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mmd
Active Member
Very well put. So, at the end of all these,
a) Shares diluted by 12.3 M (including Elon's 5.5M new shares)
b) Elon will hold 1.5M shares more than before (Exercises 5.5M, sells 2.8M to pay taxes and donates 1.2M).
c) Elon will pocket 52% of 1.2M donated shares at tax refund time, which is $128M @$204 a share. Hopefully, he will pay down some of his margin debt with the proceeds.
Someone was arguing earlier about saving 1 cent per battery cell to save $25M a year when 500k Model 3 will be sold a year. IMHO, A much better way to cut costs is to reduce these stock based compensations. IIRC, last quarter, that amount was $84M. It's hard to justify these option awards after the poor MX ramp.
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RobStark
Well-Known Member
Elon does not make ~$30M per year while shareholders are taking a bath like some auto companies.
Elon makes his money based on stock options tied to performance. This is absolutely the way to compensate executives.
Elon makes his money based on stock options tied to performance. This is absolutely the way to compensate executives.
So much for Elon always saying he'll be the last to sell.
Actually, I'm not sure Elon's really using the loophole your'e referring to.
1. He's exercising options that generate taxable income on the difference between the exercise price and fair market value of the shares (either at ordinary or long-term gain rates depending on how options structured).
2. He's paying a lot of taxes on that taxable income (that's what the share sale for $600 million is for).
3. However, he's reducing his actual taxable income by deducting the 1 million share donation at FMV.
This is no different than any other taxpayer that reduces their income by the cash amount of a charitable contribution.
The appreciated stock "loophole" allows you to completely avoid paying the capital gains tax on appreciated shares, yet deduct the full FMV of the stock.*
That's not the case with these shares (because his cost basis is the same as the FMV given that he's paying taxes now as described in step 1 above).
*As realized gain approaches FMV, the value of this deduction for a California high income tax payer closes in on 79%. In other words, for every $1 donated, you are only reducing your wealth by $0.21 (the government picks up the other $0.79). Cash donations only reach 47.6%.
So what's the strategy play behind this capital raise being done now? There must have been a compelling reason to do this down round.
On the one hand, if the projected deliveries in Q2 are met, that would have had a positive earnings and FCF positive in the books which would have organically raised the share price shortly after. Ideally, this would have been the opportune time to do the capital raise, with much less dilution. However, this can only happen after August 2Q ER and capital markets may be experiencing a squeeze then with the Fed's eminent intent to raise interest rates this June.
I don't know how the underwriting process works but perhaps the accessibility to capital must be of importance so they could have advised to do the raise sooner rather than later due to the Fed rate increase, with the huge upside to the investors to get in now in anticipation of a skyrocketing SP as early as beginning of June when the delivery numbers are announced. Additionally, with the accelerated Model 3 ramp, TM must really be in need of the capital much earlier than we thought.
Just my musings to try to understand what could have been the thinking behind this move. Perhaps others can opine differently or add to the rationale?
On the one hand, if the projected deliveries in Q2 are met, that would have had a positive earnings and FCF positive in the books which would have organically raised the share price shortly after. Ideally, this would have been the opportune time to do the capital raise, with much less dilution. However, this can only happen after August 2Q ER and capital markets may be experiencing a squeeze then with the Fed's eminent intent to raise interest rates this June.
I don't know how the underwriting process works but perhaps the accessibility to capital must be of importance so they could have advised to do the raise sooner rather than later due to the Fed rate increase, with the huge upside to the investors to get in now in anticipation of a skyrocketing SP as early as beginning of June when the delivery numbers are announced. Additionally, with the accelerated Model 3 ramp, TM must really be in need of the capital much earlier than we thought.
Just my musings to try to understand what could have been the thinking behind this move. Perhaps others can opine differently or add to the rationale?
Seeing that and the vesting tranches years ago is what made me start looking at Tesla as a long-term investment (and good short-term trading). It makes it a lot easier to manage a company if your own finances are aligned with it.
Causalien
Prime 8 ball Oracle
Riding after the high of Model 3. The rest of the year is basically slugging it out until Model 3. So not much upside.
Safety raise before the next president.
Expanding the factory.
Also, I believe according to their current new way of calculating FCT, the newly raised amount will probably go into FCF.
Thanks Elon for de-risking, now don't spend it on unnecessary projects like the snake charger. Do it after Model 3 is in production.
MartinAustin
Active Member
Do you think they should finish off the Roadster aerodynamics/range updates? Which seem to be forgotten about...
I know that one share looks pretty much like all the other shares to us, but to the IRS they can be quite different. I assume (since Elon isn't an idiot) that he's donating stock that he has already held for at least a year, and not the newly purchased options. They're probably the same strike price, so he will get huge benefit by not paying CGT on the donated stock.
The Blue Owl
Endangerous Herbivore
So you were the one.
I don't see what is misleading about it. In the first sentence you correctly state what Tesla wants to avoid (the perception that Elon is cashing out), then in the second sentence you talk about something else (the perception that Elon is pouring money in the company).
Nowhere in Tesla's release is the second interpretation ever implied, so there is no intent to mislead anyone.
Tesla is the ultimate underwriter for GF. So far no solid committment from Panasonic for $1.6B spending. So Tesla need to take the ultimate responsibility to bring up the full GF for M3 unless Tesla is seeking for other battery suppliers.
mmd
Active Member
I don't know the exact details. But the dilution was already expected, and so was kind of built into the SP even before the offering.
What I wonder is, if GS and MS have been supporting the SP by purchasing TSLA stock before today. And the effect of them slowly withdrawing such support.
maoing and mmd, are you saying you it's news to you that Elon would exercise those 5.5 million options costing him $6/share?
from today's filing,
"In connection with this offering, Mr. Musk will exercise, in full, outstanding fully vested stock options to purchase an aggregate of 5,503,972 shares of common stock that are set to expire on December 3, 2016."
Elon had a little over 6 months to exercise these or pass on a billion dollar pay day. if you didn't think he would exercise them, what did you base that conclusion on?
Can we expect more analyst upgrades after the GS upgrade, and capital raise de-risking?
How many times do I have to remind some TMC members that issuing new shares around the current price for the purpose of investing the money received in growth opportunities is not harmful "dilution"? The money received belongs to all shareholders; it's not burnt and turned into smoke. It's used to generate far more income than can be earned from fixed income investments.
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