Lmao Tesla

BobTheBaker's picture
BobTheBaker - Certified Professional
Rank: Human | banana points 11,895

So Elon Musk tweeted a series of erratic comments stating that he is considering taking Tesla private at $420 per share, which represents a 23% premium on Monday's closing price of ~$340. As a result the stock shot up, reports were the tweets might be fake, volatility is ridiculous, and now trading in the stock is halted. I am not a TSLA believer. With that said, this is all very interesting. Questions are as follows:

1.) Who could possibly take TSLA private?
2.) Why would they take TSLA private?
3.) TSLA is bleeding cash, where is the exit?
4.) Are the tweets real or was Musk just baked and tweeting stuff out, the $420 number is dubious (if you know you know)?

discuss

@APAE @Layne Staley your thoughts on a private buyer would be appreciated
@CuriousCharacter you are committed to your long position in the company, I'm sure you have some input to provide

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Comments (120)

Aug 7, 2018

Financial Times is saying that the Saudi Sovereign Wealth Fund might take it public. Plausible given that they have a $2B stake in Tesla already.

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Aug 7, 2018

Think this goes without saying, but there is no PE investor that will do a take private on a cashflow negative company. Hedge funds are out. No other non-PE / HF institutional players [that I know of] have nearly the kind of risk appetite or asset base for $70bn+ take private. Don't see any strategics touching this given all the instability / uncertainty, regardless of whatever IP or R&D capabilities could be obtained. I call BS

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Aug 7, 2018

Yeah I can't imagine buying TSLA at these prices.

Aug 7, 2018

Musk is having a psychotic break because he is locked out of the capital markets and they will declare bankrutcy soon.

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Aug 7, 2018

My thoughts exactly....

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Aug 8, 2018

I love how I get monkey sh*t for agreeing with the obvious lol

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Aug 9, 2018
CREsyndication:

I love how I get monkey sh*t for agreeing with the obvious lol

Tesla/Musk worshippers are like Islamic Fundamentalists when it comes to their almighty deity: Criticize him or even imply that he can do wrong, and you'll be attacked by hordes of wailing harpies.

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Aug 9, 2018

Seriously...I have two friends who have been drinking the kool-aid and it has been a hot-topic of discussion as of late.

Aug 7, 2018

Calling it now: Toys "R" Us will rise from the dead and prevail as the perfect strategic acquirer. Same customer base, superior level of quality control, and unprecedented operational capabilities; perfect fit, many synergies!

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Aug 8, 2018

With Blockbuster co-sponsoring

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Aug 8, 2018

And MoviePass as well

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Funniest
Aug 8, 2018

Don't forget IceJuice!

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Aug 7, 2018

I'll wait until the dust has settled to comment.

Aug 7, 2018

Fuckin cop out. There is NO FUN in that.

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Aug 7, 2018

Lol, I don't really have an opinion to be honest.

Valuations are super high, interest rates are low, and there are massive pools of capital in search of a home...

I can't imagine anything Musk says publicly would be in violation of the letter of the law...

Musk has always been able to pull a rabbit out of his hat, and Tesla released a statement publicly...

I've got no insight, I didn't see this coming.

Aug 7, 2018

He's up to something for sure, just have to think what it is.

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Aug 7, 2018

Like others have said above I have no clue how they fucking fund this potential LBO.

Aug 7, 2018

What do you think of this:

Aug 7, 2018

Lol... so simple. Musk just needs to convince institutional public funds to tie their capital up potentially for years in a private deal (something that they're potentially banned from doing for fiduciary reasons).

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Aug 7, 2018

Totally fair answer, looking for more good inputs if anyone has them.

Aug 8, 2018

Look at Dell ? I feel like an IPO would be in the works later down the road. I also heard he's spending less cash, making job cuts, etc. There's something here, just not sure how confident I'd feel in it. And at a ~20% premium.... should probably be higher.

Aug 8, 2018

Yeah, but Dell actually makes money...

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Aug 9, 2018
BobTheBaker:

Lol... so simple. Musk just needs to convince institutional public funds to tie their capital up potentially for years in a private deal (something that they're potentially banned from doing for fiduciary reasons).

This......... I think the tweeter comment above is on par with the David Hogg telling people not to buy index funds because they hold gun stocks. W.T.F.

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Aug 7, 2018

I like this analysis, was thinking something similar. Musk knows many wealthy people. Capital markets are just an option. $10BB to own the future of transportation? Some people have that kind of money to burn. Existing stakeholders I'm sure would have their own opinion but if they're THAT heavily invested now, what makes us think they're going to jump ship now?

You know what I think happened? Musk took a look at Dell. He woke up one day and thought to himself "You know what? I'm Tesla, just like Jobs was Apple. None of this would exist without me. I'm sick of these pissant nobodys who picked up 0.00001% of my company thinking they're going to tell ME how to run MY company. These analysts and bankers who've never made a billion dollars are bitching and moaning because they don't get as much of a cut as they think they're entitled to for simply existing? I invent the future and a bunch of twats at a bank ridicule me for not making them enough money fast enough? You know? Fuck that. I'm taking my toys and going home...and I'm keeping ALL the profits."

This company never gets boring, I'm got a few grand in the ring and I'm eating popcorn. Enjoy the show hahaha

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Aug 7, 2018
CuriousCharacter:

What do you think of this:

To the guy tweeting about getting shareholders to go along with it...that's not the issue. The issue is obv who is on the other side and actually willing to transact. Why wouldn't that group just buy BMW and put billions of extra money to work to push out BMW electrics or just buy BMW and Ford and go private with real cash flow to move electrics? There is nothing special about this technology.

When this doesn't happen - it could very well be the beginning of the end.

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Aug 9, 2018
dutchduke:

Why wouldn't that group just buy BMW and put billions of extra money to work to push out BMW electrics or just buy BMW and Ford and go private with real cash flow to move electrics? There is nothing special about this technology.

Simple: because at Tesla the technology is already being built, and they're merely working out the kinks of operating at scale. Seeing how the market pushed the price higher on this announcement, let's look at say $15BB for TSLA to go private: compare that to how much more than that plus development time would be needed to bring scalable Ford/BMW electric cars to market. A decade? $20BB+? By the time the other manufacturers catch up the game will be over. By this logic, it makes sense to pay a premium to own the company that's going to put everyone else out of business.

And that is the goal, to kill the industry and replace it with an upgraded one. I think a lot of people miss the obvious but Musk's goal is basically to make TSLA the Amazon of the car business. They're maybe a year or two away from dominating the industry.

Me, I've only got a few grand on this position, but looking at the giant pile of money everyone else has invested....it's pretty safe to guess this plan has enough backing to work.

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Aug 10, 2018
UFOinsider:

They're maybe a year or two away from dominating the industry.

Two years ago they were a year or two away from dominating the industry. One year ago they were six months away from turning a profit. Past performance, future results etc. But operationally, a tent is a bandaid not a sustainable solution.

It is highly unlikely that the Top 100 are willing to go along with a take-private. The whole go-public was to open the company up to public markets, public financing. With confidence eroding, taking away current shareholders' easy out while simultaneously making the company's single biggest worry THAT much bigger seems like a foolish strategy. Agree with above re cracks in the psyche. Is the end near? Probably not. Is major dilution near? Wait for the S&P to start dropping and you'll see what happens re: an unprofitable company trying to raise in a bear market.

I chalk this up to "things that were cool in a bull market" and leave it at that. My only hope is that the scion doesn't find himself in the same position as Jobs did when the tide rolled out. High-capex auto doesn't have the same luxury of massive cuts as tech does.

This may get messy, and if I had my money anywhere, it would be on the persistent human condition of hubris and failure to learn from past mistakes.

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Aug 10, 2018
thefamilyofficesdb:

With confidence eroding

Whose? Market price is the vote of confidence (or lack thereof) and it's gone up for years. If confidence were in crisis we'd see prices dropping to $100 or below. So far, nothing dramatic, just the usual ebb and flow.

thefamilyofficesdb:

Wait for the S&P to start dropping and you'll see what happens

True but by that logic every company is a selling opportunity, which doesn't help us here. Actually, now that I think about it, the fact that the entire market is due to be squeezed makes it a PERFECT time to exit the market. While everyone else is going to get dinged because of a likely 50% share price drop, TSLA will basically be all "see, we TOLD YOU SO" and get off scott free. Whereas the very state of being a public company will be a liability in a downturn, being privately owned by folks invested for the long term will be a huge edge. Plus, the minute the company is in the black, anyone who's not invested will want to be. Musk's point is that just because that may take longer than some analysts would like doesn't mean there's any overall problem with the company....he's already a billionaire, and most of the rest of the top 100 don't need to turn a profit this year to pay their rent. They've been patient, and if they're invested, what's another year? It's a hard sell to argue against...$40BB of investor money have already bought in.

thefamilyofficesdb:

the persistent human condition of hubris and failure to learn from past mistakes

NO ARGUMENT THERE. Me, I'm just waiting to snap up loads of real estate in the next 3-6 years :)

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Aug 7, 2018

Clearly this is a Meth mistake... er... I mean Math Mistake. $420/Share means you're talking north of metric fuckton (yes, that is the technical term for this) of leverage for a company that is so far in the red I wouldn't want to touch it with a 10 foot pole. Based on some quick numbers, 420/Share, 170MM Shares outstanding, less Musk's 20% ownership, and 8.8Bln in net debt, that means he only needs to raise ~66ln for the deal. Then there's the SPAC component, which I don't understand - voluntary swap of shares for ownership in a SPAC to reduce the outstanding payout just doesn't make sense to me. However, if Musk can get another 20% of the outstanding shares put in a SPAC, that means 40% of the outstanding shares are reduced, lowering the burden to closer to ~51.6Bln . Holy shit, Musk could theoretically pull this off at a much lower valuation. All I know is that this deal has RJR Nabisco written all over it.

And if it's actually a Meth mistake, I'm putting the line at -350 on Musk going to rehab over this.

Aug 7, 2018

So what do you think actually happens?

Aug 7, 2018

Bin Salman uses the $100 billion that he "repossessed" due to "corruption" and purchases TSLA all cash?

Aug 7, 2018

Well, let's wait until the 8K is published so people can read it first. Everything hinges on the SPAC component. That has to be an absolute given because its the most volatile component. I don't know how I see this playing out. I just don't see it ending well though. I think this falls through, and I want to reiterate the line is -350 on Rehab.

I think that the deal moves from fantasy to reality of Musk can manage to get the price down to about $40Bln to 45Bln. Assuming that we stick with $45Bln, that means though, that 85MM shares outstanding (51MM shares ex. Musk) need to be committed to the SPAC. At $45Bln, it's much easier to attract investors, especially if Saudi Arabia is willing to double down and commit more capital for a buyout. Say the Saudis commit $5Bln to the buyout. That leaves $40Bln to be funded. When you look at the availability of dry powder held in VC and PE War Chests, I think you end up with multiple funds splitting the costs and buying a smaller $5Bln chunk of investment instead of committing larger amounts of capital. This means you only need 8 funds to join in, which becomes more manageable despite the chaos.

Aug 7, 2018

But would the return be there to make it worth it for these PE funds to engage in such a deal? I mean they can't really juice their returns with leverage here due to Tesla's awful balance sheet... As for the SPAC, why would public investors not take their sizable 20% premium (plus all the gains they've theoretically captured since purchasing the stock) and run? Why commit ~$30 billion to a stock that you can't exit out of for (possibly) years? Smarter people - PE individuals, public investors, and bankers - please school me. Consider me the padawan in this situation.

Aug 7, 2018

Honestly, I don't know. Everything really hinges on the SPAC for that reason. The higher the willingness for people to commit to the SPAC the lower the price, the more willing funds are to commit capital to this.That's really the $66Bln dollar question here because every other answer is built on that. So I don't have an answer on the PE return needed to make this happen.

As far as why people commit to the SPAC? There could be hundreds of reasons. They bought at a high price and it doesn't mentally justify getting a small return for a larger one. They trust Musk and his vision. Their stupid. Etc. People don't necessarily make decisions that we think are rational. I know that if I bought Tesla, I'd be holding out for the buyout but a buddy of mine might think that he can get more committing this as a long term strategy. So when you think about how it breaks down, there's a huge disconnect between people's perceptions which drives their action.

Aug 7, 2018

The bond market doesn't believe it...

Aug 8, 2018
CuriousCharacter:

The bond market doesn't believe it...

Curious as to what would be expected to happen if the bond market did believe?

Aug 7, 2018

What's an SPAC? I take it it's an investment vehicle that lets public shareholders agree to get a piece of the private company ??

Aug 7, 2018

Pretty much. SPAC stands for Special Purpose Acquisition Company. It's used to allow public investors to invest in a buyout. That's really all it is.

Aug 7, 2018

thx

Aug 8, 2018

If Musk allowed all current shareholders to convert to private holders would a SPAC help avoid the need for any company with > 2k "owners" to take part in regulatory reporting? If not then sure he could go private and still have the problem of needed to disclose quarterly / yearly reports (avoiding this is his whole goal out of all of this...)

Aug 9, 2018
FinancelsWacc:

If Musk allowed all current shareholders to convert to private holders would a SPAC help avoid the need for any company with > 2k "owners" to take part in regulatory reporting? If not then sure he could go private and still have the problem of needed to disclose quarterly / yearly reports (avoiding this is his whole goal out of all of this...)

Has to report anyway due to the debt

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Aug 8, 2018

-deleted-

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Aug 8, 2018

really bro? literally one post above you...

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Aug 8, 2018

Missed it while scrolling down which is why I deleted my comment after I saw it... chilll

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Aug 8, 2018
BobTheBaker:

But would the return be there to make it worth it for these PE funds to engage in such a deal? I mean they can't really juice their returns with leverage here due to Tesla's awful balance sheet... As for the SPAC, why would public investors not take their sizable 20% premium (plus all the gains they've theoretically captured since purchasing the stock) and run? Why commit ~$30 billion to a stock that you can't exit out of for (possibly) years? Smarter people - PE individuals, public investors, and bankers - please school me. Consider me the padawan in this situation.

Maybe the answer is simply;

They A) Are investing in Musk rather than Tesla
or B) They believe they can make even more - I Saw one fund manager saying he beleives Tesla is worth $520/Sh valuing it at around $90-95bn

Aug 7, 2018

RJR was my first thought as well.

Interesting quote showing his personality here: "If the process ends the way I expect it will, a private Tesla would ultimately be an enormous opportunity for all of us."

Typical double-edged Elon swagger

Aug 7, 2018

Well, RJR is the only way to go if you want to make an analogy. As far as his comments go, he has to hedge his bets. If he doesn't he's a fucking idiot.

Aug 7, 2018

The Saudis perhaps teaming up with Softbank's vision fund? Still no way you can put more leverage on this, already have $11bn+ at god knows what leverage (EBITDA is all made up here anyway) so that leaves $60bn of equity (net of Musk shares which he used as collateral for loans to support space x and other stuff I might add).

Aug 7, 2018

Worked well for Michael Dell. Being public has spawned a lot of (unnecessary?) headache for Musk, although he does seem to thrive on it.

I know SpaceX is paying employees with stocks that are planned to not go public until they bring people to Mars, I wonder what Tesla's end goal will be. He's already got every auto maker and their mum developing electric cars which was kinda his goal from the beginning.

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Aug 7, 2018

YES! Someone above did the math and basically $10BB +/- is needed if the bulk of the current big shareholders are on board. Everyone projects their own small minded point of view onto Musk but I think you're right and I agree.

He's got to be sick to death of the twerps on TV and at banks trying to give him a hard time. These people don't matter, they just distract him from running the company. Frankly, now that we're talking about it, I'm surprised he didn't take the company public a long time ago.

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Aug 9, 2018

I agree with the headache portion and as someone high enough in a F500 to have seen it, dealing with Wall Street analysts and the expectations of quarterly progress of a public company really sucks sometimes.

That being said, it was certainly not unnecessary for Tesla. People seem to forget that this is the deal you make when you take everyone's money. The quarter to quarter scrutiny is a bitch, but you sign up for that when you choose to go public, which is not mandatory.

twitter: @CorpFin_Guy

Aug 9, 2018

My poorly explained 'unnecessary' comment was there because Elon says he has the funding to go private now, so he doesn't need everyone's money anymore. There's not much upside for the headache anymore (if the funding source is onboard with his methods and goals).

Aug 7, 2018

What concert costs 45 cents? 50 Cent feat. Nickelback.

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Aug 7, 2018

Empty bullshit statement. Does anyone believe such a massive deal has been in the offing and no one (not bankers, reporters, analysts etc.) got wind of it?

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Aug 7, 2018

This just confirms Musk is the greatest stock promoter of all time. Look at how his other private companies time their PR and stunts BTW.

If the company was smaller the SEC would have come after them very very fast.

(Also fuck the SEC)

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Aug 7, 2018

Driving a car without sound is like eating food without taste.
Sure, you get where you're going, and you get the nutrients you need.
But it's absolutely too sterile (of an experience).

That's why I buy Italian. The sound at 6000 rpm is intoxicating.

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Aug 7, 2018

The Stock manipulation Is unreal

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Aug 8, 2018

"Funding Secured."

I hope for Elon's sake that when the SEC comes knocking on his door, he has proof of a serious offer and isn't just making up BS.

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Aug 7, 2018

Haven't read any of the comments but I honestly think this is Musk's "show" of how confident he is in the company and the long term vision and has 0 plans to actually take this private. A last ditch attempt to avoid a Ch 11

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Most Helpful
Aug 7, 2018

--

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Aug 7, 2018

We have a winner... what happens to the short sellers in the mean time?

Aug 7, 2018

They get shafted as usual.

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Aug 7, 2018

Yeah but anything more specific?

Aug 9, 2018

you can't borrow private stock, so their prime brokers would likely call their position before the tender closes. einhorn better go long KY jelly if he wants to survive this raping

Aug 7, 2018

Bravo, +1 SB. If it goes down as planned this is either a.) going to be a boon for some SWFs/ China or b.) be one of the biggest cautionary tales in the history of private investment. I'm bearish so, at the moment, I'm rolling with b.

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Aug 8, 2018

I heard this was all to keep his stock price high enough to trigger a stock redemption of his convert...any thoughts?

Aug 8, 2018

I think the fact that there is a lack of an 8-K or any real confirmation behind this absurd comment and potential securities fraud is definitely being overlooked lol. Also a subsequent comment that the statement was not made on behalf of the full board - "The statement was not on behalf of the full board, but rather a comment from board members Brad Buss, Robyn Denholm, Ira Ehrenpreis, Antonia Garcias, Linda Johnson Rice and James Murdoch".

Does he honestly think private debt holders who could seize assets will be better to deal with than short sellers? The biggest issue with this company is not pressure from public markets. I'd start with addressing the dumpster fire of a balance sheet, lack of cash flows, shrinking liquidity or maybe how to successfully run a car company.

** to whoever threw MS: https://www.wsj.com/articles/elon-musks-flawed-pla...

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Aug 8, 2018

This^^^. Going private does not solve the issue that the company does not produce positive FCF. How many more EV subsidies do they have left? Does each OEM have a set number or is it a number for the entire industry?

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Aug 8, 2018

It could be the Chinese, but then there's Trump. There's NXP and Qualcomm. There's the trade war, CFIUS, etc. China could work theoretically, but probably not in these current times.

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Aug 10, 2018

Then he'd still have burned the short sellers, changed the narrative around Tesla (instead of bankruptcy it would be buyout talk), without having any manipulation come back to him.

Sure short sellers might hold banking into the crash coming after the deal blows up, but you can't see this for sure

Aug 8, 2018

Love reading your comments / insight. +1

Aug 8, 2018

True about the Chinese having large dry powder. However, given the political instability on both sides, a cross-border deal this size isn't likely to be approved by the U.S. given that it's the tech that the Chinese wanted (i.e. you want to eliminate at least one SWF and any entity tied to the Chinese gov.)

Chaos is a ladder and the climb is real

Aug 9, 2018

My feeling is that Elon is basically Haddon from Contact. They both have massive technological fortunes and are at least sightly insane. We'll find him in 20 years laughing at us poor earthlings from his research station on Mars.

Aug 10, 2018

Total bullshit. Trump will shut down anything from China on Day 1.

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Aug 13, 2018

this was a good post, why the edit?

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Aug 7, 2018

No buyout is going to happen Elon is literally having a psychotic break and the company will go banca rota.

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Aug 8, 2018

further commentary (the regulatory aspect regarding foreign investment is extremely interesting):

https://www.cnbc.com/2018/08/08/wall-street-doubts...
https://www.reuters.com/article/us-tesla-musk-buyo...

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Aug 8, 2018

Personally, I have no issues with Tesla. If he can figure it out, the goal will be to become to energy what Amazon is to our online consumption habits. I could be wrong about it, though, as energy might be best unconsolidated.

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Aug 8, 2018

Lol so he is going to transform an automotive company into an energy company? I'm confused by your post.

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Aug 8, 2018
BobTheBaker:

Lol so he is going to transform an automotive company into an energy company? I'm confused by your post.

It already is an energy company: Solar/renewables, batteries, charging. Just like Amazon's non-ecommerce business is more impressive from a margin perspective, Tesla has the potential to have something large and visible + sexy on the front-end, but then make most of their money running an energy profile on the back-end.

I think the important component is cutting costs, pushing vehicle prices cheaper, getting people cars on a mass scale because it will only extend its business in these other markets.

The thing that makes this Trump-esque tweet so bad is that it could be stock manipulation if he doesn't come through or at least show tangible evidence backing what he said in the tweet. That's enough to account for a lot more risk in TSLA at this point.

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Aug 8, 2018

Jesus, TSLA is an energy company now? I can't even... Musk has to be the greatest salesman that I can recall if people are really buying TSLA as an "energy company".

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Aug 8, 2018

Don't get me wrong, I'm a fan of their cars.

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Aug 8, 2018

I don't get why people feel the need to say "but but I like their cars" when they bring up valid bearish points.

Durr have you even been in a Tesla, yeah I've been in Audi i8s also, doesn't mean I want to buy the stock.

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Aug 14, 2018

Audis don't have i8s.. an i8 is a BMW. Just FYI.

Aug 8, 2018

Consumer discretionary: Cars
Consumer staples: Surfboards
Energy: Batteries
Finance: I assume you can buy Tesla with an auto loan
Health: Tesla cars make people feel better about themselves
Industrials: Flamethrowers
Materials: Tesla battery components
Real estate: Tesla owns offices and factories
Technology: Tesla is the FUTURE. Also Mars rockets
Telecom: Wireless updates to Tesla cars
Utilities: Tesla batteries will reverse entropy, allowing for unlimited storage of power, and SolarCity will displace Excelon, Southern Company, and NRG as the biggest power producer in all grids

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Aug 8, 2018
JulianRobertson:

Consumer discretionary: Cars
Consumer staples: Surfboards
Energy: Batteries
Finance: I assume you can buy Tesla with an auto loan
Health: Tesla cars make people feel better about themselves
Industrials: Flamethrowers
Materials: Tesla battery components
Real estate: Tesla owns offices and factories
Technology: Tesla is the FUTURE. Also Mars rockets
Telecom: Wireless updates to Tesla cars
Utilities: Tesla batteries will reverse entropy, allowing for unlimited storage of power, and SolarCity will displace Excelon, Southern Company, and NRG as the biggest power producer in all grids

Lmao wtf ?

Per your other comment, don't know what you're talking about. Their cars are cool and they can potentially grow higher margin assets.

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Aug 8, 2018

Kanye will bail him out this time

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Aug 8, 2018

Musk will use the increase in the stock price that this chatter has created to issue more debt...which will solve his near term cash problems. Then the private "buyer" will lose interest...but Musk won't care, because the fresh (cheap) debt will enable Tesla to operate for the foreseeable future.

Cash flow problem solved.

just google it...you're welcome

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Aug 8, 2018

The debt piece of this take private doesn't add up to me. I can't really see this being done as an LBO, but maybe Elon is able to cobble together enough equity and roll some portion of the existing debt. I certainly can't see this taking on much (if any) additional leverage from the institutional credit markets, and certainly not at a reasonable cost. The majority of operations to date have been financed with equity or converts, which are less focused on the cash flow picture and get the potential return of the upside, but come at a high cost of capital.

The current high yield bonds are public and rated, but that isn't necessarily a function of Tesla being in the public equity markets. It is entirely possible for a public equity company to have unrated private debt provided through the bank and/or institutional credit markets.

In the case of Tesla, the investment banks that arranged the high yield notes likely believed structuring them the way they did would lead to the best execution. Getting the bonds rated, having public financials, having 144A registration, etc. would help to maximize unsecured high yield capacity from the markets. Given the lack of free cash flow here (among other fundamental credit issues), the high yield guys are looking at this as a yield play with some downside protection from enterprise value, taking a small position in their books, and sleeping on it,

Taking the company private doesn't help with the overall credit story. At least creditors currently have access to a wealth of information from public filings, earnings calls, analyst commentary, etc. A lot of that information goes away if Tesla goes private.

So, for the traditional high yield investors, they are looking at a potentially riskier credit profile (higher leverage) and less information on which to analyze and monitor that profile. Add in the fact that the existing high yield bonds are already trading well below par and indicating waning credit support (especially at prevailing coupons)? The take private picture makes little sense. There is probably some additional unsecured capacity further out on the curve, but the yield demanded would go up here, not down.

Outside of the unsecured and convert markets, the company also has relatively limited capacity for incremental secured funding, as a lot of the hard assets have been pledged to their ABL, and additional assets (Fremont factory) were recently added to that borrowing base in 1Q. There are some other assets, such as IP and other factories (Gigafactory), that could perhaps be pledged to get additional secured funding from ABLs or term lenders, but it is more of a "last resort" play and may not permit material increases in leverage. Such an action would also further subordinate the unsecureds and reduce incremental capacity from that market.

Creditors here understand that the company will be burning cash and demanding capital to fund growth, but I don't think they are contemplating a leveraging event that complicates that picture and accelerates the cash burn through greater interest payments.

Finally, there was mention of a private fund. Even if credit was extended from a private fund with a relatively unconstrained mandate, it is still credit, and fundamentals such as free cash flow generation apply. Depending on the mandate, yield target, etc., certain pockets of credit may be a bit more tolerant of the story and runway to generating free cash flow, but that day still must come for them. They aren't sharing in the upside here--they are just looking to clip coupons and get repaid on their principal. You also have an issue of figuring out what type of fund to market this transaction to, as it is somewhat unusual/esoteric, and you would also need to find a relatively large universe of creditors that share that mandate given the enterprise value/magnitude of debt being discussed.

If Tesla was already capable of accessing such capital before, why hasn't it? Why are they limited to the gobbledygook mix of asset-backed financing, high yield bonds, convertible bonds, and SPV they have in place today? Is Elon really avoiding maximizing use of the debt markets, or have those debt markets already given all there is to give at this stage in the company's cycle?

Maybe some government-sponsored fund is willing to stick its head in the sand and back the credit truck up, but debt funding secured? I doubt it.

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Aug 8, 2018

Unless there's some Saudi prince who truly wants to yolo their SWF on it, I don't see a LBO as realistic--yet. Maybe Tesla really does get their FCF sorted out in Q3 or Q4, but my hunch is LBO financiers will say to call them back after that happens, not before.

Now that all said, if there really isn't a Saudi prince or some other dude and "financing secured" wasn't an actual thing like he tweeted, he's going to have to fight Shkreli for the top bunk. People have gone to jail for less. I'm about as Murrrican as it gets, but let's be honest, we got bitch ass securities laws, contract-for-differentials and all the bullshit about being an "accredited investor" are just two examples off the top of my head. So if we hem people up over THAT, imagine what the feds will do to claiming a tender offer at $420 if there isn't one.

Edit: regardless of what people think about the business long term (I admit I think it's overvalued, LBO/whatever private move or not), I don't think people get just how serious the "financing secured" comment is. He easily could get hemmed up even harder than walking down the street with a plastic straw in San Francisco.

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Aug 8, 2018

Saudi oil hedge

Aug 9, 2018

Based on his tweets, it sounds like he wants (whether possible or not is another a matter) to do a voluntary delisting by getting the top xx% shareholders to agree and cash out the remaining and probably the convertibles. If he is able to get equity funding for that last bit, this doesn't have to be a leveraged transaction.

Aug 9, 2018

A). I don't think he has a funding source. Simple reasoning if he has funding then he met with lawyers. Lawyers would not tell him to go on a war with shorts on Twitter and then announce the biggest go private transaction in history on Twitter. Massive deals are done with lawyers for a reason. You don't want to get sued by prior investors for bad disclosures.

B) public markets are not limiting musks. They've given a public market valuation of like 45 to 85 billion for the past 3 years. He has plenty of capital to fund whatever he wants in the public market.

I think of quarterly reports as like a final or report card in school. They help you perform better and set deadlines. You do a lot of learning studying for a test. Well quarterly reports are just a way for your investors to track your performance. It's the ceo job to get the investors to track the performance he wants to show them. The public markets have given musk a 60 billion plus valuation for a while. Public market investors understand his vision. Public markets have had no problem letting Bezos do his thing at valuations over $100 billion for a long time with no earnings. Amazon basically refutes the "myth" that being public means you can't build for the long term and have to focus on stupid metrics like quarterly earnings.

C). I'm a fairly decent believer that musk is innovative but isn't operating on a business plan that is likely to ever generate a ton of earnings. Car companies just don't make that much money and have low margins.

D). I also think musk is losing his mind. He's on twitter too much. He's running off to Thailand with a stupid unusable submarine. He's calling a legit hero a Pedo on Twitter. ... why the fuck does a ceo of companeis with combined valuations of almost $100 billion getting into stupid Twitter fights? Can't you like invent the future?

Full disclosure. I am short Tesla as of today. Sold $372.30. Not big 50 shares. Oh well might lose $2500. Should have sold a higher price but waited till SoftBank said they weren't investing. The only two entities that could quietly fund a massive buyout is SoftBank and maybe the saudis (they have some financial issues themselves too many princes to feed). China can't do the deal...regulatory issues.

This is turning into theranos and I once really respected musk even if the stock was too expensive for my taste. It feels like he's losing control of reality.

FWIW if musks really wanted to save the world I think he should outsource manufacturing to Detroit. They have way more experience and that's the boring part of the business. He should focus on battery technology and the areas Tesla has an advantage. Then he could produce model 3 at scale...1 million vehicles a year

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Aug 9, 2018

How liquid is the Saudi SWF really? Serious question, not familiar. And would they even want it?

Aug 9, 2018

When oil was at 40-50 they were seriously in trouble with negative cash flow. They had the issue the old king had like a thousand kids and those kids had another thousand. Lots of yachts to pay for.

I actually just got curious on this too but haven't done the research.

If they really wanted to take down half of Tesla they definitely could find a way.

But can Tesla even take Saudi money? A few billion public market money is one thing. 50% ownership is different. How many Tesla owners want to partner with th saudis and all their human rights and terrorist issues. They might have even funded isis or at a minimum didn't stop other gulf states from funding.

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Aug 9, 2018

SpaceX and Tesla have different ownership structures, right? If SpaceX was involved, it would likely also trigger a national security review and likely a denial by Dept of State or Dept of Defense. SpaceX is used for military satellites.

Aug 9, 2018

Yes different structures.

Tesla still would have regulatory risks from large Chinese or Saudi investment...especially in this administration.

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Aug 9, 2018

FYI Tesla actually originally outsourced manufacturing with the roadster. They insourced because it was more efficient to do everything in one location, but more importantly because there wasn't anyone that could reliably make EV technology at scale (specifically, batteries that could last more than 40 miles).

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Aug 9, 2018
N0DuckingWay:

FYI Tesla actually originally outsourced manufacturing with the roadster. They insourced because it was more efficient to do everything in one location, but more importantly because there wasn't anyone that could reliably make EV technology at scale (specifically, batteries that could last more than 40 miles).

That's true. It was built on a Lotus lol

Aug 12, 2018

To be fair, shitposting made up things on Twitter worked well for winning the American elections.

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Aug 10, 2018

Long Tesla

Aug 12, 2018

Brother Elon is going to end up in the pen for 6 months and pay a multi-billion dollar fine. Landmark case for Twitter.

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Aug 12, 2018

Speaking of, why isn't anyone mentioning the ramifications of his announcement? On a serious note, can't he be pretty screwed? I thought he was already required to furnish evidence of his funding.

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Aug 13, 2018

He's being investigated by the SEC now.

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Aug 13, 2018

Apparently, Saudi Arabia's SWF is "uninterested" in helping TSLA take the company private. Shit is not looking good....

Aug 13, 2018
BobTheBaker:

Apparently, Saudi Arabia's SWF is "uninterested" in helping TSLA take the company private. Shit is not looking good....

I'm hearing it's a Saudi fund with an expected 2/3's of shareholders converting.

Saudi Kingdom Public Investment Fund

Aug 13, 2018

Sounds like BS. He releases a vague statement saying he's in talks with SPIF to go private and somehow that didn't become news? Is SPIF the most secure sovereign wealth fund in history? The largest take private deal ever and no reporters, lawyers, or bankers caught wind of it? Does that sound plausible to you? Also, he said "funding secured" now he is saying talks are ongoing and he can't provide details... does that sound like funding is secured to you? I think he is out as CEO within two months.

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Aug 13, 2018
BobTheBaker:

Sounds like BS. He releases a vague statement saying he's in talks with SPIF to go private and somehow that didn't become news? Is SPIF the most secure sovereign wealth fund in history? The largest take private deal ever and no reporters, lawyers, or bankers caught wind of it? Does that sound plausible to you? Also, he said "funding secured" now he is saying talks are ongoing and he can't provide details... does that sound like funding is secured to you? I think he is out as CEO within two months.

LOL. No, it wasn't the details I was expecting. "Funding secured" was a bit too far in as much as being CEO making that statement.

I have no comment on your prediction

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Aug 13, 2018
BobTheBaker:

Sounds like BS. He releases a vague statement saying he's in talks with SPIF to go private and somehow that didn't become news? Is SPIF the most secure sovereign wealth fund in history? The largest take private deal ever and no reporters, lawyers, or bankers caught wind of it? Does that sound plausible to you? Also, he said "funding secured" now he is saying talks are ongoing and he can't provide details... does that sound like funding is secured to you? I think he is out as CEO within two months.

The posts above concerning lack of margins in the auto industry are spot on. With great innovation comes great competition. Sure, you might have achieved the margins if you were the only game in town, but considering advances from the other manufacturers in the meantime (Christ, even Jaguar) I'm inclined to stay out of it and watch operational issues make things really difficult even if capital markets stay as fluid as they are today. At a certain point, even the most patient investors ask, "where's the breakeven?" The goalposts can't continually move.

Having had "enough" experience with Saudis (on deals of this size with a major manufacturing & potentially regulatory implications), and understanding that Musk thinks his funding is secured, I think he's in a serious predicament. In that part of the world, until money's in the account, the deal's not done.

I doubt and hope for all those that are long that his tenure isn't up in two months, but were I a shareholder I'd give him 9 months at the most.

As others have mentioned, it's not necessarily just about the equity holders at this point. Creditors are paying close attention, and if those markets are tapped then their interest payments have to come from somewhere.

I doubt the offer is as real as some may think or hope. I support the regulatory measures that I personally hope will be taken for the sake of the integrity of our capital markets. And for his sake, fingers crossed he did actually consult a lawyer.

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Aug 17, 2018

Yep. This is the land where business happens, Inshallah. "Signed by Friday" might mean 2 weeks from now. "By end of Q3" might mean next spring.

Aug 14, 2018

What stops the Saudis from coming out tomorrow, saying that Elon made the whole thing up, letting the SEC investigate, driving the price down to $50 a share, and then buying them out?

Aug 14, 2018

Nothing. I think that's the smart thing to do now.

Aug 15, 2018
Aug 16, 2018

until football starts, this will be my entertainment

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