Tesla to raise up to $5B in share offering, its second in three months(cnbc.com)
cnbc.com
Tesla to raise up to $5B in share offering, its second in three months
https://www.cnbc.com/2020/12/08/tesla-to-raise-up-to-5-billion-in-share-offering.html
65 comments
I don't understand anything about Tesla valuation anymore. It's like watching Theranos and Enron (Tesla is currently 10x Enron market cap at peak) happen at an even larger scale from memes and hope and hero worship and fuzzy math. It's 2.6x Toyota's market cap now and Toyota made 24x as many cars in 2019. I don't see any way "future performance" can make those numbers ever work. And I assume that is why they keep shoveling this crap to retail investors.
Tesla has something Theranos and Enron never had: actual products you can buy and that have a real market. Theranos had a pied piper song, and Enron became trading platform with cooked books.
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Probably because some investors believe that Tesla will achieve full self driving in the next 5/10 years. If this happens, Tesla might be worth much more than 2x Toyota.
Of course. It's basically free money at this stock price.
Very smart. Tesla joins the S&P500 in 13 days. Investors tied to this index are short at least $100 billion in stock. A $5 billion offering will have little impact on existing shareholders but take advantage of the high stock price.
Amateurs. With this level of overvaluation you raise 25%-50% of market cap (could be via acquisitions), and then you actually have a shot at making self driving cars and other moonshots.
It’s not like 600B evaluation is equal to being able to sell for 600B. Let me explain.
If you got a company named T with a total of 100 shares. Now they want to raise money and someone is willing to pay $10 for a share. You get a market cap of $1000. They create the extra share and someone is still willing to pay $10 a share. Magically they are worth $1010.
Now T is selling the share for $10 and the next guy willing to buy only wants to pay $9. Magically the market cap drops to $909.
Right now many Tesla share owners believe they will get rich by holding. Someday all of them might realize at the same time everybody is holding and decide to sell. If that day is tomorrow it will not be 600B actual dollars changing ownership.
If Tesla would raise 25% market cap they would destroy the stock. I guess it might take at least a month or more for the market to absorb 1% new shares.
Right now we have a market where a lot of people sold and the same or new investors freshly bought again and are optimistic. We got many people buying and not so much selling. Market cap is in a way a to simplistic metric.
If you got a company named T with a total of 100 shares. Now they want to raise money and someone is willing to pay $10 for a share. You get a market cap of $1000. They create the extra share and someone is still willing to pay $10 a share. Magically they are worth $1010.
Now T is selling the share for $10 and the next guy willing to buy only wants to pay $9. Magically the market cap drops to $909.
Right now many Tesla share owners believe they will get rich by holding. Someday all of them might realize at the same time everybody is holding and decide to sell. If that day is tomorrow it will not be 600B actual dollars changing ownership.
If Tesla would raise 25% market cap they would destroy the stock. I guess it might take at least a month or more for the market to absorb 1% new shares.
Right now we have a market where a lot of people sold and the same or new investors freshly bought again and are optimistic. We got many people buying and not so much selling. Market cap is in a way a to simplistic metric.
It works like that for companies with normal, fundamentals based valuation. Tesla stock is hype driven meme stock for last few years, and it’s very plausible that even a huge raise would result in stock price going up. It’s a huge party like it’s 1920s again.
I don't think you are correct. You imply there are a lot of people willing to buy for the current price. I think the scenario is different.
A professional trader is happy if he makes 10% or 20% a year. This is considered for most a great achievement.
The average Joe whose friend told him that he can get rich buying Tesla stocks will only sell for 200%, 300% or even 1000%+ on his micro shares.
We got a market full of people which go in and buy for whatever is there and try to sell for a lot more. Sometimes they panic and sometimes they forget about it.
Additionally we currently have a lot of index funds forced to buy because of the inclusion. Which is genius move of Musk/Mizuno and others.
It's hard to predict where Tesla, Zoom and others will end up. I wouldn't dare to make any prediction. They might grow into their evaluations given time or a lot of average Joe's might decide its time to pay rent or even buy a house. Let's wait and see.
A professional trader is happy if he makes 10% or 20% a year. This is considered for most a great achievement.
The average Joe whose friend told him that he can get rich buying Tesla stocks will only sell for 200%, 300% or even 1000%+ on his micro shares.
We got a market full of people which go in and buy for whatever is there and try to sell for a lot more. Sometimes they panic and sometimes they forget about it.
Additionally we currently have a lot of index funds forced to buy because of the inclusion. Which is genius move of Musk/Mizuno and others.
It's hard to predict where Tesla, Zoom and others will end up. I wouldn't dare to make any prediction. They might grow into their evaluations given time or a lot of average Joe's might decide its time to pay rent or even buy a house. Let's wait and see.
They would do it if they could, but they have to raise money without decreasing shareholder confidence. It seems like diluting by 1% every quarter is fine.
No,because the stock will crash (faster). Loses for many, many years. Also with all that cash a firm might launch a takeover--using that cash, if Tesla is ever weakened enough
They have robust anti-takeover provisions like most companies since Delaware turned so hostile to shareholders.
they already are making self driving cars
with this valuation, I would instead sell half of company and acquire GM and Ford for that money, then it would definitely be 600B company, as a bonus I might as well add some smaller companies just in case like Hyliion
UPD: will acquire Boeing as well
UPD: will acquire Boeing as well
Musk has stated that he will entertain offers to merge, but won't be doing any hostile takeovers.
https://electrek.co/2020/12/01/elon-musk-tesla-tsla-merging-...
I seriously doubt that he would be interested in taking on GM's or Ford's hundreds of billions in debt, though.
https://electrek.co/2020/12/01/elon-musk-tesla-tsla-merging-...
I seriously doubt that he would be interested in taking on GM's or Ford's hundreds of billions in debt, though.
Wow, really? Wouldn't a merger dilute his ability to control the company and make ambitious bets? I can't image Musk going for something that lets his BoD fill with old-school auto industry types.
Or does "merger" include "buyouts"?
Or does "merger" include "buyouts"?
A merger of a $600B company with a $60B company should have minimal impact on board seats.
But it's hard to tell how serious he is. All he's really said is that he'll read any offers that come in. I doubt he'll do much more than read them, but who knows? One thing Musk does not lack is hubris, so I'm sure he thinks he has the ability to absorb and turn around a legacy automaker.
But it's hard to tell how serious he is. All he's really said is that he'll read any offers that come in. I doubt he'll do much more than read them, but who knows? One thing Musk does not lack is hubris, so I'm sure he thinks he has the ability to absorb and turn around a legacy automaker.
But why turn around a legacy automaker, even if he thinks he could? It would have to fit into his greater strategy, e.g. providing branding for his EVs or providing auto workers that would otherwise be hard to find, etc.
I took this as just an offhand comment saying "we might be willing to do this if they can convince us it will benefit Tesla" not a statement on how likely it is to happen.
I took this as just an offhand comment saying "we might be willing to do this if they can convince us it will benefit Tesla" not a statement on how likely it is to happen.
The benefit would be the manufacturing expertise they would gain. I believe he’s on the record saying mass production is a much harder problem than the type of technical challenges with building rockets.
Good point. I wonder how much expertise would actually transfer over from ICE manufacturers.
I used to program robots that made body panels. I think people get fixated on the “electric vs. combustion” part and can lose sight of how much other manufacturing is involved. The traditional auto companies have decades of lessons learned related to quality. To their credit, Tesla seems to learn fast but has had a lot of growing pains related to areas like quality control. There’s a surprisingly large amount of issues to prepare for when you make a seemingly straightforward design change like changing the material composition of an component to save money or weight, for instance.
Hubris denotes excessive pride or confidence. Given Musk's accomplishments, his confidence seems pretty well calibrated.
> acquire GM and Ford
Why take on all the baggage?
Why take on all the baggage?
because they really produce lots of cars every year, they do have facilities to produce as many cars as you want and their respective revenues are 130B and 150B, +Boeing 75B.
Producing ICE cars isn't the same as making EVs. A good example of this is Tesla's Fremont factory (which used to be a GM/Toyota facility) and their Shanghai Gigafactory. The layout of the Fremont one contributed to significant inefficiencies in manufacturing compared to GF3 which was built from scratch for EVs.
Buying Ford and GM would also mean taking on the baggage of hundreds of billions in debt, pension obligations, employees with minimal experience in building batteries/drivetrains/EVs, a dealership network that doesn't want to sell EVs and the old guard that has no desire to innovate.
Tesla uses manufacturing methods no other OEM does (e.g. Giga-press casting machine for Model Y/3 - https://en.wikipedia.org/wiki/Giga_Press). The facilities they are currently building are massive compared to Ford/GM's factories. They vertically integrate, soon going all the way down to cell manufacturing/lithium mining. Buying an incumbent OEM would end up a burden.
Buying Ford and GM would also mean taking on the baggage of hundreds of billions in debt, pension obligations, employees with minimal experience in building batteries/drivetrains/EVs, a dealership network that doesn't want to sell EVs and the old guard that has no desire to innovate.
Tesla uses manufacturing methods no other OEM does (e.g. Giga-press casting machine for Model Y/3 - https://en.wikipedia.org/wiki/Giga_Press). The facilities they are currently building are massive compared to Ford/GM's factories. They vertically integrate, soon going all the way down to cell manufacturing/lithium mining. Buying an incumbent OEM would end up a burden.
EVs are not something only some companies or people can do, they can be replicated by any car company at this moment, look EU companies, Renault and Volkswagen are already in top by selling electric cars across Europe. Also GM is working on EVs, their Electric Hummer maybe released soon as well
soon™
They have been saying that for years now. The electric Hummer will have its niche buyers. But in terms of specs, it is very lacking compared to Tesla's offerings.
Tesla has figured out how to manufacture EVs at scale with a ~20%+ gross margin. This will only go up as their numbers go up and they start producing their own 4680 cells. No other auto-maker has even tried to come up with their own cell chemistry. They still rely on suppliers like LG-Chem. Most automakers make single digit margins on ICE cars and lose money on EVs.
At this point, OEMs like GM and Ford are too far behind IMO. VW is probably the closest to Tesla right now. Their CEO recently said they are probably years behind.
https://www.teslarati.com/volkswagen-tesla-10-year-headstart...
https://www.barrons.com/articles/tesla-has-a-giant-fan-germa...
https://electrek.co/2020/02/17/tesla-teardown-6-years-lead-o...
https://insideevs.com/news/454957/volkswagen-group-ceo-tesla...
https://electrek.co/2020/03/02/vw-chief-adjusts-goal-from-ov...
They have been saying that for years now. The electric Hummer will have its niche buyers. But in terms of specs, it is very lacking compared to Tesla's offerings.
Tesla has figured out how to manufacture EVs at scale with a ~20%+ gross margin. This will only go up as their numbers go up and they start producing their own 4680 cells. No other auto-maker has even tried to come up with their own cell chemistry. They still rely on suppliers like LG-Chem. Most automakers make single digit margins on ICE cars and lose money on EVs.
At this point, OEMs like GM and Ford are too far behind IMO. VW is probably the closest to Tesla right now. Their CEO recently said they are probably years behind.
https://www.teslarati.com/volkswagen-tesla-10-year-headstart...
https://www.barrons.com/articles/tesla-has-a-giant-fan-germa...
https://electrek.co/2020/02/17/tesla-teardown-6-years-lead-o...
https://insideevs.com/news/454957/volkswagen-group-ceo-tesla...
https://electrek.co/2020/03/02/vw-chief-adjusts-goal-from-ov...
No, right now. Tesla isn't even in the top 5 of EV cars sold in Germany anymore.
Edit: Renault already reported gross margin profitability of its EV models in 2017: https://www.handelsblatt.com/unternehmen/industrie/renault-m... (German source)
Edit: Renault already reported gross margin profitability of its EV models in 2017: https://www.handelsblatt.com/unternehmen/industrie/renault-m... (German source)
> Tesla isn't even in the top 5 of EV cars sold in Germany anymore.
Are you sure? Model 3 is the #3 best-selling in 2020 so far.
https://cleantechnica.com/2020/12/03/german-ev-market-rocket...
Tesla sends its cars to Germany by ship right now (previously from US, now from China). It arrives once a quarter resulting in lumpy numbers. Once their Berlin gigafactory is operational next year, the numbers will climb significantly and costs will decline. They might also release a EU-only model, possibly a hatchback, built in Berlin.
Are you sure? Model 3 is the #3 best-selling in 2020 so far.
https://cleantechnica.com/2020/12/03/german-ev-market-rocket...
Tesla sends its cars to Germany by ship right now (previously from US, now from China). It arrives once a quarter resulting in lumpy numbers. Once their Berlin gigafactory is operational next year, the numbers will climb significantly and costs will decline. They might also release a EU-only model, possibly a hatchback, built in Berlin.
You are right, I was mistaken because of the table in this link: https://www.auto-motor-und-sport.de/verkehr/elektroauto-neuz...
The downtrend for Tesla is clear though, if you compare the quarterly sales.
I doubt the Tesla factory in Brandenburg will change that. Tesla would have to release a new, smaller model for the European market. Now that buyers have a choice, they apparently choose the smaller, cheaper models available.
The downtrend for Tesla is clear though, if you compare the quarterly sales.
I doubt the Tesla factory in Brandenburg will change that. Tesla would have to release a new, smaller model for the European market. Now that buyers have a choice, they apparently choose the smaller, cheaper models available.
There is a reason why Toyota closed the Fremont plant in the first place.
only advantage of Tesla at this moment, I think their Level 2 driver assistance.
Of course they have no advantage in batteries, controllers, brand recognition, or efficiency, this is why their stock is only so so.
Disagree, it's crap with all the phantom breaking. I rather drive a car equipped with Mobileye.
I think Tesla are good cars and the model 3 has a good value in its price range and provides the best package overall. The network is also a big advantage in some countries.
I think Tesla are good cars and the model 3 has a good value in its price range and provides the best package overall. The network is also a big advantage in some countries.
Why not support the android of driving assist, openpilot. It's nearly as good as Tesla's software, and it has a driver facing camera for behavior monitoring, which for whatever reason Tesla doesn't have.
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> I would instead sell half of company and acquire GM and Ford for that money
Anti-trust?
Anti-trust?
At their valuation this would be the perfect time to raise more capital. You don't dilute the shares much. At 600 billion dollar valuation you are assuming rates will be 0 for a while and that tesla will be more profitable than any existing car company by a bit.
At that valuation of 600B the assumption is that they’ll be more profitable than all the other leading car companies combined!
Their current valuation is not justified by even the most optimistic projections IMO, though their holistic view of energy should help (they can become a lifestyle brand, not just a car company), but it’ll take a decade to grow into this valuation. Even Musk thought it was overvalued and said so twice this year when it was worth a lot less.
As you say that makes this the perfect time to raise (again).
Their current valuation is not justified by even the most optimistic projections IMO, though their holistic view of energy should help (they can become a lifestyle brand, not just a car company), but it’ll take a decade to grow into this valuation. Even Musk thought it was overvalued and said so twice this year when it was worth a lot less.
As you say that makes this the perfect time to raise (again).
Most of the other large car companies have debt loads over $100 billion. This means two things:
- they have significant amounts of capitalization that don't show up in their market capitalization. "Enterprise Value" (which includes debt) is a more accurate representation of their size.
- Their stock prices reflect a significant risk of bankruptcy. If Ford doesn't go bankrupt, it's worth a lot more than $9. If it does, it's worth $0. This analyst rates that probability at 42%: https://www.macroaxis.com/invest/ratio/F/Probability-Of-Bank...
- they have significant amounts of capitalization that don't show up in their market capitalization. "Enterprise Value" (which includes debt) is a more accurate representation of their size.
- Their stock prices reflect a significant risk of bankruptcy. If Ford doesn't go bankrupt, it's worth a lot more than $9. If it does, it's worth $0. This analyst rates that probability at 42%: https://www.macroaxis.com/invest/ratio/F/Probability-Of-Bank...
The largest competitors now are Toyota, VW, Daimler, GM, Honda. Their combined market cap is about 400B. Do those companies have high debt loads?
I agree competitors will be in trouble in the coming EV transition and some are discounted, but I do also think Tesla is now vastly overvalued by the market. They've only just started making a profit, and they are still burning huge amounts of cash. I wouldn't be worried about solvency but I would worry that the future return promised by their valuation is extraordinary.
Tesla has risen 800% in the last year, that seems to be unjustified by their progress in the same time frame.
I agree competitors will be in trouble in the coming EV transition and some are discounted, but I do also think Tesla is now vastly overvalued by the market. They've only just started making a profit, and they are still burning huge amounts of cash. I wouldn't be worried about solvency but I would worry that the future return promised by their valuation is extraordinary.
Tesla has risen 800% in the last year, that seems to be unjustified by their progress in the same time frame.
The more likely scenario is that the next decades gains are just going to be priced in. Speculators think that Tesla will be a 1T company (in 2020 dollars) by the end of the 2020s, and I don't disagree, but a lot has to go right for that to be true. That means if it hits 1T within the next year, I suspect they'll have a decade of stagnation like the tech companies did after the dotcom bubble.
But also, the fact that I have to stress that the valuation is in 2020 dollars should tell us all we need to know about this current market and the valuations we're seeing. Flood the markets with dollars, and you'll have outlandish valuations.
But also, the fact that I have to stress that the valuation is in 2020 dollars should tell us all we need to know about this current market and the valuations we're seeing. Flood the markets with dollars, and you'll have outlandish valuations.
Yes markets tend to underprice and then overprice, then maybe drift down to a sensible valuation over time as companies grow. So perhaps we'll just see some stagnation in the stock price but there's no sign of it yet. This does feel like a speculative bubble and we've reached the FOMO stage where people think things are overvalued but invest anyway, because everyone else is.
25% of the S&P is in the largest 5 companies (all tech), market cap to GDP is at an all time high of 183.7% for the US. US assets in particular seems overvalued to me at present and heavily distorted by the massive QE programs that have been running since 2008 and gone into overdrive this year.
25% of the S&P is in the largest 5 companies (all tech), market cap to GDP is at an all time high of 183.7% for the US. US assets in particular seems overvalued to me at present and heavily distorted by the massive QE programs that have been running since 2008 and gone into overdrive this year.
Toyota: $18B
VW: E200B
Daimler: E160B
GM: $100B
Honda $65B
Therefore their combined Enterprise value is about $1T.
Therefore their combined Enterprise value is about $1T.
Thanks. So on that basis their combined valuation is a bit higher and the valuation not quite so crazy, though still pretty crazy given the risks and capital reqd to become a toyota, let alone 3x a Toyota. Interesting that Toyota has so little debt compared to others.
Hm, wouldn't you want to look at Ford credit default swaps to quantify that? Here's what I found for Ford CDS price history, don't know offhand how to translate that into a bankruptcy probability:
https://www.assetmacro.com/united-states/credit-default-swap...
https://www.assetmacro.com/united-states/credit-default-swap...
Long, long time since I did this, but back then you made an assumption that you'd get 40% of the bond's principle in case of a default. I recently asked a credit guy about this and he also gave me this magic figure.
So from there you basically are saying at 100% chance of default, you get 40, and at zero you get 100. That gives you some amount that balances the payment from the CDS with the value of the bonds.
So from there you basically are saying at 100% chance of default, you get 40, and at zero you get 100. That gives you some amount that balances the payment from the CDS with the value of the bonds.
I'm guessing you purposely left out the Japanese OEMs in your assessment? Their debt to equity ratios are pretty low.
Correct, I should have put more qualification on "most".
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The thinking, right or wrong, goes that Tesla will do more than cars. Like batteries for consumers, utilities, homes, states... IMO it's overpriced but what the hell do I know. I thought Google was overpriced in 2010
Whether these are overpriced depends on how low rates you can get. Would you say Tesla is a bad trade if you would get a debt with 2% yearly rate that you have to give back in 30 years?
Whether Tesla is a bad trade depends on how it compares to other Stock. Whether you can buy it on margin has nothing to do with anything.
Not really, as bonds are printed and bought quite rapidly, the FED has QE infinity policy at this point, and a big part of the money goes to the stock market
I don't follow. Why would you invest in Tesla rather than any other stock? The answer has nothing to do with interest rates unless interest rates uniquely effect Tesla.
Why not all of them? I'm just saying that the discount rate is an important part of why Tesla stock is so high: high growth with extremely low discount rate can get these valuations that look overpriced.
As for me personally, I'm not a bank, so I don't have access to cheap loans.
As for me personally, I'm not a bank, so I don't have access to cheap loans.
Smart, super smart. I'd pay all the debt and have 2 year runaway for next to nothing in shares (relatively speaking)
I am not sure if that move is especially smart. More like not being a complete idiot by not taking the almost free money people are trying to shove on your bank account.
Tesla sells more stock than cars.
Does anyone have any insight as to why this is offered at the market? Avoiding fees? Fiduciary Responsibilities?
This is the second at the market offering for Tesla, and I know Elon understands the stock market better than most, so there must be a long term reason.
This is the second at the market offering for Tesla, and I know Elon understands the stock market better than most, so there must be a long term reason.
Because it's an insanely overvalued stock with questionable accounting and a retail cult following. No bank wants to pitch it to clients with whom they'll work again, but dumping it on the market makes sense, retail will gobble it up.
Yeah, that’s kinda what it feels like... I’m surprised the sp wants this much volatility. Hell I’m in though - last 15mins of MWF have been a lot of fun this year.
Elon knows exactly why -
https://mobile.twitter.com/elonmusk/status/12562398152567971...
https://mobile.twitter.com/elonmusk/status/12562398152567971...
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