As an investor of Tesla who bought into Elon's vision I've been getting more and more nervous about how the company is actually run at this point.
A modern car company is as much of a production and supply chain company as it's a product and tech company. I get the feeling that due to Tesla being cutting edge in the tech department it led to all the supply chain/production problems being treated as if they are speed bumps on the way, when in reality they are fundamental core competitive areas for an automotive company. Toyota is not the world's premier automaker because they have cutting edge tech, they are what they are because they build unbelievably number of reliable cars at an unbelievable scale.
The bleeding of cash after so many promises of "not going to raise money again" just shows that their vision is way ahead of their execution ability. Decisions like the terribly executed Falcon Wing Doors on a SUV that delayed production and increased cost and hurt reliability just further gave fuel to all the doubters.
I also have a strong suspicion that Tesla has not been honest with their Auto Pilot 2 and full self driving tech's progress. The current AP2 is an unsafe joke and I have no idea how people are ok with paying $5-10k for a significant downgrade when compared to AP1 because of a non-binding promise that it "might" get upgraded before their lease term is out. Any other automakers would be laughed out of the room for suggesting this kind of sales tactics.
I still believe in Tesla/Elon's end game vision, and I think what they accomplished is nothing short of brilliant, but I think it's a very risky investment at this point and the road ahead is bumpier than many like to admit.
The upcoming Model 3 will be the acid test for Tesla. It will no doubt be a good car, but at this point people should focus less on what the car can do and on how the car will be rolled out, sold and supported afterwards. A wealthy Model S customer may be ok with having the car in the shop after a minor accident for 5 months due to lack of replacement parts, but for an average Joe paying $500/month leasing a Model 3 that would just be the birth of a new BMW customer.
Although I applaud your skepticism, I think it's misplaced. My first job out of University was working for Daimler-Benz when they owned Chrysler. I was a front line eng supervisor at the plant level focusing on In System Damage, Federal Torque and a host of other quality issues that were plaguing the company at the time. I dealt directly with it so I can tell you, Supply Chain is not that big a deal to fix. They will sort out their problems there, they just imo need a few vets from a traditional car company.
As an aside, my time there was a hugely formative experience for me. Given a $500K budget and armed with nothing more than a little sql, I was able to immediately start saving the company multi-millions of dollars annually. I was considered a big star among the fresh batch of talent they inhaled that year, but I left because I could see the writing on the wall about the industry. Given the bailout and all that, I am pretty happy with that decision.
The upcoming Model 3 will be the acid test for Tesla. It will no doubt be a good car, but at this point people should focus less on what the car can do and on how the car will be rolled out, sold and supported afterwards. A wealthy Model S customer may be ok with having the car in the shop after a minor accident for 5 months due to lack of replacement parts, but for an average Joe paying $500/month leasing a Model 3 that would just be the birth of a new BMW customer.
Yeah, that's pretty much it. The question then is do you think they can fix the issues that lead to those negative experiences with a little bit of time, and a billion more dollars?
I guess it's a good reality check for autonomous cars when you take away the LIDAR toys. One rather important point is that the car often doesn't realize it is screwing up, because quelle surprise, realizing you don't have a correctly detected lane can be just as difficult as detecting one in the first place.
It's important to note that the rollout of the Model 3, along with other Tesla vehicles, is done in spite of many laws that are explicitly aimed at preventing the sale of Tesla vehicles. Many states completely hamstring the ability to sell EV cars directly and some states are downright hostile towards Tesla. Additionally, one has to consider the current administration's position on fuel economy standards and any company such as Tesla getting the leg up with subsidies. Which, according to Elon, would be completely fine to get rid of so long as we are getting rid of all subsidies (including the massive ones for Oil companies). In general, this is and always has been an uphill battle and rolling these products out to market is met with great enthusiasm but at the same time hostility from many states who see them as a threat.
I absolutely love Musk and the idea of Telsa. Hell, I would love to get me a Model S, if I could.
But I completely agree with you. I think the Model 3 will end up costing way more that $35k, to turn a profit. The timeline will slip and it won't come out until 2018. The whole solar city deal was premature.
I think Musk knows this isn't going to work, at least for a while. I think he knows Telsa is going to have a more expensive Model 3 and they're going to bleed cash. Telsa will lose money on every sale of the Model 3. I bet money, he plans to ride the stock for the next 5 years until they can get things turned around.
I test-drove an AP2 car. After a disastrous ride in which it tried to hit two parked cars and a trashcan and wanted to drive off the road entirely, the sales person said, with a straight face, that it was great for stop and go traffic on 101. I'm a bit amazed they can currently sell cars.
Toyota at its core is obsessive about manufacturing and relentless about distribution. The tech is mostly outsourced save some holdovers like engine technology. But even the engine is increasingly being innovated on by others. (Though it's dealership tiers are pretty confusing in Japan - I think there are 2 or 3 Toyota dealer tiers separate from Lexus)
Similarly, the heart of Tesla's tech is its batteries (I imagine they but the motors from someone). After that, outsource everything else and focus on manufacturing and distribution.
I read this book [1] back in the '90's. An amazing read about the world of auto manufacturing.
Regarding Tesla, surely I am not the only one waiting for competition. I think the problem Tesla has is that when the giants awake they will outclass them at nearly every level.
It's like thinking you are doing great in your open water swim until the triathletes leave you in their wake. Surely companies who have been honing their skills and optimizing their design, engineering, manufacturing, distribution and support over decades will have non-trivial advantages over Tesla.
The way I see it, building an electric car is significantly simpler than one with an internal combustion engine. All you have to do to see this is take an accounting of the thousands of parts and many fluids you leave out. The design, manufacturing, supply chain, distribution and service costs of having another 1,000 to 2,000 parts in a car are monumental. Any company that knows how to deliver quality, reliable and reasonably priced internal combustion cars will have a laugh delivering electrics at scale.
They know how to do this today. They are all waiting for the same thing: Cheaper, lighter, better energy storage. Recent developments might indicate this could be just a few years out.
Tesla has a problem: It has to achieve scale before that moment in time. Today choices are few and Tesla might have an advantage with Model 3 (if it ships on time and has no problems). In some respects they are the only game in town (range). The minute that changes people are going to flock to other manufacturers.
I think you capture my nervousness as well -- but I'm still bullish on the company. I think what we're seeing is a by-product of other car companies finally starting to take electric cars seriously, and Musk's attempts to grab as much of that nascent market as possible before it gets too crowded.
I think the choice Tesla has right now is to fix up their supply chain and reliability issues or expand. Musk has chosen "expand". Incidentally that choice also brings focus to the supply chain -- just in a different way.
My concern is that long-term, delivering several years of great performing, flashy but not-luxurious, and very unreliable cars, is going to hurt the company in the long run. Honda and Toyota both either have or have announced vehicles competitive to the Model 3 on price, range and features. Ford already sells a couple electric vehicles at competitive prices. BMW has entered, and so on.
Amazon made the same bet years ago, focus or expand, and after years of no profitability the gamble has played off. However, Amazon also provided good service and product during those years. So far Tesla owners love their cars, even if they spend as much time in the shop as an exotic Italian car.
The other electrics don't have the brand cachet like Tesla, but they can fast follow until they simply overwhelm the much smaller company.
But, while even the iPhone is a minority smart phone these days, Apple makes most of the profits. Tesla might be able to do the same.
I don't see Tesla being the #1 electric vehicle maker in 10 years, but I do see them being a major player in the industry. Musk is also trying to diversify the company in various ways. It will be interesting to see how this pays off.
You're concerned with a 23% YTD return on the stock and a 600% return over 5 years? The market has a way of signaling if a company is totally screwed up. Looks like it isn't.
Musk did not say "not going to raise money again". That said, if you don't like how he has communicated about past raises, you should definitely sell -- there's no sign that this style of management is going to change.
The point at which Tesla will become not a pie-in-the-sky wet dream is when the price point matches a run-of-the-mill Honda.
Right now, having a Tesla is like having a Maserati.
I know zero people who have one, my wife (a structural integrationist) _works_ on people who have them, so I am like two social tiers away from thinking of affording one, which, for me, is like dreaming of that Kawasaki Ninja I had postered on my wall as a ten year old boy.
He, and his team, need to dramatically scale down costs somehow. I read something cool today about Chinese charging stations that swap batteies instead of sitting and waiting to recharge. I wonder if something like that with an attendant would work to extend the battery "life" ad infinitum for grids in other nations.
Seems like his head is on straight though. He took profits and looked up. He said, yeah, I could drive down prices on my car by saturating more, but I'll build rockets that don't waste as much on reentry costs instead. That's smart innovation, that's passing the baton in the 400m instead of sprinting 10m and saying "I win!".
I do think there is stigma (even in my own mind, and I really am a fan of Elon) surrounding borrowing money over and over, but the reality is: almost EVERYONE does this. If you aren't Dow, or Ford, or some huge ass fucking company that has a war chest the size of Dubai, you aren't going to weather the stormy market conditions we are facing as a result of globalization (see Brexit et al for moreon that topic of discussion).
Businesses need floating because they don't exist in a vacuum, they exist because they aren't welcomed by their competitors, in fact, they are actively "sabotaged" by those that stand to lose market share, and that, my friends, is a HUGE problems with mercantilism. Unless we decide to get along, it's not going to get better, and corporate espionage has not lessened in my lifetime, not by a moonshot.
So, yeah, play nice and he and those like him will stop having to borrow money, and maybe he will throw us a bone and make a car that doesn't cost as much as my entire post-secondary education (including grad school).
I have a model 3 reservation, but I don't think it can be successful on this timeline. I mean it seems like the design is still not 100% set and we are just now seeing test cars. For other car makers this would mean mass production is at least a year away.
1/ Basic premise was they keep highlighting their entry into larger and larger markets and so investors keep ponying up $ for the ambition.
2/ First, it was taxis
3/ Then, it was taxis + logistics
4/ Then taxis, logistics, vehicle ownership
5/ Then taxis, logistics, vehicle ownership, autonomous
6/ Then taxis, logistics, vehicle ownership, autonomous,
trucking
7 / Then taxis, logistics, vehicle ownership, autonomous,
trucking, drones
8/ I might have the order wrong but each spins Uber into addressing an even larger Total Addressable Market
9/ While they never actually own even the first one (taxis) yet. But investors love the ambition and keep ponying up.
It's hard to say whether Musk is doing something similar or not. Satellites, boring company, mars mission, electrified grid, etc....Obviously, Kalanick is much different than Musk, but I can't help but feel pattern recognition creeping up on me.
In a ponzi scheme, nothing is created. Uber has created a service used by millions and which tens of thousands of people make an income from.
Tesla has created products that hundreds of thousands of people use, millions want, and hundreds of millions admire. Tens of thousands of people work in their factories. To many of us, their products hold a promise of a better future. SpaceX is reopening a chapter of human exploration that nation states had closed. Literally the most powerful organisation in human history, the United States, had all but given up on it. In my mind, landing a rocket is one of the most astonishing technological feats by humanity in decades. And it was done by a startup.
Now, I don't know what you spend your days doing, but I cannot compete with Musk. And I am just talking about his achievements until now, not the potential future ones.
I get that from an investor point of view, Tesla might have created little of value if it bankrupts soon. Eventually, though, all companies bankrupt or close in other ways, and so will Tesla. But the EV revolution that Tesla started will not stop. The cars are still there, the ideas have been proven. Is the comparison with ponzi schemes really a good one?
Please, spare me. Uber had a pattern of malicious and immoral behavior from the start. As soon as I read about them tracking people's ride patterns at company parties for laughs, I knew exactly what kind of company Uber was. Since then, their moral shortcomings have only diversified, unsurprisingly.
Musk, by contrast, has show over and over that he cares a lot about doing what's right, starting with the very fundamental purposes of his companies: not profit, but making things better for everyone, with profit as a necessary part of the real goal. To point to a recent quote from his twitter, he had said he didn't care if his participation in Trump's panels hurt his reputation or that of his companies, because it was right and he didn't care what people said. And it seems (and many people close to him have said as much in interviews) that this is very much in line with who he is as a whole. Every time someone has made an accusation against his companies of a customer or employee being shortchanged, he's publicly investigated it and resolved it within a couple days. I recall him saying in one such case that if indeed a contractor had been injured on Tesla property, he would have seen to it that they were completely compensated in every way, even if a court did not compel them to do so, simply because it was the right thing to do.
I hate seeing a company mired in wrongdoing compared to a company like Tesla, which is the polar opposite.
Then we come to this accusation of a "ponzi scheme of ambition." Did your creeping pattern recognition notice that Tesla is being led by the same person who leads SpaceX? I don't understand how people can write this off. No matter what your criticism or doubts of Tesla are, it's simply impossible to deny SpaceX's astounding accomplishments. This is obviously not a CEO who fails to deliver despite unparalleled challenges. Do you truly believe manufacturing another car, after having already succeeded with the Model S, is harder than starting a successful space program from scratch?
Musk doesn't do Ponzi schemes. He builds Paypals and Model S's and rockets that have successfully landed when industry leaders mocked it as impossible.
I'm going to second aerovistae. I think there are plenty of glaring differences between Uber and Tesla that make your comparison just amount to throwing shade:
1. First, I haven't heard many people argue that they think Musk's end state isn't viable. That is, Musk has already proven you can build a great electric car, the question is just whether he can solve the production issues and scale up (especially battery production) fast enough before he runs out of money. But if he does get there before he runs out of money, people agree he will have huge moats around his business with his technology, brand desirability and the gigafactory. Contrast this with Uber, where a lot of people think that in the end state (when VC money stops subsidizing every ride) that it will essentially be a commodity business with very poor economic fundamentals.
2. Uber has had story after story of fundamental problems with their corporate culture, while everything I've read about Tesla appears to be almost the exact opposite.
Musk has stated that his ambition is in colonizing Mars. To achieve that he's building the companies to make it a profitable endeavor. When he succeeds he will have built a path for others to follow to also have a commercially viable option to explore space.
Travis on the other hand is apparently running a fraternity that spies on you. About the worst of the worst coming out of Uber.
i think this is unfair. I am not a big fan of uber, but uber already provides value, has a solid service and penetrates international markest (not native, is this...right? sounds kinda wrong imho). Autonomous driving complements their original target (taxis) and makes it possible conquer new markets. I get what your idea is, but i think it's wrong because what they do makes sense and they are actually building (and delivering!) stuff.
They might gamble too high and loose big time, but i wouldn't call it a ponzi scheme.
Tesla is basically taking on a loan in form of a convertible notes.
probably much smarter to distribute their lender among multiple entities than one giant bank that would have leverage on them.
Also, it looks like Tesla would use a portion of the money to inflate their share prices via a small buyback. The after market trading so far make this strategy look successful.
So at the end of a day: Tesla is raising capital without diluting their shareholders and reducing their share values and giving up much control.
Also the maturity date of 5 years is rather interesting. I wonder if it correlates with their internal projections and their ability to pay that money back by then.
> probably much smarter to distribute their lender among multiple entities than one giant bank that would have leverage on them
The banks you see on the front page of the prospectus are not lenders in this transaction, they are underwriters. They are executing transaction and distributing the converts to the institutional investors (long-only and hedge funds). At any rate, underwriters and investors will have exactly zero leverage over Tesla following transaction (debt holders have no voting power).
> would use a portion of the money to inflate their share prices via a small buyback
Not at all. They are concurrently offering common shares, so buyback would make zero sense (i.e. buying and selling shares at the same time). They plan to use proceeds for general corporate purposes (Model 3!) and to buy a call spread they will overlay on top of the convert to synthetically increase the effective conversion premium above the premium that convert will price at. This is done to reduce potential dilution down the road.
> Tesla is raising capital without diluting their shareholders...
Correct - this convert will likely fly off the shelves and the conversion premium will be high (perhaps up 30-40% from tomorrow's close). On top of that, they will enter into the call spread that will bring the conversion premium to up 50% or 75% (depending on the structure they pick) from tomorrow's close.
> Also the maturity date of 5 years is rather interesting
This is standard duration for convertible debt. Generally they are structured with 5 year or 7 year duration, but 5 years sell better (pricing is also tighter).
Overall, smart deal for Tesla and net positive for shareholders.
> So at the end of a day: Tesla is raising capital without diluting their shareholders
They're also offering at least $250 million in common stock as part of this round. And the notes are convertible so if it becomes profitable to convert them those will result in dilution as well.
If I were to make a computer analogy, I would probably say that Tesla in having to deliver the Model 3, is right at the point IBM was when they were finishing up the IBM 360 series: it will be a make or break product release for them.
“The expense of the project was indeed staggering. We spent three quarters of a billion dollars just on engineering. Then we invested another $4.5 billion on factories, equipment and the rental machines themselves. It was the biggest privately financed commercial project ever undertaken.”"
(note $5 Billion number was in 1964, inflation-adjusted, that is many billions more)
Disclaimer up front: I work for a Tesla competitor.
If I were a Tesla investor I'd want to hear more about how Design for Automation is going. If you plan to automate vehicle assembly in a cost effective manner (as Musk has indicated), your components and your assembly operations must be designed for that automation.
Tesla has had notable problems getting suppliers to understand and implement their plans (BorgWarner? - original transmission for the Roadster; Mobile Eye - self driving components; Falcon wing door component supplier).
Tesla regularly asks suppliers to do things that no other car company has asked them to do (see list above). Design for Automation is a new requirement for many components, so this may be a challenge for suppliers, and thus Tesla.
Tesla may win this gamble, or they may not. It will be interesting and educational either way.
I just picked up my Model X after a week in the shop. They weren't able to finish all of the work, because "we are busy this time of year." They told me to bring it back in April.
In about a year of ownership, this is the 3rd time I've lost the car for about a week. I probably should have brought it to the shop 3-4 other times, but I let the issues build up.
They've had to replace all sorts of parts on my car, including the entire driver's seat. Even basic stuff like my phone playing audio doesn't work half the time. The driver's side wing mirror quit opening. I've had to reboot the car 10+ times in order for the dashboard display to work. The gull wing door opened into a ceiling and left a scratch. The hood opened into a ceiling and left a scratch. My windows have quit going up three times. Most of the trim / sealing / etc is coming off, misaligned, etc. I probably sit here and think of 10 more problems.
Anyway, I knew I was buying a v 0.1 car and I’m generally happy with it, despite the problems. Their service has actually been amazing, but that's kind of the point of my post:
If the Model 3 has anywhere near the same level of problems as my X, at 10x the scale, Tesla is doomed. How could this possibly be even remotely cost effective on a lower-margin Model 3?
Tesla looks like they will lose that cool new thing vibe soon, the novelty of an electric car will wear off - especially when porsche or benz come out with an electric sedan or coupe. These companies will offer a much more compelling product with the ownership value that people expect from a luxury car company.
I have shopped a model S and besides the electric drivetrain it is not really that nice of a car compared to an E class or a porsche panamera - The interior is weak as far as fit and finish. As soon as the the germans offer a similar product on the high end ( and with GM already offering a full electric on the low end ) tesla is done.
will rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the notes, (in other words, they're not senior to anything no explicitly listed as junior, or any existing debt)
will rank equally in right of payment with any of our unsecured indebtedness that is not so subordinated (including our Existing Convertible Notes),
will be effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness and will be structurally subordinated to all indebtedness and other liabilities (including trade payables) of our subsidiaries...
That's a rather junior senior note.
None of this matters unless they go bust, in which case it really matters.
This is the sort of thing that ought to terrify the makers of legacy automotive technology, both for how Tesla might scale production, but also how Tesla might become a lot more aggressive with its intellectual property strategy.
Ah, convertible bonds. On the trading floor, a converts-trading colleague had a Post-It note on his monitor:
"Interest rates up: converts down
Interest rates down: converts down
Volatility up: converts down
Volatility down: converts down
Apple strudels up: converts down
et cetera"
Converts are complicated. For one, nobody is fighting for you post-issuance. You don't (yet) hold stock, so the Board doesn't think you're pretty. Yet your bonds will be subordinated, making them swim like equity. This leads to all kinds of fun [2] when markets fail to maintain monotonicity.
Monotonicity means if a line is going up it keeps going up; never down (and vice versa) [3]. A graph for the Empire State Building with the floor number on the X axis and the height of said floor on the Y axis would be monotonically increasing. If I bent the building into a U shape, that graph would not be.
If you graph pay-offs for people in your company as a function of the stock price, you want it to be monotonic. That means interest are aligned. If your CFO makes a million dollars when the stock tanks, he's going to want the stock to tank.
Let's consider HappyCo. HappyCo has issued 10,000 shares of Common Stock. They trade at $100 per share (a $1MM market capitalization [4]). HappyCo issues 1,000 convertible bonds that can be turned into one share of Common Stock in exchange for $120 per share. To keep this easy for now, let's say HappyCo issue these converts secretly, i.e. the market can't price them in before exercise.
If the stock price is way above 130 everyone wins. If the stock price is below 130, converts lose. (Stockholders also lose.)
But what if the price is exactly 130? The market, thinking there are 10,000 shares outstanding, weighs the company in at a $1.31MM market cap. But then--dun dun dun--everyone converts. Holy shit, 1,000 new shares! At what price does this new share count (11,000) yield a $1.31MM market cap? 119.09 per share. At 129 pre-conversion, the $1.29MM company trades at 129 per share after accounting for the converts (nobody converts). At 130 pre-conversion it trades at 118.18 post-conversion. It takes us until 141.90 pre-conversion to get back to 129 post-conversion. The price goes monotonically up, but the stockholders do okay, then worse, then better again. Monotonicity was broken. An evil shareholder learning of the converts might prefer a pre-conversion price of 129 over 140.
This may seem silly. Nobody secretly issues stock [5]. The market would start pricing the converts in as the stock price approached the conversion price. How does it do that?
Options! A convert is a bond married to an option. (People once made a lot of money arbitraging converts against the issuer's stock, bond and options markets [6]). You get all the legal complexity of bonds [7] entangled with the mathematical complexity of options [8]. As I said, fun [2].
But bankers would just price things properly at the outset to ensure they maintain monotonicity, right? Well, they try to. But look at the variables in a common option valuation equation [9]. Rates, volatility, dividends, et cetera. Each of these changes the balance for converts holders. (For example, if dividends go up one might want to convert sooner, i.e. at a lower price. What if taxes go up at the same time? Who knows! Fun [2]!)
In a perfect world, each variable would iterate, one by one, like an Excel spreadsheet that isn't complaining about circularity. Investors would, one by one, plug new numbers into their models to get a clean answer. Unfortunately, we inhabit a reality where more than two aspects of it can change simultaneously.
Upshot: converts commonly ram through their boundaries all the time. When this happens, everyone converts. Actually, not everyone since each investor has a different break-even conversion price. An insurance company, with lower borrowing costs, will convert differently than an individual investor on margin. Similarly, an invest trading out of a tax-deferred IRA will convert differently than one trading straight. Fun [2]!
TL; DR Converts a lots of fun [2] for financial theoreticians, fun for market makers and hedge funds, a little less fun for bankers and an affordable source of entertainment for all.
Nothing wrong with Tesla raising money, after all they basically burn it to sustain the company..
The curios part is that it looks so few.. 1 B isn't a really much.
I think the time is ripe for TESLA to launch into India, a manufacturing plant. Modi govt is keen to ratify the Paris accord and raise the clean energy initiatives. On another side, it would help TESLA brand if they first launch a high end car in India and later market the mass market car as a better luxury car, they'll earn an awfully large income on this.
[+] [-] Cookingboy|9 years ago|reply
A modern car company is as much of a production and supply chain company as it's a product and tech company. I get the feeling that due to Tesla being cutting edge in the tech department it led to all the supply chain/production problems being treated as if they are speed bumps on the way, when in reality they are fundamental core competitive areas for an automotive company. Toyota is not the world's premier automaker because they have cutting edge tech, they are what they are because they build unbelievably number of reliable cars at an unbelievable scale.
The bleeding of cash after so many promises of "not going to raise money again" just shows that their vision is way ahead of their execution ability. Decisions like the terribly executed Falcon Wing Doors on a SUV that delayed production and increased cost and hurt reliability just further gave fuel to all the doubters.
I also have a strong suspicion that Tesla has not been honest with their Auto Pilot 2 and full self driving tech's progress. The current AP2 is an unsafe joke and I have no idea how people are ok with paying $5-10k for a significant downgrade when compared to AP1 because of a non-binding promise that it "might" get upgraded before their lease term is out. Any other automakers would be laughed out of the room for suggesting this kind of sales tactics.
I still believe in Tesla/Elon's end game vision, and I think what they accomplished is nothing short of brilliant, but I think it's a very risky investment at this point and the road ahead is bumpier than many like to admit.
The upcoming Model 3 will be the acid test for Tesla. It will no doubt be a good car, but at this point people should focus less on what the car can do and on how the car will be rolled out, sold and supported afterwards. A wealthy Model S customer may be ok with having the car in the shop after a minor accident for 5 months due to lack of replacement parts, but for an average Joe paying $500/month leasing a Model 3 that would just be the birth of a new BMW customer.
[+] [-] grizzles|9 years ago|reply
As an aside, my time there was a hugely formative experience for me. Given a $500K budget and armed with nothing more than a little sql, I was able to immediately start saving the company multi-millions of dollars annually. I was considered a big star among the fresh batch of talent they inhaled that year, but I left because I could see the writing on the wall about the industry. Given the bailout and all that, I am pretty happy with that decision.
[+] [-] M_Grey|9 years ago|reply
Yeah, that's pretty much it. The question then is do you think they can fix the issues that lead to those negative experiences with a little bit of time, and a billion more dollars?
[+] [-] revelation|9 years ago|reply
https://www.youtube.com/watch?v=UZ1XLqc5IUg
I guess it's a good reality check for autonomous cars when you take away the LIDAR toys. One rather important point is that the car often doesn't realize it is screwing up, because quelle surprise, realizing you don't have a correctly detected lane can be just as difficult as detecting one in the first place.
[+] [-] nyxtom|9 years ago|reply
[+] [-] kilroy123|9 years ago|reply
But I completely agree with you. I think the Model 3 will end up costing way more that $35k, to turn a profit. The timeline will slip and it won't come out until 2018. The whole solar city deal was premature.
I think Musk knows this isn't going to work, at least for a while. I think he knows Telsa is going to have a more expensive Model 3 and they're going to bleed cash. Telsa will lose money on every sale of the Model 3. I bet money, he plans to ride the stock for the next 5 years until they can get things turned around.
[+] [-] amluto|9 years ago|reply
[+] [-] hkmurakami|9 years ago|reply
Similarly, the heart of Tesla's tech is its batteries (I imagine they but the motors from someone). After that, outsource everything else and focus on manufacturing and distribution.
[+] [-] rebootthesystem|9 years ago|reply
Regarding Tesla, surely I am not the only one waiting for competition. I think the problem Tesla has is that when the giants awake they will outclass them at nearly every level.
It's like thinking you are doing great in your open water swim until the triathletes leave you in their wake. Surely companies who have been honing their skills and optimizing their design, engineering, manufacturing, distribution and support over decades will have non-trivial advantages over Tesla.
The way I see it, building an electric car is significantly simpler than one with an internal combustion engine. All you have to do to see this is take an accounting of the thousands of parts and many fluids you leave out. The design, manufacturing, supply chain, distribution and service costs of having another 1,000 to 2,000 parts in a car are monumental. Any company that knows how to deliver quality, reliable and reasonably priced internal combustion cars will have a laugh delivering electrics at scale.
They know how to do this today. They are all waiting for the same thing: Cheaper, lighter, better energy storage. Recent developments might indicate this could be just a few years out.
Tesla has a problem: It has to achieve scale before that moment in time. Today choices are few and Tesla might have an advantage with Model 3 (if it ships on time and has no problems). In some respects they are the only game in town (range). The minute that changes people are going to flock to other manufacturers.
[1] https://goo.gl/Drhc1Z
[+] [-] bane|9 years ago|reply
I think the choice Tesla has right now is to fix up their supply chain and reliability issues or expand. Musk has chosen "expand". Incidentally that choice also brings focus to the supply chain -- just in a different way.
My concern is that long-term, delivering several years of great performing, flashy but not-luxurious, and very unreliable cars, is going to hurt the company in the long run. Honda and Toyota both either have or have announced vehicles competitive to the Model 3 on price, range and features. Ford already sells a couple electric vehicles at competitive prices. BMW has entered, and so on.
Amazon made the same bet years ago, focus or expand, and after years of no profitability the gamble has played off. However, Amazon also provided good service and product during those years. So far Tesla owners love their cars, even if they spend as much time in the shop as an exotic Italian car.
The other electrics don't have the brand cachet like Tesla, but they can fast follow until they simply overwhelm the much smaller company.
But, while even the iPhone is a minority smart phone these days, Apple makes most of the profits. Tesla might be able to do the same.
I don't see Tesla being the #1 electric vehicle maker in 10 years, but I do see them being a major player in the industry. Musk is also trying to diversify the company in various ways. It will be interesting to see how this pays off.
[+] [-] corbett3000|9 years ago|reply
[+] [-] greglindahl|9 years ago|reply
[+] [-] 4SomeReason|9 years ago|reply
Right now, having a Tesla is like having a Maserati.
I know zero people who have one, my wife (a structural integrationist) _works_ on people who have them, so I am like two social tiers away from thinking of affording one, which, for me, is like dreaming of that Kawasaki Ninja I had postered on my wall as a ten year old boy.
He, and his team, need to dramatically scale down costs somehow. I read something cool today about Chinese charging stations that swap batteies instead of sitting and waiting to recharge. I wonder if something like that with an attendant would work to extend the battery "life" ad infinitum for grids in other nations.
Seems like his head is on straight though. He took profits and looked up. He said, yeah, I could drive down prices on my car by saturating more, but I'll build rockets that don't waste as much on reentry costs instead. That's smart innovation, that's passing the baton in the 400m instead of sprinting 10m and saying "I win!".
I do think there is stigma (even in my own mind, and I really am a fan of Elon) surrounding borrowing money over and over, but the reality is: almost EVERYONE does this. If you aren't Dow, or Ford, or some huge ass fucking company that has a war chest the size of Dubai, you aren't going to weather the stormy market conditions we are facing as a result of globalization (see Brexit et al for moreon that topic of discussion).
Businesses need floating because they don't exist in a vacuum, they exist because they aren't welcomed by their competitors, in fact, they are actively "sabotaged" by those that stand to lose market share, and that, my friends, is a HUGE problems with mercantilism. Unless we decide to get along, it's not going to get better, and corporate espionage has not lessened in my lifetime, not by a moonshot.
So, yeah, play nice and he and those like him will stop having to borrow money, and maybe he will throw us a bone and make a car that doesn't cost as much as my entire post-secondary education (including grad school).
Peace y'all.
[+] [-] baq|9 years ago|reply
[+] [-] comboy|9 years ago|reply
[+] [-] kmonsen|9 years ago|reply
[+] [-] cel1ne|9 years ago|reply
[+] [-] njharman|9 years ago|reply
Tesla is a battery / energy company.
[+] [-] nameisu|9 years ago|reply
[+] [-] someone79879|9 years ago|reply
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[+] [-] kumarski|9 years ago|reply
1/ Basic premise was they keep highlighting their entry into larger and larger markets and so investors keep ponying up $ for the ambition. 2/ First, it was taxis
3/ Then, it was taxis + logistics
4/ Then taxis, logistics, vehicle ownership
5/ Then taxis, logistics, vehicle ownership, autonomous
6/ Then taxis, logistics, vehicle ownership, autonomous, trucking
7 / Then taxis, logistics, vehicle ownership, autonomous, trucking, drones
8/ I might have the order wrong but each spins Uber into addressing an even larger Total Addressable Market
9/ While they never actually own even the first one (taxis) yet. But investors love the ambition and keep ponying up.
10/ Hence, the ponzi scheme of ambition
https://twitter.com/asanwal/status/820365771834531841"
It's hard to say whether Musk is doing something similar or not. Satellites, boring company, mars mission, electrified grid, etc....Obviously, Kalanick is much different than Musk, but I can't help but feel pattern recognition creeping up on me.
[+] [-] flexie|9 years ago|reply
Tesla has created products that hundreds of thousands of people use, millions want, and hundreds of millions admire. Tens of thousands of people work in their factories. To many of us, their products hold a promise of a better future. SpaceX is reopening a chapter of human exploration that nation states had closed. Literally the most powerful organisation in human history, the United States, had all but given up on it. In my mind, landing a rocket is one of the most astonishing technological feats by humanity in decades. And it was done by a startup.
Now, I don't know what you spend your days doing, but I cannot compete with Musk. And I am just talking about his achievements until now, not the potential future ones.
I get that from an investor point of view, Tesla might have created little of value if it bankrupts soon. Eventually, though, all companies bankrupt or close in other ways, and so will Tesla. But the EV revolution that Tesla started will not stop. The cars are still there, the ideas have been proven. Is the comparison with ponzi schemes really a good one?
[+] [-] aerovistae|9 years ago|reply
Musk, by contrast, has show over and over that he cares a lot about doing what's right, starting with the very fundamental purposes of his companies: not profit, but making things better for everyone, with profit as a necessary part of the real goal. To point to a recent quote from his twitter, he had said he didn't care if his participation in Trump's panels hurt his reputation or that of his companies, because it was right and he didn't care what people said. And it seems (and many people close to him have said as much in interviews) that this is very much in line with who he is as a whole. Every time someone has made an accusation against his companies of a customer or employee being shortchanged, he's publicly investigated it and resolved it within a couple days. I recall him saying in one such case that if indeed a contractor had been injured on Tesla property, he would have seen to it that they were completely compensated in every way, even if a court did not compel them to do so, simply because it was the right thing to do.
I hate seeing a company mired in wrongdoing compared to a company like Tesla, which is the polar opposite.
Then we come to this accusation of a "ponzi scheme of ambition." Did your creeping pattern recognition notice that Tesla is being led by the same person who leads SpaceX? I don't understand how people can write this off. No matter what your criticism or doubts of Tesla are, it's simply impossible to deny SpaceX's astounding accomplishments. This is obviously not a CEO who fails to deliver despite unparalleled challenges. Do you truly believe manufacturing another car, after having already succeeded with the Model S, is harder than starting a successful space program from scratch?
Musk doesn't do Ponzi schemes. He builds Paypals and Model S's and rockets that have successfully landed when industry leaders mocked it as impossible.
Your pattern recognition needs work.
[+] [-] adevine|9 years ago|reply
1. First, I haven't heard many people argue that they think Musk's end state isn't viable. That is, Musk has already proven you can build a great electric car, the question is just whether he can solve the production issues and scale up (especially battery production) fast enough before he runs out of money. But if he does get there before he runs out of money, people agree he will have huge moats around his business with his technology, brand desirability and the gigafactory. Contrast this with Uber, where a lot of people think that in the end state (when VC money stops subsidizing every ride) that it will essentially be a commodity business with very poor economic fundamentals.
2. Uber has had story after story of fundamental problems with their corporate culture, while everything I've read about Tesla appears to be almost the exact opposite.
[+] [-] godzillabrennus|9 years ago|reply
Travis on the other hand is apparently running a fraternity that spies on you. About the worst of the worst coming out of Uber.
[+] [-] LeanderK|9 years ago|reply
They might gamble too high and loose big time, but i wouldn't call it a ponzi scheme.
[+] [-] taytus|9 years ago|reply
[+] [-] salimmadjd|9 years ago|reply
Also, it looks like Tesla would use a portion of the money to inflate their share prices via a small buyback. The after market trading so far make this strategy look successful.
So at the end of a day: Tesla is raising capital without diluting their shareholders and reducing their share values and giving up much control. Also the maturity date of 5 years is rather interesting. I wonder if it correlates with their internal projections and their ability to pay that money back by then.
[+] [-] jeffwass|9 years ago|reply
"Tesla is basically taking on a loan in form of a convertible notes."
"So at the end of a day: Tesla is raising capital without diluting their shareholders and reducing their share values"
Convertible debt is in fact dilutive. It's even specifically accounted for when calculating Diluted Earnings per Share : http://www.investopedia.com/terms/d/dilutedeps.asp
[+] [-] nemanja-mit|9 years ago|reply
The banks you see on the front page of the prospectus are not lenders in this transaction, they are underwriters. They are executing transaction and distributing the converts to the institutional investors (long-only and hedge funds). At any rate, underwriters and investors will have exactly zero leverage over Tesla following transaction (debt holders have no voting power).
> would use a portion of the money to inflate their share prices via a small buyback
Not at all. They are concurrently offering common shares, so buyback would make zero sense (i.e. buying and selling shares at the same time). They plan to use proceeds for general corporate purposes (Model 3!) and to buy a call spread they will overlay on top of the convert to synthetically increase the effective conversion premium above the premium that convert will price at. This is done to reduce potential dilution down the road.
> Tesla is raising capital without diluting their shareholders...
Correct - this convert will likely fly off the shelves and the conversion premium will be high (perhaps up 30-40% from tomorrow's close). On top of that, they will enter into the call spread that will bring the conversion premium to up 50% or 75% (depending on the structure they pick) from tomorrow's close.
> Also the maturity date of 5 years is rather interesting
This is standard duration for convertible debt. Generally they are structured with 5 year or 7 year duration, but 5 years sell better (pricing is also tighter).
Overall, smart deal for Tesla and net positive for shareholders.
[+] [-] idiot_stick|9 years ago|reply
A less charitable reading is that no single lender wanted to write the debt. A billion isn't substantial...
[+] [-] brianpgordon|9 years ago|reply
They're also offering at least $250 million in common stock as part of this round. And the notes are convertible so if it becomes profitable to convert them those will result in dilution as well.
[+] [-] unknown|9 years ago|reply
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[+] [-] patrickg_zill|9 years ago|reply
http://www-03.ibm.com/ibm/history/ibm100/us/en/icons/system3...
quote from Thomas J Watson Jr.:
“The expense of the project was indeed staggering. We spent three quarters of a billion dollars just on engineering. Then we invested another $4.5 billion on factories, equipment and the rental machines themselves. It was the biggest privately financed commercial project ever undertaken.”"
(note $5 Billion number was in 1964, inflation-adjusted, that is many billions more)
[+] [-] csours|9 years ago|reply
If I were a Tesla investor I'd want to hear more about how Design for Automation is going. If you plan to automate vehicle assembly in a cost effective manner (as Musk has indicated), your components and your assembly operations must be designed for that automation.
Tesla has had notable problems getting suppliers to understand and implement their plans (BorgWarner? - original transmission for the Roadster; Mobile Eye - self driving components; Falcon wing door component supplier).
Tesla regularly asks suppliers to do things that no other car company has asked them to do (see list above). Design for Automation is a new requirement for many components, so this may be a challenge for suppliers, and thus Tesla.
Tesla may win this gamble, or they may not. It will be interesting and educational either way.
[+] [-] CptJamesCook|9 years ago|reply
In about a year of ownership, this is the 3rd time I've lost the car for about a week. I probably should have brought it to the shop 3-4 other times, but I let the issues build up.
They've had to replace all sorts of parts on my car, including the entire driver's seat. Even basic stuff like my phone playing audio doesn't work half the time. The driver's side wing mirror quit opening. I've had to reboot the car 10+ times in order for the dashboard display to work. The gull wing door opened into a ceiling and left a scratch. The hood opened into a ceiling and left a scratch. My windows have quit going up three times. Most of the trim / sealing / etc is coming off, misaligned, etc. I probably sit here and think of 10 more problems.
Anyway, I knew I was buying a v 0.1 car and I’m generally happy with it, despite the problems. Their service has actually been amazing, but that's kind of the point of my post:
If the Model 3 has anywhere near the same level of problems as my X, at 10x the scale, Tesla is doomed. How could this possibly be even remotely cost effective on a lower-margin Model 3?
[+] [-] bischofs|9 years ago|reply
I have shopped a model S and besides the electric drivetrain it is not really that nice of a car compared to an E class or a porsche panamera - The interior is weak as far as fit and finish. As soon as the the germans offer a similar product on the high end ( and with GM already offering a full electric on the low end ) tesla is done.
[+] [-] defenestration|9 years ago|reply
[+] [-] Animats|9 years ago|reply
will rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the notes, (in other words, they're not senior to anything no explicitly listed as junior, or any existing debt)
will rank equally in right of payment with any of our unsecured indebtedness that is not so subordinated (including our Existing Convertible Notes),
will be effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness and will be structurally subordinated to all indebtedness and other liabilities (including trade payables) of our subsidiaries...
That's a rather junior senior note.
None of this matters unless they go bust, in which case it really matters.
[+] [-] dilemma|9 years ago|reply
It is also correct that as a car manufacturer, owning a battery producing company and selling to the rest of the industry, is a competitive advantage.
It is not correct that building both of these companies from scratch, in parallel, is the way to do it.
Focus on building cars an become the leader in that, then buy Panasonic or a flailing manufacturer.
Or become the leader in battery technology, and buy a car company couldn't get on the EV train fast enough and turn it around.
Tesla is spreading itself too thin, losing focus and eventually competitiveness and then, control
[+] [-] grandalf|9 years ago|reply
[+] [-] marricks|9 years ago|reply
[+] [-] JumpCrisscross|9 years ago|reply
"Interest rates up: converts down
Interest rates down: converts down
Volatility up: converts down
Volatility down: converts down
Apple strudels up: converts down
et cetera"
Converts are complicated. For one, nobody is fighting for you post-issuance. You don't (yet) hold stock, so the Board doesn't think you're pretty. Yet your bonds will be subordinated, making them swim like equity. This leads to all kinds of fun [2] when markets fail to maintain monotonicity.
Monotonicity means if a line is going up it keeps going up; never down (and vice versa) [3]. A graph for the Empire State Building with the floor number on the X axis and the height of said floor on the Y axis would be monotonically increasing. If I bent the building into a U shape, that graph would not be.
If you graph pay-offs for people in your company as a function of the stock price, you want it to be monotonic. That means interest are aligned. If your CFO makes a million dollars when the stock tanks, he's going to want the stock to tank.
Let's consider HappyCo. HappyCo has issued 10,000 shares of Common Stock. They trade at $100 per share (a $1MM market capitalization [4]). HappyCo issues 1,000 convertible bonds that can be turned into one share of Common Stock in exchange for $120 per share. To keep this easy for now, let's say HappyCo issue these converts secretly, i.e. the market can't price them in before exercise.
If the stock price is way above 130 everyone wins. If the stock price is below 130, converts lose. (Stockholders also lose.)
But what if the price is exactly 130? The market, thinking there are 10,000 shares outstanding, weighs the company in at a $1.31MM market cap. But then--dun dun dun--everyone converts. Holy shit, 1,000 new shares! At what price does this new share count (11,000) yield a $1.31MM market cap? 119.09 per share. At 129 pre-conversion, the $1.29MM company trades at 129 per share after accounting for the converts (nobody converts). At 130 pre-conversion it trades at 118.18 post-conversion. It takes us until 141.90 pre-conversion to get back to 129 post-conversion. The price goes monotonically up, but the stockholders do okay, then worse, then better again. Monotonicity was broken. An evil shareholder learning of the converts might prefer a pre-conversion price of 129 over 140.
This may seem silly. Nobody secretly issues stock [5]. The market would start pricing the converts in as the stock price approached the conversion price. How does it do that?
Options! A convert is a bond married to an option. (People once made a lot of money arbitraging converts against the issuer's stock, bond and options markets [6]). You get all the legal complexity of bonds [7] entangled with the mathematical complexity of options [8]. As I said, fun [2].
But bankers would just price things properly at the outset to ensure they maintain monotonicity, right? Well, they try to. But look at the variables in a common option valuation equation [9]. Rates, volatility, dividends, et cetera. Each of these changes the balance for converts holders. (For example, if dividends go up one might want to convert sooner, i.e. at a lower price. What if taxes go up at the same time? Who knows! Fun [2]!)
In a perfect world, each variable would iterate, one by one, like an Excel spreadsheet that isn't complaining about circularity. Investors would, one by one, plug new numbers into their models to get a clean answer. Unfortunately, we inhabit a reality where more than two aspects of it can change simultaneously.
Upshot: converts commonly ram through their boundaries all the time. When this happens, everyone converts. Actually, not everyone since each investor has a different break-even conversion price. An insurance company, with lower borrowing costs, will convert differently than an individual investor on margin. Similarly, an invest trading out of a tax-deferred IRA will convert differently than one trading straight. Fun [2]!
TL; DR Converts a lots of fun [2] for financial theoreticians, fun for market makers and hedge funds, a little less fun for bankers and an affordable source of entertainment for all.
[2] http://dwarffortresswiki.org/index.php/DF2012:Losing
[3] https://en.wikipedia.org/wiki/Monotonic_function
[4] http://www.investopedia.com/terms/m/marketcapitalization.asp
[5] http://sharesleuth.com/investigations/2012/12/small-companie...
[6] http://www.institutionalinvestor.com/article/1027772/boy-won...
[7] http://www.treasurer.ca.gov/cdiac/debtpubs/handbook.pdf
[8] https://en.wikipedia.org/wiki/Black–Scholes_model
[9] https://en.wikipedia.org/wiki/Black–Scholes_model#Black.E2.8...
[+] [-] slagfart|9 years ago|reply
How can financial markets function efficiently when such basic information is suppressed?
[+] [-] tmsldd|9 years ago|reply
[+] [-] ww520|9 years ago|reply
[+] [-] thewhitetulip|9 years ago|reply
[+] [-] cbhl|9 years ago|reply
[+] [-] exabrial|9 years ago|reply
[+] [-] antoniuschan99|9 years ago|reply
Is this like Solar Bonds that SCTY used?