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Morgan Stanley upgrades stock, then underwrites convertible offering?

I am a happy Tesla Model S owner and fanboy. So don't say that I am being negative or anything.
However I have to agree with this article about how bad Morgan Stanley looks with the recent events.

1) On Tuesday morning, Morgan Stanley wrote a huge upgrade article with a new target of $320 per share

2) On Wednesday Tesla announces convertible bond offering. With the much higher stock price, this dramatically lowers potential dilution.

This is really borderline stuff.

"This is exactly the modus operandi of the dot-com analysts: roping retail investors in at higher and higher levels while the companies concerned massively diluted shareholders leading to an implosion... I cant remember a time apart from Dotcom where price targets were jacked up in this way right before a capital raising."

This is what happens on top of bubbles. This is an artificially reflated bubble, because existing tools don't offer any other way. But this stuff, paid adverts that Dubai real estate market isn't in a bubble, etc.. When you see such signs, hold on to your wallet. Thieves preaching honesty..

If Morgan Stanley didn't back the gigafactory, what would that say about its TSLA forecast issued earlier?

Another way to look at the matter--since Morgan Stanley has been working with Tesla on the Gigafactory, they possess more information about the company than the other analysts. Perhaps that's why they're bullish.

From Tesla Press Release:

"In connection with the offering of the notes, Tesla intends to enter into convertible note hedge transactions and warrant transactions, which are generally expected to prevent dilution up to approximately 100% over the common stock price at the time of pricing of the notes due 2019 and 120% over the common stock price at the time of pricing of the notes due 2021. Tesla intends to use a portion of the proceeds from the offering to pay the net cost of the convertible note hedge transactions. In connection with establishing their initial hedge of the convertible note hedge and warrant transactions, the hedge counterparties or their affiliates expect to enter into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the notes, including with certain investors in the notes."

Any financial executives care to explain how this works and the impact on the stock price during the offering period?

There is supposed to be a wall between the two areas of an investment bank. Supposedly that analyst would have no information about the reality of that convertible bond offering.

Putting a $320 price target on Tesla the day before their bond desk helps underwrite a convertible bond offering, which is based on the stock price ..... yeah, that was all legit.

Look, I like Tesla and I like my Model S. I want the company to be successful. But these types of Wall Street scams are not good.

Tesla will have a bubble implosion at some point. Even Elon Musk says the price is too high. Everyone who buys or drives a Model S is a potential new stock buyer. As sales continue to grow lots of new stock buyers decide to buy in. Then you add in the momentum investors who buy because the stock is going up and you have this recipe for a bubble. The question is when that bubble pops and where will the stock be before and after the pop. I could see the stock going up to 1000 before it pops. At that point the market cap would be 150B.

The difference between this and the dotcom bubbles is that Tesla has value. The company is growing and is producing a very profitable car as fast as they can.

The big question is what is the company worth. It's growing, profitable and you add in the gigafactory. The next five years should be very interesting.

Adam Jonas has been a tesla bull from the get go, years now. Morgan Stanley has underwritten ,I think, all market offerings.

I think it does appear bad on the surface the upgrade/offering coinciding the same week, but this is not a conspiracy. Just the way things worked out.

It's like the employee options plan, when tesla execs exercise their options, people think it's insider trading or something bad is about to happen or some nefarious plot is going on... Not what you think, relax...

While I certainly don't claim to fully understand the Tesla press release, just taking the portion of the release that states that they intend "to prevent dilution up to approximately 100% over the common stock price AT THE TIME OF PRICING of the notes due 2019 and 120% over the common stock price AT THE TIME OF PRICING of the notes due 2021." It seems to me that the lower the stock price at the time of pricing, the cheaper the cost of the hedge. Since the notes are yet to be priced, doesn't a higher current price cost TM more money?

Also, tesla reserves the right to pay back in cash or stock...

I think Goldman is the lead underwriter as they were on prior issues. If that's the case then Morgan likely is just a distributor for Goldman in which case Morgan likely wasn't in the negotiations with Tesla.

What I find curious is why Tesla continues to use Goldman despite their $74 price target (unless they've raised it recently but I haven't checked). Why continue to pay fees to a bank that doesn't understand your future and tells it's own clients that your stock is grossly overinflated?


I think Elon still has personal loans through them, so kinda tied to them for the time being.

However, why do you think Elon is extremely interested in paypal/bitcoin type future? Might just disrupt the financial industry completely soon and not use GS, Morgan Stanley, etc..., at all.

jk - I believe his personal loans were also from Goldman.

Elon has not sold any stock from Tesla or Solar City. He has to fund his billionaire lifestyle somehow. I recall he got $100 million in loans from Goldman Sachs last year, secured by his stock holdings.


in the economy as it exists today, you are likely to see both well above 320 and well below 74$. In very narrow time frames. Just hope it gets stuck near
the upper side.

PapaSmurf -- in addition to Elon's other investments generating income, SpaceX pays him approximately $70-80 mln/year. Probably double that this year and next.... the guy is floating in money now outside his stock holdings in Solarcity and Tesla.

He will be the wealthiest person in the world in 10-15 years, and in 25 years, maybe wealthiest ever...

To loan Elon money is safer than loaning money to most countries in the world.... his FICO score is pretty good...

@ jk2014,

The irony is that when you have as much money as Elon does, you probably don't need a good FICO score.

@tslafan4life - Why are you trying to promote your own YouTube channel? Flagged.

Flagging as well.

@ car t man - I agree with you as to why there are price targets all over the place. I'm just unsure as to why Tesla would choose Goldman as its lead underwriter when their analyst doesn't get the Tesla story.

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