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It's about time Wharton-educated Musk is given his due credit for financial management

Yep; those thinking Musk is naive and obsessed with electrons and sheet metal are being schooled and taught otherwise.

Ok I am trying to understand what that article is saying but maybe its just my lack of knowledge on how stocks work but it all seems foreign to me I after reading the article entirely twice have no idea what it was talking about.

Well... Tesla raised $1.06B which is considerably more than mentioned in the article.
The rest of the article was the guy using snobbish language to say that Tesla did the right thing about getting rid of the loan and those warrant contracts, which I agree with.
Good job Musk.
The thing that most impresses me about Elon is that he is preeminently knowledgeable about every facet (technical, financial, development etc) of the business. He used the stock move to consolidate Tesla's position like I have never seen any other CEO do.

@ajamison. It is saying "buy TSLA stock now".

Thanks church70 for the article, by the way.

This sentence regarding paying off the DOE loan early stuck out for me: "Doing so now, however, greatly improves the company's ability to report profits for shareholders and fund its continued growth."

Mr Musk had already hinted that Q2 2013 earnings may suffer from logistics issues related to European sales and the different accounting requirements of leasing deals. However, the above statement from the article, if true for the short term, might give the stock a nice positive jolt.

By the Q3 earnings report the European sales bow-wave would be caught up in the books and this snowball might just keep going... The $124.52 convertible price for the note might prove to be another bargain (for Tesla). The hits just keep on coming.

I was skeptical about the prediction of $150 per share by year's end, but now I see that happening by October.

Elon said in an interview, when pressed several times about increased freedom from loan constraints, that TM now could get standard commercial/private funding based on the inventory/receivables value of cars in transit (to Europe), which (I gather) translates into the ability to carry on other projects at (more or less) full throttle while ships of cars are on the water.


Since I am familiar with investments and Wall St, let me try to explain it in some detail.

Typically when a bank or firm like Warren Buffett's Berkshire Hathaway loans money to another company when there significant risk the loan won't be repaid, simply getting interest isn't enough of an incentive to lend the money.

In order to make the deal more attractive to the lender, the borrow will also give warrants to the lender. Warrants give the owner the right, but not the obligation, to buy a company stock at a fixed price (in Tesla's case between $7 and $9/share). Warrants are very similar to stock options except they typically last for 5 to 10 years as opposed to a few months for stock options. Warrants also often have restriction about when they can be exercised and transformed in to common shares.

Now from the prospective of the lender, the DOE in this case, there are three things that can happen. 1. The company can go bankrupt like Solyndra and you lose money on the loan. 2. The company does ok but not great and the stock stays flat, you collect your interest and eventually the principal. 3. The Tesla situation the company does great the stock price shoots up. In Tesla case Uncle Sam would have collected ~$270 million in profit if the Tesla stock remained in the 90s, in 2017/18 when the government had the right to exercise the warrants.

The potential to make a boatload of money, via warrants, when things work out well is why smart investor like Warren Buffett, make loans like he did to GE, Goldman Sacks, and Bank of America during the 2008/9 crisis. Buffett not only got a good interest rate 5-10%,while the loans were outstanding, he made even more from exercising the warrants he got.

Elon played this perfectly. He got excellent PR by talking about paying of the generally unpopular government loans early. He even bragged about the taxpayers made a $12 million profit. But he didn't talk about how the sly dog transferred $270 million in wealth (assuming the stock remains at current levels) from Uncle Sam to existing Tesla shareholders.

The DOE guys are probably happy they get their loan money back, and don't have to worry about Tesla going bankrupt and making the loan program look bad. Nor did Elon do anything wrong, he just in all likelyhood made a much much better deal than the DOE officials. Now we won't know for 5 years who got the better deal, but I can say with confidence Buffett would have driven a harder bargain.

I would say the DOE got exactly what it wanted: meaningful improvement in US energy independence.

Tesla will be pivotal to getting us off foreign oil, the avowed mission of the DOE.

The idea that they made this happen at minus 12 million dollars in taxpayer cost is the deal of the century.

Elon is not sly at all for paying it back before the option exercise right kicks in. He is diligent. Those windows are about creating incentives to perform well. If the company doesn't need to keep borrowing the money, they can save the dilution because of their good performance.

Elon is further smart in that the new loan will very likely convert to equity, and then the loan will come clean off Tesla's balance sheet, putting the company a half billion ahead in cash position. They'll be debt-free, and have no interest or principle to pay each quarter, sending their profits considerably higher.

Wharton should name their next new building "Musk Hall".

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