Wow. Just wow. I'm putting my Tesla shirt on right now.
We're in the playoffs now baby!
I am glad that my wife and I bought TM stock last September. On paper we are tripling our money. I love my Tesla model S.
Excellent. Personally, I believe this is better than a 'battery swap' announcement at this juncture in Tesla's life.
This company... they're going places.
If you can't say anything nice... say it in code:
it's inspiring to see a company trying to get it right and do it right in all facets of its operations.
Call me crazy, but I don't see what the big deal is. I get the optics of not being dependent on the feds but, all they did was exchange one loan for another, and likely at a higher interest rate. There is no fundamental change in their debt and in fact, if they had done the same offering without paying back the Feds then they would have an additional ~$450 million more low interest cash to accelerate MX, superchargers, GenIII etc. I think these two things are a wash (ie optics vs 450 million less cash/higher interest on debt) and therefore not a big deal.
Please enlighten me if I am missing something.
demetri, I see your point, but I'm not too knowledgeable in such things.
I will pose another question, what does the sale of the stock do to their balance sheet? Obviously the loan won't be on there any more, but do (can) they count that as "profits"?
I mean is Q2 going to show that Tesla made 400+ million in profits? Again someone enlighten me, and please forgive my ignorance.
@mdemetri The DOE loan was a major stick for critics to disparage Tesla. It was even prominently brought up in the presidential debates last year. While I haven't seen anybody attack Ford or Nissan for taking much bigger loans, Tesla doesn't want its reputation being sullied by the failures of Solyndra, A123, and Fisker, which defaulted on their loans. It was a great move because the opportunity came to use the soaring stock price to fund the early payoff. Now Tesla can divorce itself from common comparisons that were made to the defaulting companies. The good publicity will help sell more cars because some people viewed the Model S as a government subsidized luxury.
I did a little research on this last night and it looks like they are exchanging the DOE loan at 1.5% interest for a bond offering where they will pay 1.6% interest.
I think the advantages of being free of the DOE loan terms & conditions and the positive press generated by being the only American automaker to have fully paid off its government loan easily outweigh the .1% hit in interest rate.
Doe loan payment is principal + interest. Senior convertible notes is just interst.
This ought to be good for improving bottom line profits in next quarterly and beyond.
Also tesla can enter into equity/debt partnerships with as many entities as they like now. Couldn't do that under doe loan.
Most of these types of loans are seen as 'giveaways' by the boys in the back room of the companies that obtain them. A mere default and then no responsibility.
It's good to see a company actually make good use of the money and then take great pains to pay it back - plus to make it a priority. True, the debt has been relocated to a different place, but as an American taxpayer - I am no longer recipient of the risk.
No longer have to prefund either
I see; I think the fact the convertible notes are interest only (not P+I like DOE) and only 1.6% are important points and makes the deal much better.
But why not keep the DOE money as well as get the Convertables to maximize R&D? The stigma of the DOE loan did not stop Tesla from taking off like a Space X rocket (pun intended) over the last 6 months. Do we really believe that someone will decide whether to spend 70-100K on a car because of a DOE loan? Maybe for a very small percentage, but even GM has come roaring back. IMO building out the supercharger network ASAP would have a much greater impact on peoples decisions. Ditto for getting MX and GenIII out ASAP. The product will drive sales (as it has done to date) and I don't see how giving away ~$450 million in low interest cash helps Tesla develop as quickly as possible. It may be good for Obama and the US taxpayer, but not so sure it is best for Tesla at this point. A major recall could eat their cash reserves very quickly and then where would they be?
I don't think the risk/reward data worked out in favor of keeping DOE debt. Increasing production rate won't really improve getting Geniii to market sooner. I think this is a technology development problem, not production capability so stacking on more debt won't help at this time.
I think to expand beyond 200-400k production capacity will involve a new factory which would require a lot more then the bond/stock offer, maybe another 1B. So, keeping designated funds for DOE payoff not advantageous at this point in time. Especially with it's restrictions and negative public perception.
I think there are very good reasons we don't know about, but will reflect positively in the acceleration of Tesla products such as the supercharger network, the production MX, and Model S 2.0.
Improving on an exceptional driving experience is paramount. A wider market will buy and adopt sooner because of it. This might be better done without DOE loan on the books right now.
@mdemetri You're right, but clearly Tesla management felt that the political baggage of the DOE loan was generating too much bad press.
I think we'll see a shift in Tesla reporting almost immediately. Previously any articles about their recent success always came with a comment about how they owe taxpayers a bunch of money (that some will argue shouldn't have been given to them in the first place). Now, if a journalist wants to spice up their reporting with negativity, they'll have to go back to older material (like the $7500 subsidy for a car for rich people or questioning the long-term viability of a pure EV company).
Lots of sticky DoE strings on that money. One of the conditions mentioned, though, was that when TM became profitable, and had access to private capital, the loan would be retired at earliest opportunity. Done.
Convertible principal turns into equity if the company performs well enough to make that attractive to bondholders. WIN-win.
PS; Restraints on ownership "strings" are now cut, too. Remember Elon's "Holding company" speculations? Keep 'em peeled.
Another interesting angle http://www.thestreet.com/_nasdaq/story/11932585/1/the-real-reason-tesla-...
In the DOE loan agreement, the US government could buy TM shares at about $7 and $14 a share. TM did not want that and paid back the loan early.
TM was already on track to pay off the loan early enough to prevent them from having to sell shares to the Feds. Paying it off now did not add any additional benefit is this regard.
You mean "Musk Enterprises"?
Iron Man comparisons become even more real?
Listen to the Bloomberg interview as well...a lot of discussion about how they fund in-transit inventory with shipments starting to Europe and Asia shortly. DOE loan had some wacky rules there.
Elon said in this interview http://www.bloomberg.com/video/tesla-s-musk-on-loan-payoff-financing-mis... at 9:45 his reasons for paying back the loan. The main reason was because he felt better doing it, since he felt a moral obligation to do so and felt it was the right thing to do.
10X as fast as required! Fantastic ...
We need to thank Fiat/Chrysler for the spark to make this annoucement something the news wants to talk about and indirectly pointing out the differences of Tesla from every other car company on the planet.
@mdemetri Telsa raised about a billion bucks in which about half of the new capital influx was used to pay off DOE. The convertible notes are pegged at over $120 per shares of stock. The notes are only convertible if Tesla's stock price increases more that 30% of current price when it matures.
At 1.6% interest, it is cheap capital for the company. What is the going interest rate on car loans and mortgages?
In addition, there's still over $500 millions available to fund MX, Gen3, and super charger network. What's not to like about this financing arrangement?
This is an ingenious deal which does not dilute current shareholder's value. As a matter of fact, this is an awesome deal for the company both in financial and PR perspective.
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