Tesla Gigafactory Investor Thread

[marvinat0rz]

Wow. I just realized how huge the implications of cheap battery storage are for the adoption of renewable energy. I'm sorry if this has been discussed throughout the last 45 pages, I don't have time to read through it all. Current battery packs, like the ones in the Model S, are optimized for quick, intermittent discharge at high power. Battery packs for the utility grid could be made larger in capacity, but with a load profile optimized more towards long battery life. I think this will be a requirement for using these packs in the utility grid.

Solar power is already close to cost parity with coal in many markets of the world. The only remaining problem is to cost-effectively store power for longer periods of time, so the power can also be used off-peak. I don't have the knowledge or capacity to run the numbers on this. Not sure if a 30% reduction in the cost of li-ion battery packs is enough to make the total installation cost competitive with coal-fired power plants. Have anyone on the Tesla board run these numbers? If this is actually the case, then the train is shortly leaving the station, and we are setting up for large-scale disruption of fossil electric power generation in the coming years.

I want in on this. Buying a solar ETF would certainly be one way of doing this. Owning Tesla is another - Tesla and partners running the gigafactory would of course be exposed to the profits of this business. I suppose Solar City or similar utility companies could also grab a large piece of the pie. Have I just realized something obvious which everyone else saw a year and a half ago? Has anyone run the numbers on this?

 

[FluxCap]

You may want to join us over in this thread:

Alternative Energy Investor Discussions (formerly SCTY thread)

You might also want to check out Sleepy's articles on CSIQ, JASO, SOL, SPWR.

 

[Neech]

Please let it be TEXAS! I'm from Houston and would love it if they build the factory here. We have massive open land and no state tax. Model S are very common here now. I have a feeling it will be Austin. Austin is becoming SF. Austin also has apple and google campus.

Texas represents too many things that Elon is against - oil and refineries everywhere, Keystone pipeline, fracking (Big Oil and Bad Air: Report Exposes Link Between Fracking and Toxic Air Emissions in Texas | Democracy Now!) - all air polluting companies in a state with a governor that does what oilmen tell him to do. Nothing personal, but I hope Tesla picks another state, Texas is not worthy of such a forward-thinking endeavor.

 

[sleepyhead]

Wow. I just realized how huge the implications of cheap battery storage are for the adoption of renewable energy. I'm sorry if this has been discussed throughout the last 45 pages, I don't have time to read through it all. Current battery packs, like the ones in the Model S, are optimized for quick, intermittent discharge at high power. Battery packs for the utility grid could be made larger in capacity, but with a load profile optimized more towards long battery life. I think this will be a requirement for using these packs in the utility grid.

Solar power is already close to cost parity with coal in many markets of the world. The only remaining problem is to cost-effectively store power for longer periods of time, so the power can also be used off-peak. I don't have the knowledge or capacity to run the numbers on this. Not sure if a 30% reduction in the cost of li-ion battery packs is enough to make the total installation cost competitive with coal-fired power plants. Have anyone on the Tesla board run these numbers? If this is actually the case, then the train is shortly leaving the station, and we are setting up for large-scale disruption of fossil electric power generation in the coming years.

I want in on this. Buying a solar ETF would certainly be one way of doing this. Owning Tesla is another - Tesla and partners running the gigafactory would of course be exposed to the profits of this business. I suppose Solar City or similar utility companies could also grab a large piece of the pie. Have I just realized something obvious which everyone else saw a year and a half ago? Has anyone run the numbers on this?

I saw this two years ago.

And, yes it is obvious, but only to a select few. 99.99% of the people don't see it coming and have no clue what is going on. That is a reason why I have been so successful investing in solar over the past year, and will be at least until we hit another major recession.

- - - Updated - - -

Back on topic: The case for Texas:

http://www.fool.com/investing/general/2014/02/27/tesla-motors-dangles-a-5-billion-carrot-in-texas-f.aspx

 

[sleepyhead]

Looks like TSLA raised $2b and potentially $2.3b if over-allotment option gets exercised. Due to very strong demand they raised the amount raised:

Financial Times | Error | Akamai Error

5 year notes have 0.25% interest rate for $800m
7 year notes have 1.25% interest rate for $1.2b

conversion premium is 42.5% or $360 if you use today's close price.

- - - Updated - - -

Annual interest expense is $2m on the 2019 notes and $15m on 2020 notes. Even with over-allotment that is only $19.55m per year or about 0.1 EPS per year after tax benefit.

Overall, these terms are fricking ridiculously awesome.

Maximum potential share dilution is 6.4m shares on $2.3b raised, which is a little less than 5% dilution.

Pretty darn good terms if you ask me.

 

[DaveT]

Looks like TSLA raised $2b and potentially $2.3b if over-allotment option gets exercised. Due to very strong demand they raised the amount raised:

Financial Times | Error | Akamai Error

5 year notes have 0.25% interest rate for $800m
7 year notes have 1.25% interest rate for $1.2b

conversion premium is 42.5% or $360 if you use today's close price.

- - - Updated - - -

Annual interest expense is $2m on the 2019 notes and $15m on 2020 notes. Even with over-allotment that is only $19.55m per year or about 0.1 EPS per year after tax benefit.

Overall, these terms are fricking ridiculously awesome.

Maximum potential share dilution is 6.4m shares on $2.3b raised, which is a little less than 5% dilution.

Pretty darn good terms if you ask me.

It looks really good to me as well. Here are some quotes from the article you linked to.

“Tesla sold $800m in five-year notes and $1.2bn in seven-year notes as part of the deal on Thursday, according to a person familiar with the matter. The five-year notes will carry a coupon payment of 25 basis points and the seven-year notes will pay 125 basis points. Both bonds have an equity conversion premium of 42.5 per cent.”

“The company had originally sought to raise $1.6bn, but the deal was increased due to heavy demand from investors, according to a person familiar with the matter.”

“If underwriters, including Goldman Sachs and Morgan Stanley, elect to exercise an overallotment provision, the size of the offering could reach $2.3bn."

 

[TSLAopt]

Looks like TSLA raised $2b and potentially $2.3b if over-allotment option gets exercised. Due to very strong demand they raised the amount raised:

Financial Times | Error | Akamai Error

5 year notes have 0.25% interest rate for $800m
7 year notes have 1.25% interest rate for $1.2b

conversion premium is 42.5% or $360 if you use today's close price.

- - - Updated - - -

Annual interest expense is $2m on the 2019 notes and $15m on 2020 notes. Even with over-allotment that is only $19.55m per year or about 0.1 EPS per year after tax benefit.

Overall, these terms are fricking ridiculously awesome.

Maximum potential share dilution is 6.4m shares on $2.3b raised, which is a little less than 5% dilution.

Pretty darn good terms if you ask me.

Would you you say its like the Convertible Bond is a very expensive 2019 or 2021 $360 Call option in a way? Where the holder pays a premium now equivalent to the full exercise price and receives 25 or 125 basis points per year on that and if their 360 strike is not met they will still get back the full 360 premium at expiration in 2019 and 2021?

 

[sleepyhead]

Would you you say its like the Convertible Bond is a very expensive 2019 or 2021 $360 Call option in a way? Where the holder pays a premium now equivalent to the full exercise price and receives 25 or 125 basis points per year on that and if their 360 strike is not met they will still get back the full 360 premium at expiration in 2019 and 2021?

You can put it that way, but I would put it this way:

You are paying $360 for shares of TSLA today even though they are worth $250. You get paid 0.25% interest over 5 years or 1.25% interest over 7 years. You are also guaranteed to be able to sell your shares for $360 or fair market value, whichever is higher at expiration.

However you put it, it is a great deal for Tesla and a great deal for TSLA longs. Bad deal for TSLA shorts.

 

[mitch672]

It's not a bad deal for the bond holders either, they get some return on their cash, and have a set price on TSLA shares in 5 or 7 years. TSLA could be much higher than $360 in 5-7 years, if things go to plan, it certainly should be.

 

[sleepyhead]

I wouldn't buy those convertible notes, no way!

I would rather buy the stock at $250 and take the risk of the stock being below $250 5 years from now. Better than paying $360 for it with a guaranteed floor.

Think of it this way, you are paying 42.5% for insurance that it doesn't go down. I am sure that you could buy the stock and a put option for a lot cheaper.

Smart money is dumb to buy these notes. Good for us shareholders though.

 

[772]

I wouldn't buy those convertible notes, no way!

I would rather buy the stock at $250 and take the risk of the stock being below $250 5 years from now. Better than paying $360 for it with a guaranteed floor.

Think of it this way, you are paying 42.5% for insurance that it doesn't go down. I am sure that you could buy the stock and a put option for a lot cheaper.

Smart money is dumb to buy these notes. Good for us shareholders though.

I don't think it's quite that bad... The Jan '16 $250 put is ~$68.5. Consider you would have to roll over your puts at least once to get to 2019 and you've paid quite a bit.

 

[kenliles]

Maybe Dougie Kass would be interested in those

This sounds like a awesome deal for Tesla- Elon & team are financial masters. These term are half what I expected, and I was already considering they were going to be great. These are off the chart imho

 

[TSLAopt]

You can put it that way, but I would put it this way:

You are paying $360 for shares of TSLA today even though they are worth $250. You get paid 0.25% interest over 5 years or 1.25% interest over 7 years. You are also guaranteed to be able to sell your shares for $360 or fair market value, whichever is higher at expiration.

However you put it, it is a great deal for Tesla and a great deal for TSLA longs. Bad deal for TSLA shorts.

thanks Sleepy. Do you or does anyone remember the exact terms (ie. interest rate) on the Converts they offered last year...
just wondering if these are more favorable terms to TSLA now at 250 then those were to TSLA back then when TSLA was 90

 

[CapitalistOppressor]

I saw this two years ago.

And, yes it is obvious, but only to a select few. 99.99% of the people don't see it coming and have no clue what is going on. That is a reason why I have been so successful investing in solar over the past year, and will be at least until we hit another major recession.

- - - Updated - - -

Back on topic: The case for Texas:

Tesla Motors Dangles a $5 Billion Carrot in Texas' Face (TSLA)

I'm not sure I buy the notion that Tesla will have a particular need for additional access to the Texas market in 2020. By producing only 500k cars they are likely to be substantially supply limited on a global scale. So the entire premise of the article (that Tesla is somehow salivating at the thought of increased access to the Texas market) just seems not well thought out to me. Tesla wants that market opened up, but that is not the kind of thing likely to impact Tesla's bottom line for some time to come.

Essentially, I see the current Texas regulations as a disqualifier, but not as something that can be put on the scale to balance other economic incentives needed to sway Tesla's site decision. So if New Mexico offers business case "X", Texas needs to offer "X+Access".

On another note, I'm gratified to see that the costs and capabilities of this factory are right in the wheelhouse of the models we discussed last year in the Cost per kWh thread. The factory will be producing ~70% of the cells for 500k vehicles, so ~350k cars. I had projected the top range Model E at ~4,000 cells, so the fleet average would be slightly below that. Plug the numbers in and we get -

350,000x4,000x$4 = $5.6B

Anyways, here is a link to their regulatory filings from today, including the initial prospectus for the convertible notes (which will be amended when its complete) -

EDGAR Search Results

In many ways, this was a rather timid move on the part of Tesla. I'm not terribly impressed with the scope of their capital raise in relation to their needs. Tesla will have access to substantial additional funds based on profits from the S platform over the next few years, but they are still going to have to lean heavily on their "partners" just to complete this rather circumscribed effort by 2020.

In September, JB Straubel was talking 700k cars in 2019, so 500k in 2020 (which is not even completely funded) indicates they got a lot of pushback from the big money guys on Wall Street. But whatever happened, all we have is a down payment on a deal that hasn't even come together yet. I hesitate to characterize my response as "dismay" because it is at least a tangible step forward towards solving a major problem, but I am not terribly impressed.

If this is at the limit of what they are capable of doing (whether because raising the capital is a problem, or because of the complexity of the effort), then their growth is going to be substantially slower than I expected, and its super-duper difficult to justify their current valuation.

Anyone currently invested in this stock (which very much includes myself) needs to look at their model and see if they expected that Tesla would produce 500,000 cars in 2020, and further reflect on the fact that the deal necessary to make that happen does not yet exist, despite today's announcement.

 

[TSLAopt]

I'm not sure I buy the notion that Tesla will have a particular need for additional access to the Texas market in 2020. By producing only 500k cars they are likely to be substantially supply limited on a global scale. So the entire premise of the article (that Tesla is somehow salivating at the thought of increased access to the Texas market) just seems not well thought out to me. Tesla wants that market opened up, but that is not the kind of thing likely to impact Tesla's bottom line for some time to come.

Essentially, I see the current Texas regulations as a disqualifier, but not as something that can be put on the scale to balance other economic incentives needed to sway Tesla's site decision. So if New Mexico offers business case "X", Texas needs to offer "X+Access".

On another note, I'm gratified to see that the costs and capabilities of this factory are right in the wheelhouse of the models we discussed last year in the cost per kWh thread. The factory will be producing ~70% of the cells for 500k vehicles, so ~350k cars. I had projected the top range Model E at ~4,000 cells, so the fleet average would be slightly below that. Plug the numbers in and we get -

350,000x4,000x$4 = $5.6B

Anyways, here is a link to their regulatory filings from today, including the initial prospectus for the convertible notes (which will be amended when its complete) -

EDGAR Search Results

In many ways, this was a rather timid move on the part of Tesla. I'm not terribly impressed with the scope of their capital raise in relation to their needs. Tesla will have access to substantial additional funds based on profits from the S platform over the next few years, but they are still going to have to lean heavily on their "partners" just to complete this rather circumscribed effort by 2020.

In September, JB Straubel was talking 700k cars in 2019, so 500k in 2020 (which is not even completely funded) indicates they got a lot of pushback from the big money guys on Wall Street. But whatever happened, all we have is a down payment on a deal that hasn't even come together yet. I hesitate to characterize my response as "dismay" because it is at least a tangible step forward towards solving a major problem, but I am not terribly impressed.

If this is at the limit of what they are capable of doing (whether because raising the capital is a problem, or because of the complexity of the effort), then their growth is going to be substantially slower than I expected, and its super-duper difficult to justify their current valuation.

Anyone currently invested in this stock (which very much includes myself) needs to look at their model and see if they expected that Tesla would produce 500,000 cars in 2020, and further reflect on the fact that the deal necessary to make that happen does not yet exist, despite today's announcement.

i respect your analysis of batteries and the business model as much as anyone on here CapitalistOppressor, and share your concern. It is easy to get overexcited on this...but I am confident in Elon to get this finished. Deals this big can't be put together all in one week or one month and is definitely a challenge....but if Elon can be the first to create a compelling electric car and figure out how to send rockets into space at a fraction of the price of anyone else....I am entirely confident he can get this deal done in the timeline they've put forth. I have full faith in Elon and Tesla to do this.

 

[CapitalistOppressor]

i respect your analysis of batteries and the business model as much as anyone on here CapitalistOppressor, and share your concern. It is easy to get overexcited on this...but I am confident in Elon to get this finished. Deals this big can't be put together all in one week or one month and is definitely a challenge....but if Elon can be the first to create a compelling electric car and figure out how to send rockets into space at a fraction of the price of anyone else....I am entirely confident he can get this deal done in the timeline they've put forth. I have full faith in Elon and Tesla to do this.

I am less concerned with whether this deal gets done (though I dislike the fact that its open ended right now), than I am with the implications of Tesla only being able to produce 500k cars in 2020. In my opinion, that is a real blow to the bullish case supporting the current stock price.

 

[ckessel]

I am less concerned with whether this deal gets done (though I dislike the fact that its open ended right now), than I am with the implications of Tesla only being able to produce 500k cars in 2020. In my opinion, that is a real blow to the bullish case supporting the current stock price.

This is a factory that's supposed to start coming online in 3-4 years. 2020 is 6 years away. There's nothing preventing Tesla (or Panasonic) from opening up similar factories in 2-3 years so they'll be up and running by 2020.

 

[TSLAopt]

This is a factory that's supposed to start coming online in 3-4 years. 2020 is 6 years away. There's nothing preventing Tesla (or Panasonic) from opening up similar factories in 2-3 years so they'll be up and running by 2020.

yes, 6 years is a long long time in TSLA time....there will be lots of new developments, just remember how far we've come in the past 18 months...I could see another larger capital raise in 2-3 years to build two more Giga factories (China and Europe)...especially if they open up reservations for Gen III and turn out to get 500k reservations in the first month.
If they did that in 2016-2017 then their projected 2020 sales could easily jump to 1-1.5mm cars.

 

[sleepyhead]

thanks Sleepy. Do you or does anyone remember the exact terms (ie. interest rate) on the Converts they offered last year...
just wondering if these are more favorable terms to TSLA now at 250 then those were to TSLA back then when TSLA was 90

I think I remember very well, but could be wrong;

They did 5 years at 1.5% and 35% conversion premium.

Now a 5 year is 0.25% (way better) and 42.5% conversion premium (also better).

Overall, it is a steal of deal.

 

[TSLAopt]

I think I remember very well, but could be wrong;

They did 5 years at 1.5% and 35% conversion premium.

Now a 5 year is 0.25% (way better) and 42.5% conversion premium (also better).

Overall, it is a steal of deal.

thanks, this signals to be more institutional bullishness in TSLA now at 250 then 9 months ago when we were at 90.
If there is some consolidation or pullback for a few days I would strongly consider selling some of my LEAPs or shares to by weekly or monthly options.