Johan
Ex got M3 in the divorce, waiting for EU Model Y!
I have a question. It seems to me from reading on this board that the capital raise is potentially the single most important factor in the near term, at least until we get delivery numbers for Q2 in early July.
Obviously, Tesla needs a large amount of money on the order of several billions to fund the Model 3. Here are the possibililties I see:
1. Elon chooses to do a capital raise now. The share price is roughly 207-208 ish which is lower than the 242 SP on the last capital raise. This would represent a "down round" which would dilute shareholder value. As far as I know, Elon has never done this before in any of his companies. Do you see this as a possibility? Why didn't Elon raise before the Q1 CC when the stock price was approaching $270? Do you think he thought that the share price would increase after the revelation of a goal of 500K cars in 2018. Or does he have another plan?
2. Elon chooses to wait till after Q2 delivery numbers which, if good, could elevate stock price. Do you think this is a possibililty or is it too risky given that macro situation could crash and share price could actually drop further.
3. Elon sells a minor stake in the company to a big player (e.g GOOG). Is this a possibility? Elon is of course good friends with Sergei and Larry. Tesla's CFO is from GOOG. A minor investment in Tesla would allow Elon to keep control and allow GOOG to put their money to a good use with potential for high reward. As you know, Larry Page once said he should give all his money to Elon when he dies. A 3 billion investment is a small amount of money for GOOG but would turn this ship around in no time. Most importantly, it would provide TSLA with an extremely powerful ally which, in my opinion, may be necessary to combat large interests such as oil, car dealers, car makers, etc. I believe this would also send a signal to the shorts that Tesla will survive and fluorish and most will cover immediately leading to short squeeze.
Related question: If a large company takes a minor stake in Tesla, does this have to occur at the current share price or could they do it at a higher price (say 250 or 300) and avoid a down round of financing. Obviously, when companies completely buy out other companies, the acquisition price is typically higher than the share price. Does this also apply for minority stakes? Of course, the price will go much higher just on announcement of such a partnership.
I thank you in advance for your insight.
Thank you for a well formulated and well reasoned first post on this forum. Welcome aboard!
As to your view on the alternatives I agree, these are the most probable possible ways of moving forward now that they have commited themselves to a quicker ramp of Model 3 production. I also agree that option #1 is something Elon would want to avoid except it is the only viable option left on the table. Option #2 is, as you say, a risky bet since there are too many unknown variables and the delta between share price today and $242 is significant. For this reason I believe that they may be working very hard as we speak to broker some kind of deal in the spirit of your option #3, i.e. some kind of more traditional sale of a minority stake or some more unorthodox metod of raising capital outside of the typical general credit markets. I, among with others on this board, have argued in favor of GOOGL/Alphabet as a partner that could bring something more to the table besides just money See for example my post #15597 where i wrote:
One other Sunday musing: what if Elon's very confident projections in the recent call that came without any mention of a capital raise (or only very vague insinuations that yes, some additional capital may be required) means that they have already secured the capital needed? My thoughts go to Google: With Elon's recent focus on manufacturing, physical engineering, the "making of large physical objects" perhaps it makes sense to finally partner with another company to provide the software engineering and the cloud services? When Tesla continues to grow there is going to be huge value from the map data collected, the data from all the autonomous miles driven, from a future app eco system, and probably a whole lot of other software related aspects of the business that I'm not mentioning now. At the same time it is hard enough for Tesla to keep up with the manufacturing and physical engineering, including lots of vertical integration, but now they want to do all the software and systems engineering themselves too? Let's face it, the weakest link right now is their software and systems, and while autopilot 1.0 is very nice there will be orders of magnitude more software engineering required to get to full autonomous. I'm not sure it would be right for Tesla to do this in house. Google seems like the perfect partner.
So maybe Elon said to Larry, you can be our software partner, I'll sell you 5% of Tesla for 5 billion and going forward we split the profits from an app eco system and from future licensing of autonomous drive and sale of millimeter precision map data.
And another option that mustn't be disregarded, considering the very positive way in which both Elon and Wheeler talked about their ABL (asset based line of credit) in the last call is that they will want to try to finance their growth through some kind of favorable loan rather than a traditional capital raise. However, I'm not sure what kind of terms they could negotiate for a more traditional loan with the expansion risks attached?