from the mid-year cash balance, Tesla would have $2.1 billion left over. The company on Wednesday told analysts it planned $1.75 Billion in the second half of the year on capital expenditures."
This seems to imply Tesla needs to do a capital raise very soon, line in Q3 or Q4.
Mike Smith
Active Member
I think that works in a regular factory where everything is fairly simple and spaced out, but Musk is describing a factory designed in autocad to be extremely tight and efficient like a computer chip, so I could see them not being able to make extreme changes while it's running, or maybe even needing to taking large sections apart and starting over.
If that is true, Freemont would become dreadnaught 1 in 2018, and they'd have to start on a new factory about now in order to get dreadnaught 2 ready for 2020 in a new location (I'm not a contruction expert so I'm not sure if that's a realistic time to build). If they continued like that the older factories would always get upgraded at some later date when they have the increased production capacity of the newer factories and can more easily afford the downtime.
Like I said I'm no expert , but I just don't see how an alien dreadnaught can undergo a full iteration while they need it to be running at near full capacity.
If that is true, Freemont would become dreadnaught 1 in 2018, and they'd have to start on a new factory about now in order to get dreadnaught 2 ready for 2020 in a new location (I'm not a contruction expert so I'm not sure if that's a realistic time to build). If they continued like that the older factories would always get upgraded at some later date when they have the increased production capacity of the newer factories and can more easily afford the downtime.
Like I said I'm no expert , but I just don't see how an alien dreadnaught can undergo a full iteration while they need it to be running at near full capacity.
Tesla is also planning on delivering 50k cars during 2nd half of 2016
This "analysis" makes no sense. The 2018 notes are deep-in-the-money and convertible to stock at the option of the holder. The holders would be stupid to do anything other than convert them to stock. (Now I go do some more research...)
OK, so I dug into the convertibles and they're *super* complicated. They're not normal convertibles. They've got a weird partial cash payment thing going on. It's specified in a weird way, but it's economically (though not legally or for tax purposes) equivalent to this:
-- first the bond is converted to stock at the conversion rate
-- then a price is calculated based on the volume-weighted average price over 20 days
-- and an amount of stock equal to the face value of the bonds is repurchased by Tesla in cash at that price
-- Tesla then has the option to repurchase more of the stock, up to all of it, in cash as that same price
So Tesla is obligated to pay the face value back in cash, but any excess conversion value turns into stock. Unless Tesla decides to pay it off in cash, which they can. If they do that it's economically equivalent to a stock buyback, and is antidilutive.
Worth noting there are $660 million of the 2018 convertibles. If they only have to repay the principal on $411 million, then not everyone converted.
The $660 million converts to 5.3 million shares. Tesla set up a hedge transaction where they have an option to buy 5.3 million shares at $124.52, but they sold warrants (essentially options to buy but a bit different) to third parties to buy 5.3 million shares at 184.48. It's not clear but both transactions probably only trigger when the convertibles are converted. It looks like the warrants expire in March 2018, but they might not, I haven't seen their prospectus (and they seem not to be publicly traded so there may not be one).
Anyway, if the warrants are triggered *and* Tesla exercises their antidilutive options, Tesla realizes $317.788 million in cash. This happens in March 2018 at the latest. The maximum cash repayment requirement might be $660 million; subtracting the $317.788, the maximum real exposure is $342.212 million. Of course Tesla could choose to use additional cash to prevent the dilution (like a share buyback) but they wouldn't do so if there was a cash crunch.
"Fully diluted" calculations have been assuming that the 2018 convertibles, which are in-the-money, would be converted. If they are paid off in cash, it's antidilutive (and I have to go redo my valuation spreadsheet
)...I'm not sure when those warrants will get exercised, but if they aren't going to be exercised before March 2018, and I were a bank, I'd lend against the expected income from them.
It's also possible that Tesla could simply politely request that the warrant-holders exercise their warrants. Or Tesla may even have a clause allowing them to force the warrant-holders to exercise -- like I say I haven't seen the terms.
Alternatively, Tesla could issue 5.3 million shares at $230 or $220 (dilutive) and use a portion of the proceeds to buy back the warrants for 5.3 million shares (which would be anti-dilutive, since the warrants are already considered dilution). The result would be non-dilutive, essentially accelerating the receipt of the cash by paying the time value of the warrant. The time value is about ~$18.50/share based on current Jan 2018 call prices, so about $98 million. Tesla could retain the option to buy at $124.52 and not exercise it until later. In short, Tesla could probably collect ~$880 million in cash now *without diluting the stock*, at the long-term expense of maybe $98 million. (If the warrant-holders don't want to sell, the same economic result can be accomplished by buying call options from a different bank.) This is enough to pay off the entire principal on the $660 million in convertibles and generate additional cash. (The convertible-holders will, however, get stock; paying them entirely in cash would cost $1.1 - $1.2 billion)
It's possible, of course, that the short-termers in the market would be stupid enough to think such a move of issuing stock and buying back the same amount in warrants was dilutive (it's not).
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LOL
Tesla has planned a lot of things.
I am planning to be an international fashion model.
And your point is that these 50K deliveries bring in cash? They would have to be profitable for that, no? It seems like they will be barely profitable in Q3, Q4. Doesn't look like that will cover much.
You are in luck... i am a world-famous photographer.
Send me your portfolio and I will see what I can do.
Also lets check the wording...
'The company on Wednesday told analysts it planned $1.75 Billion in the second half of the year on capital expenditures'
This past Wednesday is already part of the second half of 2016. Suggesting that they haven't spent this money yet. Unless they already spent the 1.75 billion between Wednesday and today.
'The company on Wednesday told analysts it planned $1.75 Billion in the second half of the year on capital expenditures'
This past Wednesday is already part of the second half of 2016. Suggesting that they haven't spent this money yet. Unless they already spent the 1.75 billion between Wednesday and today.
We're talking cash flow, so let's look at the cash flow.
Cash flow used in operations for the first half of 2016: a bit over 99 million dollars. Call it 100 million for the second half (it should be better).
Cash on hand: 3.25 billion
Cash flow projected by management to be used in investing in the second half of 2017: 1.75 billion
Minimum cash cost of paying off 2018 convertibles: 411 million
Likely on hand, end of 2016, if no further financing or investing operations take place: ~990 million
Cost of paying off all 2018 convertibles in cash : 1.1 - 1.2 billion
Cash on hand, end of 2016, if they're entirely paid off (to avoid dilution) and no further financing operations take place: 300 to 400 million
This is assuming SolarCity doesn't need any new cash infusions (beyond what it's doing with securitizations). After doing due diligence, Musk seems to believe it doesn't.
This doesn't look to me like they actually need to do a further capital raise for 2016. (They may allow the convertibles to execute and dilute the stock rather than paying it all off in cash; this gives them about $500 million, as noted above.) Maybe (probably) they'll want some more capital for 2017. I dunno how much more capital Tesla will want for 2017, but showing operating cash flow positive (almost certain to happen in Q3) could make it quite easy to borrow money.
As I noted, Tesla could do a non-dilutive stock issuance by using part of the money received to buy back the 2018 warrants, and raise about 880 million. (Technically, they'd be *accelerating* the raising of 880 million -- it's currently scheduled to arrive in 2018 when the warrants are exercised, assuming Tesla's stock price isn't below $184.48 by then.)
Tesla may actually want to refinance all the convertibles, including the 2019 and 2021 convertibles, and buy back the 2019/2021 warrants while they're still out of the money, for antidilution reasons. If they can issue straight-up bonds (maybe 5-year zero-coupons) to refinance them, they probably should.
Mark Spiegel is losing his mind on Fred over in the comments.
Tesla Model 3 reservations reached over 400,000 based on cash flow from customer deposits
Tesla Model 3 reservations reached over 400,000 based on cash flow from customer deposits
Chickenlittle
Banned
I did not see second half revenue for 50,000 cars delivered in the analysis nor fourth qtr battery packs.
Right, I did what I call a "conservative" analysis:
Point being, a conservative estimate says they don't need more capital right away. If their revenues from car and Powerwall/Powerpack sales are higher, then it's even more true that they don't need more capital. So they are probably going to wait and see how much cash they can generate internally before going to the capital markets for additional capital. The more they can generate internally, the cheaper the cost of going to the capital markets is, so even if they do need more capital, they want to wait.
There may be no capital raise. If there is one, it may be in Q1 of 2017. Or later.
"For the six months ended June 30, 2016, we paid a total of $13.9 million related to conversions of the 2018 Notes at the request of the holders. Subsequent to June 30, 2016, we received additional conversion requests for principal value of approximately $411 million"
The face value relating to the pre-June 30 payment is unclear. The value is relatively small and could have been settled entirely in cash. There is some risk that once the $411 million conversion is publicized it may trigger additional conversion notices for some or all of the remaining ~$240 million in face value because of the VWAP valuing provision. Pricing in the secondary market for the notes is at Bond Trade Activity Search Results
Once a conversion notice is received, why wouldn't Tesla just un-wind the hedge/warrant transactions for the portion related to the principal amount in the notice to eliminate further risk of a share price volatility?
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Some of the cash is overseas, and it's unclear how easily it can be repatriated.
"As of June 30, 2016, we had $3.25 billion in principal sources of liquidity available from our cash and cash equivalents, which included $2.76 billion of money market funds. This balance reflects cash proceeds of $1.7 billion from the public offering completed in May 2016 of 7,915,004 shares of common stock, net of underwriting discounts and offering costs. In addition, this balance also reflects $678.0 million drawn under our asset based line of credit, which was repaid in full as of July 2016. Amounts held in foreign currencies had a U.S. dollar equivalent of $449.6 million as of June 30, 2016, and consisted primarily of Chinese yuan, Hong Kong dollars, euros and Japanese yen."
Cash from Operations in 1H16 includes $373 million in Model 3 deposits. Without Part 2 of the reveal in the second half, it is unlikely the Model 3 deposits will be close to that magnitude.
Tesla isn't likely to let cash get too low. They know well from previous history that if some bad external event happens that closes access to capital, they have to weather the storm. We know that Tesla stock valuation is at what the company considers to be a good level for raising equity since they raised equity at more or less this level in the past.
mmd
Active Member
@brian45011 ,
Great info, thanks a lot! My head hurts when I think about the chain of these convertible bonds with warrants etc. Do you know:
a) What's the conversion price on these 2018 notes that are being repaid? If the conversion price is lower than current SP, then is it actually better for Tesla to convert now and issue more shares at a higher price to repay those?
b) I thought, it is the issuer who can repay early. But it seems, the bond holders are asking payment before the bonds mature. Is this because of special terms in those convertibles? Is this normal?
Also, if I recall, recently tesla bonds have been trading below par. Wonder if that is still the case, and if that is a trigger for bond holders to ask for early payment. Thanks for your explanations.
PS: I'm a newbie on convertible bonds. My knowledge only goes to this basic intro about convertible bonds.
Convertible Bonds: An Introduction | Investopedia
Edit: OK, found some info on the 2018 convertibles. Sounds like it was a pretty big one at that time.
Tesla’s Convertible Bond: A Sign of the Apocalypse?
Great info, thanks a lot! My head hurts when I think about the chain of these convertible bonds with warrants etc. Do you know:
a) What's the conversion price on these 2018 notes that are being repaid? If the conversion price is lower than current SP, then is it actually better for Tesla to convert now and issue more shares at a higher price to repay those?
b) I thought, it is the issuer who can repay early. But it seems, the bond holders are asking payment before the bonds mature. Is this because of special terms in those convertibles? Is this normal?
Also, if I recall, recently tesla bonds have been trading below par. Wonder if that is still the case, and if that is a trigger for bond holders to ask for early payment. Thanks for your explanations.
PS: I'm a newbie on convertible bonds. My knowledge only goes to this basic intro about convertible bonds.
Convertible Bonds: An Introduction | Investopedia
Edit: OK, found some info on the 2018 convertibles. Sounds like it was a pretty big one at that time.
Tesla’s Convertible Bond: A Sign of the Apocalypse?
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