Tesla Gigafactory Investor Thread

[CapitalistOppressor]

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.

Of course there isn't anything preventing such a thing from occurring.

Except for an apparent lack of capital to make it happen. My worry is that capital will become available only as demand for the Model E becomes concrete, either because Tesla is itself hesitant to step out on the limb, or else because their backers on Wall Street (and Japan in the case of Panasonic) are hesitant to step out there with them. But until those commitments are made we are left with what Tesla says will be a capacity to produce 500k cars in 2020. Why not 2018, or 2019?

Until other "partners" body up to the table with tangible contributions, we have to confront a possibility where Tesla will primarily be funding this factory from cash flow (or future capital raises when the market lets them), and that explains the very slow ramp in capacity to 500k cars in 2020.

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Just some quick math to demonstrate how inadequate this is from the standpoint of Tesla controlling their battery supply.

This factory will produce ~50GWh of completed packs, but only 35GWh of the cells will be produced there, so ~30% will be sourced from outside suppliers.

The ~$1.8b they are potentially raising today represents ~36% of the ~$5b that Tesla says it will take to build the factory. Since they will only be building ~70% of the cells needed, the $1.8b they are raising today is only enough to supply them with ~25% of the cells that they will need in 2020 (0.36x0.70), assuming this low production model which only supplies 500k completed cars.

The notion that Tesla is only directly addressing ~25% of their projected needs with this capital raise bothers me. When you also consider that those projected needs are so modest, it really makes me question why, if Tesla feels this is sufficient to their needs, am I using models that assume much higher sales?

 

[kenliles]

thanks, this signals to be more institutional bullishness in TSLA now at 250 then 9 months ago when we were at 90.

that mirrors some of my thoughts as well- I'll bet they fill it too including the overage;

 

[JRP3]

Tesla did say 4-5 billion, so not necessarily 5 billion.

 

[FluxCap]

The notion that Tesla is only directly addressing ~25% of their projected needs with this capital raise bothers me.

Good to see you back around, CapOp. Thanks for your thoughts.

I will say -- it would bother me, and the market, if they raised too much money and sat on the cash without spending it at this stage in their growth. That would just be bad corporate financial management. A capital raise is not an ATM for funding CapEx 10 years down the line. They will certainly be able to raise more money under Elon's leadership and at even more competitive valuations in the years to come. I'm sure you agree, unless you aren't quite as long the stock as you said above.

Does your spreadsheet model show 500k cars sold in 2020? How much revenue from that, if so? How much margin? What is your earnings multiple? I can't imagine a situation where a CEO would want to raise more money than he needs at a $250 share price when he and much of the market fully anticipate at least double that share price well inside the time horizon for which additional capital would be needed.

Also, spreading the factory stake around with other partners reduces risk and creates symbiotic relationships that make the whole stronger than the sum of the parts.

 

[Convert2013]

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?

LOL Marvina. Yes, many of us realized this and now have quite sizable %s in Solar. Join us before the rest of the market does if you want.

 

[kenliles]

LOL Marvina. Yes, many of us realized this and now have quite sizable %s in Solar. Join us before the rest of the market does if you want.

I resemble that remark- have a Solar exposure approximately equal to TSLA albeit divided among 3-4 companies. Agree with Convert, no time like the present.

 

[Citizen-T]

CapOp, I hear you, but I'm with the other guys here. There's no need to raise more money than can be put to use right now. The only thing that TSLA has said is that this factory will be able to supply enough packs for 500k cars in 2020. They have no given us production numbers for 2020. I am completely confident that the second GigaFactory (probably in China) will break ground before 2017 when this one comes online. No need to raise capital for that one for at least another year. It would just be sitting in the bank.

This is actually why I really want to hear Elon speak on the subject. You know he just can't help himself in talking about these things. He'll give us a hint as to what is really going to happen in 2020.

 

[DaveT]

Gigafactory: The magic is in the free market

I think people have the notion that Tesla wants to own/control their battery supply. I think otherwise. In order for Tesla to fully control/own their battery supply, the costs will be prohibitive to the massive scaling required. ie., 5m cars a year by 2028 x 4000 cells x $4 = $80b in capital requirement from now until 2028. Further, I don’t think Tesla’s interested in owning every component process of the battery production process as a company can focus only one a limited number of things.

Allowing the free market system

The ideal solution for Tesla would be to somehow allow the world market for lithium-ion battery production to grow as fast as they want/need it to, but without themselves having to directly own it or control it (thus bypassing the $80b in capital requirement over 15 years from themselves directly).

This is what the Gigafactory is all about, in my opinion.

Here's how I look at the partner arrangement. Each "partner" is actually just a battery component supplier or manufacturer that's invited to own a piece of the actual building and land of the Gigafactory. Let's say the Gigafactory is 7.5m sqft and each sqft costs $100 to build. That would be $750m for the land and building. Let's add an additional $250m for all the solar panels, wind turbines and other building-related expenses. So, we've got a cool $1 billion to build just the building and power-source for the Gigafactory.

The $1 billion can be divided up according to how much space each supplier is going to need. I think of it like a flea market where each supplier gets an opportunity to buy their stall. The reason you'd want to buy your stall is because you will be in close proximity with final pack assembly and would save in shipping costs as well as logistics. There could be some other incentives as well.

So, let's say Tesla needs 35-40% of the factory to do module and pack assembly and some other things. So, they put in $350-400m of the $1 billion and they own a section/chunk of the Gigafactory. Each supplier is offering a "stall" or space in the factory to set up their company there. The space is actually purchased by the supplier. So, the supplier then ends of owning that part of the building/complex. Panasonic (or another battery manufacturer) would end of owning a big section of factory/complex for cell assembly, maybe 30%. So they put up $300m and Panasonic actually owns a big physical section of the Gigafactory carved out for them.

After all the suppliers pitch in money (total $1b), then it's up to each supplier to buy and bring their own equipment. In other words, since each supplier owns their space/section in the Gigafactory they also will fill that space with their own equipment. This is where the additional investment comes in from Tesla and the suppliers. Tesla fills their space with module and pack assembly equipment. Other suppliers fill their space with their own purchased equipment.

After all the equipment is in and production starts, each supplier is actually free to charge Tesla whatever they want and Tesla is free to buy from whoever they want, whether they reside in the Gigafactory or are not. In other words, it's a free market system.

The reason why a free market system works best is because Tesla can take advantage of market competition and market prices for every component. They don't need to be locked in to a certain price by each supplier. This will likely drive costs down even further over time.

The fear of missing out

Now, if a supplier isn't guaranteed a price from Tesla or even a certain volume by Tesla, then why would a supplier want to set up shop at the Gigafactory? Well, it's mostly out of fear of missing out. If they don't buy a "stall" in the Gigafactory and one of their competitors do (ie., Samsung), then they'll miss out on a huge opportunity to save on shipping/logistics and also maybe on bulk purchases of raw materials together with other Gigafactory suppliers. So, this fear of missing out will drive these suppliers to sign up and purchase their space at the Gigafactory.

Also, Tesla will be smart and will allow only one supplier of each component to have a space at the Gigafactory, so it's somewhat of an exclusive privilege as a supplier to be based at the Gigafactory. This will drive the "we can't miss out on this" fear even more among suppliers and will motivate them to pony up the cash and buy their piece of the building/land.

Now, this system might not work perfectly, and Tesla might need to give some minor incentives for these suppliers to buy their piece of the land/building. Tesla might need to offer minimum # of components/cells they will purchase and maybe a minimum price they'll pay for a certain period. But ideally, it's best if they don't have to offer anything but fear itself (suppliers fear missing out on an opportunity to a competitor).

So, what we've got is more like a business park, and that business park is owned by a bunch of different companies, each occupying their own buildings/space. Yet the benefit of being at the business park is proximity to their customer (ie., free shipping), easier logistics, and the opportunity to collaborate in bulk buying of raw materials with other business park occupants. Even though the price and volume of sales isn't guaranteed, the business park occupants are attracted at the opportunities they don't want to miss out on.

For Tesla, this is the best of both worlds. They don't need to pony up a ton of money for each Gigafactory. They just need to pay their share of their part of the factory (module and pack assembly). And by enabling suppliers to come together in this massive complex, they are enabling their suppliers to save money and to be part of a huge business opportunity. And by approaching the Gigafactory like this, they allow market dynamics and competition to continue to drive down the costs of components and cells.

The key to scaling

The key is that this first Gigafactory needs to work. It needs to draw in the suppliers (ie., each supplier purchasing their section of the building/land). And these suppliers need to be motivated (and also have the financial capabilities) to purchase equipment to fill that space and be ready for production in 3 years for Gen3.

Now, one of the reasons that these suppliers also will be motivated is because it's likely that Tesla is giving first shot to their current suppliers (ie., Panasonic and Panasonic's suppliers). This is why Panasonic recently visited Tesla together with its suppliers from Japan. Panasonic and these suppliers are currently receiving huge benefits by being Tesla's current suppliers. In other words, they are reaping huge revenue and profit gains already. They are in prime position to sign up for the Gigafactory purely out of fear of missing out on future revenue and profit potential.

If Tesla's current suppliers decline this opportunity, then Tesla can open it up to their competitors (ie., Samsung and others). In whichever case, I think Tesla would strongly prefer Panasonic to be the cell assembler in the Gigafactory but Tesla is the one in control and they call the shots. If Panasonic wants to be part of Tesla's future directly as their main supplier, then they need to bow to Tesla's demands. And I think it's in Tesla's best interest to make free market competition their main demand (meaning Tesla is free to purchase from anyone in the world and does not guarantee volume, price, purchases to Panasonic). However, once again I'm not sure if that's going to work 100% in the real world so Tesla might budge some and give some incentives/guarantees. But it's to their best interest that those guarantees/incentives they give to Panasonic (and others) be minimal at the most.

So, if Tesla is successful in setting up and launching the Gigafactory in this manner, then this is they key to how they will scale in the future. They will be able to set up more of these Gigafactories (again they're more like business parks) and enable the expansion of the world market for lithium-ion batteries without having to own or control that supply, which would take double or triple the capital they're already spending and would restrict Tesla's ability to scale multiple Gigafactories in a short amount of time (ie., to reach 5m cars/year by 2028).

If Tesla is able to pull the first Gigafactory off with this kind of free market arrangement, then scaling to 10 Gigafactories should be very doable in the next 15 years.

This is why I'm very excited about the Gigafactory.

However, this is just my speculation and guess on the behind-the-scenes arrangements and negotiations with suppliers. And also the reason why no "partners" have been announced yet (it's because they're mulling over this deal and opportunity. Ultimately the fear of their competitors jumping in will seal the deal for them). Tesla has likely given their current suppliers a deadline to make a decision before they open up negotiations/bidding to their competitors.

I also think that this partner arrangement/system won't be shared publicly by Tesla (at least in the near future) since I think it's actually quite genius and gives them quite an advantage.

One final note on the 500k cars in 2020 provided by Tesla. I think this is a conservative figure given by Tesla and they are internally projecting much higher. I’m expecting in 2016 (if Model S/X sales continue to grow and Gen3 reservations are very strong) they will announce another secondary to raise money for an auto factory and gigafactory in China. I could see the stock jumping 5-10% at the time on this news.

 

[SteveG3]

six paragraphs down this article reports talk of the offering increasing to $2.3 billion. Tesla declined to comment.

Tesla’s 619% Jump Makes It Hottest Stock in Two Decades - Bloomberg

 

[The Blue Owl]

There is another way to look at it. If I had $1 billion and wanted to make money in TSLA, I could buy 4 mil shares on the market at $250 with substantial risk that I lose a big chunk, or I can buy these notes with no risk*, and know that my money will be put into the GF. This dramatically increases the probability that the stock will go much higher, and I get to participate in the upside. If I had this much to invest, I'd take the second option.

*There is still the bancruptcy risk, of course.

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(My post was in reply to sleepyhead; forgive the clumsiness)

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.

 

[DaveT]

There is another way to look at it. If I had $1 billion and wanted to make money in TSLA, I could buy 4 mil shares on the market at $250 with substantial risk that I lose a big chunk, or I can buy these notes with no risk*, and know that my money will be put into the GF. This dramatically increases the probability that the stock will go much higher, and I get to participate in the upside. If I had this much to invest, I'd take the second option.

*There is still the bancruptcy risk, of course.

I agree that the notes appeal to certain folks who are more risk-averse and see TSLA as a risky investment with straight common shares. For example, pension funds, college endowment funds, etc.

On a side note, it's amazing how much $1 billion can buy has changed in a year regarding TSLA stock. Today $1 billion buys you 4m shares or 3% of the company. Exactly one year ago, $1 billion could have bought you 28.7m shares or about 23% of the company.

 

[Matthias Buhl]

Hey Dave, thanks for the assessment and for sharing your thoughts!

At the moment all the talk seems to be about the potential supply partners for the Gigafactory. What I'm wondering is weather or not there ist also a good possibility of partners on the demand side of the factory. E.g. Mercedes and Toyota. They are already heavily invested in the Company and source battery packs and Drivetrains from Tesla. They have a large interest in Tesla being successful (Each has around $1,2b in stock) and at the same time don't want to be left behind in the race for their own mass market BEV.

I see this as nice potential for positive media coverage: Tesla Gigafactory feat. by Panasonic, Mercedes & Toyota

What are you're thoughts on that?

 

[DaveT]

Hey Dave, thanks for the assessment and for sharing your thoughts!

At the moment all the talk seems to be about the potential supply partners for the Gigafactory. What I'm wondering is weather or not there ist also a good possibility of partners on the demand side of the factory. E.g. Mercedes and Toyota. They are already heavily invested in the Company and source battery packs and Drivetrains from Tesla. They have a large interest in Tesla being successful (Each has around $1,2b in stock) and at the same time don't want to be left behind in the race for their own mass market BEV.

I see this as nice potential for positive media coverage: Tesla Gigafactory feat. by Panasonic, Mercedes & Toyota

What are you're thoughts on that?

I'm personally doubtful that Daimler or Toyota would be partners in the gigafactory since I don't think they have the priority or focus on EVs that's required to pony up money to set up their own module or pack assembly section in the gigafactory. It's definitely possible that Tesla could use sell battery packs and/or powertrains to Daimler or Toyota in the future but it's more important to Tesla to have their needs met in terms of cell supply.

Also, if the arrangement of the Gigafactory is like how I'm speculating it to be (ie., co-located business park) then Daimler/Toyota would add little value to the business park.

Actually, as I'm writing I'm changing my mind some.

If Daimler or Toyota could buy their own little section of the Gigafactory and set up module and pack assembly for their own cars (even if it's a fraction of the size of Tesla's portion), then this could be attractive to Panasonic and the other suppliers since demand is not just restricted to Tesla at the Gigafactory but to Daimler or Toyota, whom the suppliers might respect even more than Tesla. I remember reading an article this week about Panasonic saying the might be cautious with the Gigafactory investment because Tesla is still a "venture" company. Here's the quote:
"Panasonic is looking at various types of cooperation, including taking on some of the investment," the source said. "But Tesla is a venture business, so there's a need to be cautious in looking at the risks involved." (http://www.reuters.com/article/2014/02/26/tesla-battery-panasonic-idUSL3N0LU4IV20140226)

In Asia, "venture business" means a startup or young company. I don't know who the "source" is in the article so it's probably not Panasonic. But nevertheless having Toyota or Daimler's commitment to own a part of the Gigafactory and produce their own packs there could legitimize the Gigafactory even further in the eyes of Panasonic and suppliers. I don't think this is necessary, as Panasonic and suppliers are already profiting heavily on Tesla's growing cell demand so that will probably be enough to convince them to join the Gigafactory.

Lastly, Daimler and Toyota have no experience in battery pack or EV powertrain design and assembly, so it's probably unlikely they'd want to build their own section of the Gigafactory. Rather, they'd probably have to rely on Tesla to provide them with powertrains (ie., RavEV, B Class) which Tesla could do without involving them in the Gigafactory at all.

 

[airj1012]

Do you guys think these are the only details we'll get from Elon in the near future? I thought I remember him saying that there would be a call this week.

 

[sleepyhead]

Of course there isn't anything preventing such a thing from occurring.

Except for an apparent lack of capital to make it happen. My worry is that capital will become available only as demand for the Model E becomes concrete, either because Tesla is itself hesitant to step out on the limb, or else because their backers on Wall Street (and Japan in the case of Panasonic) are hesitant to step out there with them. But until those commitments are made we are left with what Tesla says will be a capacity to produce 500k cars in 2020. Why not 2018, or 2019?

Until other "partners" body up to the table with tangible contributions, we have to confront a possibility where Tesla will primarily be funding this factory from cash flow (or future capital raises when the market lets them), and that explains the very slow ramp in capacity to 500k cars in 2020.

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Just some quick math to demonstrate how inadequate this is from the standpoint of Tesla controlling their battery supply.

This factory will produce ~50GWh of completed packs, but only 35GWh of the cells will be produced there, so ~30% will be sourced from outside suppliers.

The ~$1.8b they are potentially raising today represents ~36% of the ~$5b that Tesla says it will take to build the factory. Since they will only be building ~70% of the cells needed, the $1.8b they are raising today is only enough to supply them with ~25% of the cells that they will need in 2020 (0.36x0.70), assuming this low production model which only supplies 500k completed cars.

The notion that Tesla is only directly addressing ~25% of their projected needs with this capital raise bothers me. When you also consider that those projected needs are so modest, it really makes me question why, if Tesla feels this is sufficient to their needs, am I using models that assume much higher sales?

Thanks for your analysis, and even though I share some of your concerns, I disagree with your overall assessment.

It looks like Tesla is going to raise $2.3b and not $1.6. So $2.3b is enough to finance about 50% of the battery factory; but this is besides the point.

I think that you are ignoring the future free cash flows that Tesla can use to help finance the factory. It is not like you have to pay $5b today to be able to have the factory up and running in 2020. Tesla at best only needs a couple hundred million to a billion this year to secure land, get permits, and start the building process. That $5b cost will be spread over time all the way until 2020.

In the mean time Tesla will have a few hundred million dollars in free cash flow this year. Next year it might even be up to $500m+, and in 2016 you might see $1b+ of free cash flow. That right there is enough to fund the other $2b needed to build the plant. Then you have 2017 - 2020 cash flow that should easily be in the billions per year.

Lets say that I want to build a $1m home and have it ready by 2016. I do not need to raise all of that cash today. I can raise $200k today to get the land that I want, then as I start building the house for the other $800k, I will pay the contractors as they get the job done (lets assume that it will take 2 years to finish the home). I am not going to be paying for the cabinets today, since I will buy them only when they are ready to be installed sometime next year. Same goes for the contractor who is installing the cabinets; he will not get paid a portion until he is ready to start the job, and will receive full payment when finished. In the mean time I have my day job that allows me to raise money to pay these guys in the future.

 

[Benz]

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 have always appreciated your posts very much, and I will keep on doing that in the future.

What I would like to say is: "No worries mate, it's going to be all fine".

As from this year we will start to see a rise in reservations for the Tesla Model S at a pace that we have not seen before. I will not be surprised if the total number of new reservations for the Tesla Model S in 2014 will be more than 50,000!!! And even double that many in 2015!!! And we will see about the same numbers for the Tesla Model X.

My point is that demand is not going to be the problem at all. The point is will Tesla Motors be able to produce that many cars? During the Conference Call of the ER of Q3 2013, Elon Musk spoke more than once about the "Real High Volume Next Generation Production Line". We will soon see what the meaning of that is. I hope that Elon Musk will reveal more about this in the next few Conference Calls of the coming quarters.

Don't worry, be happy.

 

[sleepyhead]

And for good measure you can see my post how there is a clear roadmap to a $500 - $1500 share price in 2020 based on 500k cars produced:

http://www.teslamotorsclub.com/show...epyhead/page26?p=592213&viewfull=1#post592213

$500 in 2020 is not a great return on investment, just above 10% per year but still better than market averages. But if TSLA hits $1000+ then it is a fantastic investment.

 

[ItsNotAboutTheMoney]

I think "no worries" is too much. I think CapOp's right in saying that Tesla's 500k could push back from some of the more optimistic projections. However, I think the cautiousness in Tesla's statements would be because of their partners' cautiousness. Tesla has to be able to deliver the Model E at target base (ahead of any competition) to really make demand explode. As soon as they can show they can do that, it would show up in reservations and at the point they'd be able to go back to their partners and say "OK, here are the reservation numbers, here are our sales projections for cars and solar, this is the current state of the competition in elecric cars and battery technology, are you ready for Gigafactory 2 in China?" So while the optimistic scenario would have 500k in 2020, it could well jump rapidly in 2021, as Gigafactory 2 and Teslafactory 2 come online.

 

[sleepyhead]

There is another way to look at it. If I had $1 billion and wanted to make money in TSLA, I could buy 4 mil shares on the market at $250 with substantial risk that I lose a big chunk, or I can buy these notes with no risk*, and know that my money will be put into the GF. This dramatically increases the probability that the stock will go much higher, and I get to participate in the upside. If I had this much to invest, I'd take the second option.

*There is still the bancruptcy risk, of course.

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(My post was in reply to sleepyhead; forgive the clumsiness)

These notes may be appealing to a fund or money manager who doesn't want to lose money for his clients. But for the individual investor such as myself it is not a good deal, unless you have so much money that you are more worried about protecting downside rather than maximizing upside. Since I am still working, it means that I do not have enough money yet so I am trying to maximize returns. Here is another way to look at it:

If I buy $1m worth of TSLA shares today at $250 and the stock goes to $500 five years from now when the notes mature, I will have $2m or 100% return.

If you bought the 5-year notes today at $1m, then in 5 years you would only have $1.38m + a whopping $13,000 collected in interest, for about $1.4m or a 40% return.

40% in 5 years is not great, but 100% is. Then you have the greatest force in the world, compound interest, working on your side and before you know it I am retired at age 45 while you are still working till you are 60+.

Now if you don't believe that TSLA will be above $360 5-years from now then there is no point in buying those notes.


The premium 42.5% that you are paying for downside protection is EXTREMELY expensive. I would never buy these notes even if they sold then to me at below par value. I am not about protecting downside at this stage in my life; I am about maximizing upside.

Now if you are older and on the verge of retirement then it might be prudent to buy these notes.

Everyone's situation is different.

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As far as Zacks goes, I was semi joking. But it seems like they have been extremely good contrarian indicators for the stocks that I follow (mostly solar).

 

[The Blue Owl]

These notes may be appealing to a fund or money manager who doesn't want to lose money for his clients. But for the individual investor such as myself it is not a good deal, unless you have so much money that you are more worried about protecting downside rather than maximizing upside. Since I am still working, it means that I do not have enough money yet so I am trying to maximize returns. Here is another way to look at it:

I think we are in complete agreement.

In this post I was myself trying to understand what was in it for the bond buyers. I then realized that, for an entity investing in the $1b range, the risk profile would be vastly different from an individual investor's, so the notes might make sense. First, an institutional investor would like the $360 floor. Yes, the premium is huge, but this investor, while assuming he is very bullish, still wants to tread carefully. Second, and this is especially important, buying the notes directly contributes to the company's future growth by funding the GF, thus further minimizing the risk, whereas the same investment made on the open market would not help the company.

In contrast, as an individual, my money wouldn't put a dent in the company's prospects. Moreover, I am able to tolerate much higher risk. Like you, I wouldn't buy the notes either (in fact, my portfolio is aggressively invested LEAPS.)