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Capital Raise

Capital Raise

First, Congrats on an Amazing Q4. As a Tesla stock holder, and future Tesla owner as soon as the X and/or super car comes out, I would like to see a large capital raise. The stock volatility is very distracting. At a $10 bil valuation, I would like to see you raise $2 bil. As opposed to the traditional methods that are often dilutive and brings down the stock price so the Investment banks customers can profit and get an easy free lunch, I suggest raising the money through a strategic partner. AAPl comes to mind as they won't get any better return on their cash and perhaps both companies can benefit on working together on UI technologies for the car. AAPl also has much of their cash outside of the US which is worth less to them due to taxes and repatriotixation. At some point TSLA will need additional factories outside the US so this could be a good fit. The best part, although dilutive by 20% or so, TSLA stock probably would not go down on the news because:

1) The stability of $ 2 bil on balance sheet. Short thesis goes away and volatility in stock will reduce substantially.
2) The seal of approval from a stable company like apple. TSLA would probably go up on the news despite the dilution on the thoughts "If Apple thinks it is a good investment, it probably is.
3) More folks will be willing to invest with a rock solid balance sheet
4) This would allow TSLA to move up the delivery date of the X. Capital resources would be less of an issue. I think this is critical because I think time will show a high priced SUV will be a better seller than a high priced Sedan. SUV's are the top selling vehicle for Porsche and Lexus. They will be for Tesla as well. I feel the best shot for TSLA to ship 40,000 units in 2014, is by having both the X and the S for most of the fiscal year. It would not surprise me if the X out sells the S in its very first year. Most importantly, this reduces the risk of any slowdown in S sales as you get past the early adopters. Porsche only sells about 28,000 Panamera's and has only sold 100,000 since 2009. Launching the X sooner reduces sales risk on having only one product for 7 more quarters. Although costs will be higher, the successful launch of a second high volume model will more than compensate for the hit to profits and margins in the short term.
5) The additional stock wil be in strong hands that are not selling as opposed to hedge fund customers of the large brokers. Again, this will result in the stock not going down on the dilutive news.
6) The raise takes away a big piece of uncertainty that the shorts keep pointing to that a capital raise is coming. Again, volatility will be reduced so the stock is more investable.

Other strategic partners that would have similar effect of completing a capital raise without a big hit to the stock include in rough order of market impact BRK/a, GOOG, GE, and then the various car companies... A new car partner may have more impact than the existing ones.

I am looking forward to the completion of a capital raise quickly so I can substantially increase my investment position.

jk2014 | May 19, 2013

Lastly look at how they improved operational costs from Q4 last year to Q1. It's pretty amazing. If you saw many inefficiencies on your tour in march, imagine if they continue to improve even further at the same pace as their quarterlies reflect?

Kleist | May 19, 2013

Jk - yes, you are getting it. Non manfucturing folks have no idea about the gold mine manufacturing can be. To give you another example : the area I am working in currently has the same tooling for the the last 15 years. So it is very mature and has had a lot of improvements over the years. Now we are faced with higher demand and in principle wechave to buy more equipment. 4 weeks of 5 engineers using their brains for 10% of their time found another 15% percent improvement in throughput and by the way quality improves by 30%... so we can make at least 10% more parts at zero capital cost. Cost avoidance $25 million for another tool + 1 million anual service contract + x amount for manufacturing floor space etc.
Best thing is Elon knows exactly that. An extra year spend on manufacturing efficency is more important then bringing MX or Gen3 to market a year ealier. Most Silicon Valley start ups fail because they try to grow to fast. Eager rapid growth can be death for sure...

Brian H | May 19, 2013

Elon's summary of all the factors was that by the time you get to 10X the volume, your costs drop by half.

jk2014 | May 20, 2013

BTW, reservation payments are now 2.5k instead of 5k. Non refundable too.

This means these new deposits are not a liability. This will reflect well in greater stockholder equity.

jk2014 | May 20, 2013

This change from reservation payments to non refundable deposits appears to be a direct result of the capital raise.

Now there is not a great need to accumulate enticing refundable payments at 5k for working capital, now they have this new cash available. Won't have to deal with the headache of cancelations and refunds or liability issues nay sayers keep harping on.

Non refundable deposits help to create more certainty for production. Help reduce order to delivery time. Great move here.

jk2014 | May 20, 2013

Just hope they hashed this out with California DMV first...

Tesla Lover | May 20, 2013

i need a little information:
what about the option for the actual shareholder ? how is the ratio ? have i got the option right also if i live in italy ? sorry for all this question but it's the first time for me that i partecipate at a capital rise...

mdemetri | May 20, 2013

@jk2014

Where do you see the non-refundable payment? I just looked and it still say refundable and when you click on the purchase agreement it has the following statement:

"Status of Your Deposit: Custom Ordered Vehicle. You will have two weeks from the date you accept this Agreement to make changes to or cancel your custom order. During this two week period, your deposit amount is fully refundable."

Looks like it is refundable, but for only 2 weeks.

Brian H | May 20, 2013

Yes, but that's almost instantaneous compared to the reservation-based system.

jotunn90 | May 21, 2013

Does anyone know if the terms of the DOE loan are published somewhere? I heard that Elon has an obligation to keep 65% ownership of the company under the DOE loan terms, which seems weird to me. Would that mean he has to invest more in case the valuation of TSLA goes up? Also 65% seems crazy, especially since we are talking about a 10 Billion $ market cap.

Brian H | May 21, 2013

That requirement (and all the other DOE strings) goes away as soon as the loan is paid. That may be some (much) of the motivation.

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