Short-Term TSLA Price Movements - 2016

[Zhelko Dimic]

Now that I correctly understand Musk timeline. Yes, it is shocking no body is even talking about it.

This is really, really, REALLY BIG F'ING DEAL!!!!

Do a google search on "iPhone assembly process" and watch the latest videos. It's pathetic. The most glamorous electronic device this day, a tiny device (relative to a car) has so much manual intervention that it is really shocking.

Musk is saying that an entire car will be built by machines with no human touching it (only touching the machine that makes the car). This is light years ahead.

If true and they hit 'no ppl on production line' in '18-'19, this is insanely big deal! Having just visited Porsche factory, and observing 118 steps of final assembly, I simply _can't_ believe it can be fully automated. However, it makes me happy that Musk and his people know _much_ more about building cars than I do

I can see that with careful design for manufacturing, you can save immense amount of manual labour, and that being one of the major costs, I believe Tesla can do Model 3 profitably. Heck, even if they drop manual steps to say 30 stations, and then parallelize each station, it would be immense achievement.

Oh, btw, if anyone was wondering, I was deeply disappointed with state of automation and efficiency at Porsche's Zuffenhausen factory. Equidistant steps equal to longest single step, same process for every car, line taylored to 911 Turbo Cab ($180K), the only car that needs all 118 stations - every other variant is a subset; it takes exactly same time to make lowly base Boxster at $50K, with 1/4 of the workers doing nothing. But again, I know nothing of manufacturing, maybe this is normal? If it is, it's really, REALLY due for change

 

[mmd]

:
Given the volume weighted average pricing for the conversion, this might explain the recent resilience of the share price to less than favorable news.

Could you please explain what you mean by this? How is the recent SP related to repayment of convertibles? Again, thanks in advance.

 

[GoTslaGo]

@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: Also 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?

Found this in the filings: (page 18)

In May 2013, we issued $660.0 million aggregate principal amount of 2018 Notes in a public offering. The net proceeds from the offering, after deducting transaction costs, were approximately $648.0 million. We incurred $12.0 million of debt issuance costs in connection with the issuance of the 2018 Notes and are amortizing to interest expense using the effective interest method over the contractual term of the 2018 Notes. The interest under the 2018 Notes is fixed at 1.50% per annum and is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2013.

Each $1,000 of principal of the 2018 Notes is initially convertible into 8.0306 shares of our common stock, which is equivalent to an initial conversion price of approximately $124.52 per share, subject to adjustment upon the occurrence of specified events. Holders of the 2018 Notes may convert their 2018 Notes at their option on or after March 1, 2018. Further, holders of the 2018 Notes may convert their 2018 Notes at their option prior to March 1, 2018, only under the following circumstances: (1) during any fiscal quarter beginning after the fiscal quarter ending September 30, 2013, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the last 30 consecutive trading days of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period following any five consecutive trading day period in which the trading price for the 2018 Notes is less than 98% of the average of the closing sale price of our common stock for each day during such five trading day period; or (3) if we make specified distributions to holders of our common stock or if specified corporate transactions occur. Upon conversion, we would pay the holders in cash for the principal amount of the 2018 Notes and, if applicable, shares of our common stock (subject to our right to deliver cash in lieu of all or a portion of such shares of our common stock) based on a calculated daily conversion value. If a fundamental change occurs prior to the maturity date, holders of the 2018 Notes may require us to repurchase all or a portion of their 2018 Notes for cash at a repurchase price equal to 100% of the principal amount of the 2018 Notes, plus any accrued and unpaid interest. In addition, if specific corporate events occur prior to the maturity date, we will increase the conversion rate for a holder who elects to convert its 2018 Notes in connection with such a corporate event in certain circumstances.

 

[GoTslaGo]

FYI The other notes (page 17):

In March 2014, we issued $800.0 million principal amount of 0.25% convertible senior notes due 2019 (2019 Notes) and $1.20 billion principal amount of 1.25% convertible senior notes due 2021 (2021 Notes) in a public offering. In April 2014, we issued an additional $120.0 million aggregate principal amount of 2019 Notes and $180.0 million aggregate principal amount of 2021 Notes, pursuant to the exercise in full of the overallotment options of the underwriters of our March 2014 public offering. The total net proceeds from these offerings, after deducting transaction costs, were approximately $905.8 million from 2019 Notes and $1.36 billion from 2021 Notes. We incurred $14.2 million and $21.4 million of debt issuance costs in connection with the 2019 Notes and the 2021 Notes and are amortizing to interest expense using the effective interest method over the contractual terms of these notes. In April 2015, the FASB issued new authoritative accounting guidance on simplifying the presentation of debt issuance costs, which we retrospectively adopted as of March 31, 2016 and reclassified debt issuance costs in connection with the notes to related debt liability. The interest rates are fixed at 0.25% and 1.25% per annum and are payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2014.

Each $1,000 of principal of these notes is initially convertible into 2.7788 shares of our common stock, which is equivalent to an initial conversion price of approximately $359.87 per share, subject to adjustment upon the occurrence of specified events. Holders of these notes may convert their notes at their option on or after December 1, 2018 for the 2019 Notes and on or after December 1, 2020 for the 2021 Notes. Further, holders of these notes may convert their notes at their option prior to the respective dates above, only under the following circumstances: (1) during any fiscal quarter beginning after the fiscal quarter ending June 30, 2014, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the last 30 consecutive trading days of immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price of the applicable notes on each applicable trading day; (2) during the five business day period following any five consecutive trading day period in which the trading price for the applicable notes is less than 98% of the average of the closing sale price of our common stock for each day during such five trading day period; or (3) if we make specified distributions to holders of our common stock or if specified corporate transactions occur. Upon conversion of the 2019 Notes, we would pay or deliver as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. Upon conversion of the 2021 Notes, we would pay the holders in cash for the principal amount and, if applicable, shares of our common stock (subject to our right to deliver cash in lieu of all or a portion of such shares of our common stock) based on a daily conversion value. If a fundamental change occurs prior to the maturity date, holders of these notes may require us to repurchase all or a portion of their notes for cash at a repurchase price equal to 100% of the principal amount of the notes, plus any accrued and unpaid interest. In addition, if specific corporate events occur prior to the applicable maturity date, we will increase the conversion rate for a holder who elects to convert their notes in connection with such a corporate event in certain circumstances. During the second quarter of 2016, the closing price of our common stock did not meet or exceed 130% of the applicable conversion price of our 2019 Notes and 2021 Notes on at least 20 of the last 30 consecutive trading days of the quarter; furthermore, no other conditions allowing holders of these notes to convert have been met as of June 30, 2016. Therefore, the 2019 Notes and 2021 Notes are not convertible during the third quarter of 2016 and are classified as long-term debt. Should the closing price conditions be met in the third quarter of 2016 or a future quarter, the 2019 and/or the 2021 Notes will be convertible at their holders’ option during the immediately following quarter. As of June 30, 2016, the if-converted value of the 2019 Notes and 2021 Notes did not exceed the principal value of those notes.

 

[mmd]

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

Honestly, I now think this number has gone down. I was looking forward to the SEC filing to say something. But no mention of even the 373,000 figure. 'Model 3' appears 71 times, but not the reservation count.

 

[3Victoria]

I think it went up. I reserved a second Model 3

The exact number is information that Tesla would like to keep to themselves. It is info that their competitors would like to have. It is info from which the shorts would like to make hay.

 

[brian45011]

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?

The par conversion is $124.52 so each note is equivalent to 8.03 shares. Tesla as issuer has no early, unqualified call right. If the share price closes above $161.88 for 20 or more of the last 30 trading days in a calendar quarter, holders can give a conversion notice during the following calendar quarter. The value of the conversion is priced using the volume weight average price (VWAP) during the 20 trading days following Tesla receipt of the notice. The notes have been trading on the secondary market about 5-10% of above the prior days' closing price, so a holder who wanted to cash in could just sell there and avoid the uncertainty of the VWAP. I suspect dislike/uncertainty over the SCTY purchase may have triggered the notices, but something else may be in play.

".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" You are probably thinking of the 2019/2021 notes, they've been trading around 90% and 87% of par and have significantly higher triggers for early conversion...

The notes are more complex than Investorpedia's generic explanation. The prospectus is here: Tesla Motors - Prospectus Filed Pursuant to Rule 424

 

[brian45011]

Could you please explain what you mean by this? How is the recent SP related to repayment of convertibles? Again, thanks in advance.

Could you please explain what you mean by this? How is the recent SP related to repayment of convertibles? Again, thanks in advance.

The notes are valued based on the VWAP, so if a holder gave notice it would have an interest in keeping the share price as high as possible, and could use options to hedge the risk of shares bought to do so. I tried awhile back to research who the large holders were but it finding them is tedious (one of them was a Vanguard Convertible Bond Fund)

 

[Fallenone]

big shout out to @brian45011 . Helped me learn a lot today

 

[Cosmacelf]

Honestly, I now think this number has gone down. I was looking forward to the SEC filing to say something. But no mention of even the 373,000 figure. 'Model 3' appears 71 times, but not the reservation count.

It may have gone down, but it won't matter. I keep running into people who say they want to buy a Model 3, but haven't put a deposit down. Once it starts shipping, expect a brand new large backlog.

 

[sundaymorning]

How a ModelX saved this man's life.

Man says Tesla Autopilot drove him to the hospital, saved his life

 

[mmd]

big shout out to @brian45011 . Helped me learn a lot today

Yep, and he calls himself a layman who is not employed for a while I suspect, he is either with a pro-experience, or has tons of money invested in this to research so much. Thanks Brian! Best of luck to you.

I suspect dislike/uncertainty over the SCTY purchase may have triggered the notices, but something else may be in play.

Is it possible that these holders don't think the stock price will improve much, so they think it is better to convert now?

 

[GoTslaGo]

The par conversion is $124.52 so each note is equivalent to 8.03 shares. Tesla as issuer has no early, unqualified call right. If the share price closes above $161.88 for 20 or more of the last 30 trading days in a calendar quarter, holders can give a conversion notice during the following calendar quarter. The value of the conversion is priced using the volume weight average price (VWAP) during the 20 trading days following Tesla receipt of the notice. The notes have been trading on the secondary market about 5-10% of above the prior days' closing price, so a holder who wanted to cash in could just sell there and avoid the uncertainty of the VWAP. I suspect dislike/uncertainty over the SCTY purchase may have triggered the notices, but something else may be in play.

".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" You are probably thinking of the 2019/2021 notes, they've been trading around 90% and 87% of par and have significantly higher triggers for early conversion...

The notes are more complex than Investorpedia's generic explanation. The prospectus is here: Tesla Motors - Prospectus Filed Pursuant to Rule 424

Another Thanks to @brian45011! Amazing research!

Based on the conversion rate (1000 USD = 8.0306 shares) assuming 230/share today, the warrant holder will get 1847 for 1000 invested. Nice! There's also provisions in your link showing how Tesla would additionally compensate the warrant holder if the SP falls below the 124.52 par. Doubly nice!

Suspect you're right about uncertainty over SCTY. Better to lock in price in Q3 assuming Q4 is when SCTY/TSLA merger will occur.

 

[brian45011]

Is it possible that these holders don't think the stock price will improve much, so they think it is better to convert now?

Similar to intent, motive is difficult to discern. As I mentioned up-thread, the notes have been eligible for conversion since 10/1/13 but the secondary market has been pricing them slightly higher and without the wait and valuation uncertainty of conversion (and as near as I can tell from glancing at FINRA tonight--still is). The following is pure speculation

One contributing factor may be because S&P recently put Tesla's B minus rating on negative credit watch because of the SCTY buy-out, and the holding institutions' investing criteria would not allow a lower rating. In addition, one large holder might have believed the volume of notes it wanted to exit might overload the secondary market. It would not be uncommon for holders to put on various hedges as arbitrage plays at the time they acquired the notes, but how that might influence a sell vs. convert decision is way above my pay grade.

Monday should be interesting.

I appreciate the kind words from you,GTG, and Fallenone

 

[Yggdrasill]

Honestly, I now think this number has gone down. I was looking forward to the SEC filing to say something. But no mention of even the 373,000 figure. 'Model 3' appears 71 times, but not the reservation count.

It's possible it's gone down, but if so, probably only very moderately. It's pretty much irrelevant if Tesla has 350k or 373k reservations. Once we have the reveal part 2, and we start seeing betas on the road, the number of reservations should shoot up over 500k.

 

[Lessmog]

I can already see how to do this for the battery factory. For the car factory, stamping's done, body-in-white is done, paint is done. There are some unsolved technical problems for the car factory, *specifically* regarding final assembly. Running floppy wires through conduits and chases is a difficult job for robots, and running them from the main body to the door is worse. Plugging the wires in is hard enough, but it's solved.

Sewing is another intractable problem which nobody knows how to do in a fully automated fashion (if we knew, there wouldn't be sweatshops) but it only applies to the seat leather.

I said many months ago that if Elon has come up with an innovative way to avoid the hand-work required to do the wire runs reliably, he'll have made a major development in factory automation. Honestly? He might not figure out how to make robots handle floppy wires accurately and reliably at high speed (the wires flail around and don't want to go where you want to put them, which is hard for the robots). The alternative is to minimize the use of soft wires in favor of rigid wires, and come up with something clever for the interface between the body and the door so that you don't have to run floppy wires through there; this might actually be easier.

Regarding that last sentence: You mean, like some kind of Printed Circuit Board (PCB) like we saw in the 1960's?
That would be really innovative.
No, in fact, it would revolutionize the auto industri yet again! Seriously.

 

[Lessmog]

And regarding the discussion about TMTMTM (TM by TM) with no place for humans on the line, I was recently reminded of our most beloved comedian Hasse Alfredson's imprompty skit maybe 40 years ago, appering as a restaurateur with the most modern, hi-tech industrial ideas. He said: "Here, all food is completely untouched by human hands. [brief pause] We have only chimpanzees in the kitchen!"

 

[bonaire]

I'm sure Model 3 reservations change over time - enough to keep them relatively quiet.
- if they went down, that is a "problem" for some for next year. Even if buyers moved to MS60.
- if they went up and S/X deposits went down, that is a "problem" for this year.

So, not disclosing is the norm here and the deposits line is what it is, a very muddy lake of data.
We have no idea of the contracted reservations for the PowerPacks and the talk is the market for them is "huge" - and so other than trust, how else is there a way to determine the short- and long-term realistic run rate of powerpacks and powerwalls?

 

[Yggdrasill]

We have no idea of the contracted reservations for the PowerPacks and the talk is the market for them is "huge" - and so other than trust, how else is there a way to determine the short- and long-term realistic run rate of powerpacks and powerwalls?

I think we can assume that virtually all the cells produced at sections B and C of the gigafactory will go into the Powerpack and Powerwall. This is likely around 14% of cell output, so somewhere in the area of 21 GWh per year.

Assuming a 75/25 split, Tesla could in Q1 2017 produce 37,500 Powerpacks and 200,000 Powerwalls. That would be about 2.5 billion dollars in revenue.

 

[Stretch2727]

Just one other data point on Model 3 reservations. There are only 3 total cancelations out of 4,140 reservations in the model 3 tracker.

model3tracker.info

There were 89 added in the last 3 months. May, June, July.

And before others say it I know it is not completely representative as it is 1% of reservations. It is a DATAPOINT.