Will Tesla do at capital raise in 2015?

Johan · May 9, 2015

So I've been giving this a lot of thought after the ER. There are many things to consider: the current yield market where there is a lot of money looking for a good investment, the words of Deepak about beeing free cash flow positive and self-financed from Q4 but at the same time the possibilites of even quicker expansion of the Gigafactory and perhaps building of GF 2 and 3 sooner than expected due to a flood of demand for Tesla Energy products. Will Elon set up for a big beat and surge in stock price in Q3 or Q4, and use this as an opportunity to raise capital? I'm thinking this is more and more likely. I've cast mye vote.

RobStark · May 9, 2015

I say Q1 2016 at the earliest after they show they are free cash flow positive and are not desperate.

Looking for cash on Wall Street when many Wall Streeters think you are desperate for cash is not the best time to do a capital raise.

Lerxt · May 10, 2015

I think they are going to have to look this year as they look like they are at risk of running out of cash by the end of the year. if the slightest thing goes wrong they would be in trouble.

32no · May 10, 2015

Deepak guided for less than $1 billion cash "burn" (or rather cash deployment, in the words of vgrinshpun) this year on $1.5 billion in CapEx. The difference will probably be from cash flow positive Q4. Tesla had $1.9 billion in cash at the end of 2014, and based on Deepak's guidance, should have $900 million left by the end of 2015. Also, Tesla will be producing and delivering Model S and X at such high volumes that they will be consistently cash flow positive in 2016, so I don't see any reason they would need to raise capital other than as a buffer. Even if they want a buffer, I doubt they would do it in 2015. They will probably do it in 2016 after revealing a concept Model 3, taking deposits, and then announcing that they will need to fund Gigafactory 2 because Model S, Model X, Model 3 demand and Stationary storage demand are all too high for one Gigafactory. They will not only raise Gigafactory money at that time, but also buffer money. Probably on the order of $3-4 billion overall.

RobStark · May 10, 2015

On top of the cash Tesla has they also have self-financed leases they can commoditize. Several hundred million.

They are not in danger of running out of cash.

If they are planning on building GF2 THIS year then they will probably do a capital raise.

If not they can wait at least 9 months.

32no · May 10, 2015

RobStark said:
On top of the cash Tesla has they also have self-financed leases they can commoditize. Several hundred million.

Do you mean "capitalize"? :wink:

rolosrevenge · May 10, 2015

Can a moderator please change the "at" in the title to an "a"?

Lerxt · May 11, 2015

32no said:
Deepak guided for less than $1 billion cash "burn" (or rather cash deployment, in the words of vgrinshpun) this year on $1.5 billion in CapEx. The difference will probably be from cash flow positive Q4. Tesla had $1.9 billion in cash at the end of 2014, and based on Deepak's guidance, should have $900 million left by the end of 2015. Also, Tesla will be producing and delivering Model S and X at such high volumes that they will be consistently cash flow positive in 2016, so I don't see any reason they would need to raise capital other than as a buffer. Even if they want a buffer, I doubt they would do it in 2015. They will probably do it in 2016 after revealing a concept Model 3, taking deposits, and then announcing that they will need to fund Gigafactory 2 because Model S, Model X, Model 3 demand and Stationary storage demand are all too high for one Gigafactory. They will not only raise Gigafactory money at that time, but also buffer money. Probably on the order of $3-4 billion overall.

The key point here is that they will be producing Model X and S at high rates. It is entirely within the realms of possibility that the X will not be produced in huge numbers this year. There could easily be a delay that great to restricts production until next year. Not to mention a delay in stationary battery production.

RobStark · May 11, 2015

32no said:
Do you mean "capitalize"? :wink:

Nope.

AlMc · May 11, 2015

RobStark said:
On top of the cash Tesla has they also have self-financed leases they can commoditize. Several hundred million.

They are not in danger of running out of cash.

If they are planning on building GF2 THIS year then they will probably do a capital raise.

If not they can wait at least 9 months.

I think they should do one but I believe senior management wants to show that they can execute and through that execution become cash flow positive in the 4th quarter. IF they decide to raise cash before Q4ER it will only happen because they have decided to build another GF.

32no · May 11, 2015

RobStark said:
Nope.

To commoditize is to turn into a commodity, or "a raw material or primary agricultural product that can be bought and sold".

To capitalize is to turn something into capital. I have never seen the phrase "commoditize leases", it seems that the correct phrase is "capitalize leases". Deepak referred to it as "securitization". I think either is correct, but I doubt "commoditize" is.

Jonathan Hewitt · May 11, 2015

I agree with those in the "only if they want to start Gigafactory 2" camp. Could happen this year but I don't think that's likely.

pGo · May 11, 2015

I think it is very likely that they will raise money before q4 starts. Even if they have enough money to keep the operations and investment flowing at their desired place, I think around q3, the margin of error reduces drastically as model x ramp is unknown to the company as well. Tesla did raise money as buffer before the S went into full production. Times are different, but scale is different too.

Ideally I would like them to raise money after opening registration for Model 3, but the amount of spending has me worried a bit. Yes the spending is necessary but the company is realizing even more urgency to a bigger GF. We'll see that reasoning as well as Model 3 as the basis for new funding.

IMO this is not a bad news as long as they stay true to their cash flow positive guidance and stay in positive territory from there on.

Quant · May 11, 2015

pGo said:
I think it is very likely that they will raise money before q4 starts. Even if they have enough money to keep the operations and investment flowing at their desired place, I think around q3, the margin of error reduces drastically as model x ramp is unknown to the company as well. Tesla did raise money as buffer before the S went into full production. Times are different, but scale is different too.

Ideally I would like them to raise money after opening registration for Model 3, but the amount of spending has me worried a bit. Yes the spending is necessary but the company is realizing even more urgency to a bigger GF. We'll see that reasoning as well as Model 3 as the basis for new funding.

IMO this is not a bad news as long as they stay true to their cash flow positive guidance and stay in positive territory from there on.

i would like them to raise capital now! The best time to seek capital is when you don't need it right now! When you have cushion for at least 6 months.

You do not want to go the capital markets looking to raise capital when you are running short and have less than 6 months of your cash need projections, and that is assuming the world in general, and the capital markets in particular, are stable.

I believe Tesla should seek to add a minimum of $0.5 - $ 1.0 Billion in credit lines, based on inventory etc as collateral, AND also raise more convertible debt. Probably another $ 1 billion in convertible debt, so a total increase of $1.5 Billion to $ 2 billion in balance sheet capacity.

I strongly suggest TSLA do it now! The stock may temporally go to $220 or so, but it will bounce back, because this will actually be a good thing and increase overall investor confidence and $ 1 Billion in convert is only slightly dilutionary, maybe 3-5 %.

Lump · May 11, 2015

I predict a capital raise will occure when Model X hype is in full force, sometime between the reveal & customer deliveries.

Johan · May 11, 2015

Lump said:
I predict a capital raise will occure when Model X hype is in full force, sometime between the reveal & customer deliveries.

This is my thinking too. "Strike while the iron is hot". On the last call one of the most surprising pieces of information, to me, was how Elon talked in detail about the production ramp of Model X. He clearly has this idea that they will be able to ramp up production of Model X a lot quicker than they ramped up with Model S. More or less, he said the X could be in full production during Q4 ("as many X as S built) and he was talking about it all depends on where the ramp up curve is situated with regards to quarters if we will see a small or large effect of this in the full year of 2015 or not. It could be the set up for a big beat in Q4, that would be announced in Q3 if they feel confident they will make it. That coupled with a lot of orders for PowerPacks and great reviews for Model X will set things up very nicely. The capital raise will be by selling debt, not stock, IMO.

We will know when Elon changes his Twitter pic to this:

or this:

or something similar.

Edit:Yeah and one more thing: Remeber how they said "No, we're not going to raise capital" one week before they did, in 2013? So I wouldn't rely to much on what's being said about this right now.

The Blue Owl · May 11, 2015

Johan said:
Edit:Yeah and one more thing: Remeber how they said "No, we're not going to raise capital" one week before they did, in 2013? So I wouldn't rely to much on what's being said about this right now.

I remember it very well, and they didn't say that. What Elon said on the call was that while they weren't planning to raise capital, they would be "opportunistic" about it. That opportunity came much sooner than expected.

Johan · May 11, 2015

Familial Rhino said:
I remember it very well, and they didn't say that. What Elon said on the call was that while they weren't planning to raise capital, they would be "opportunistic" about it. That opportunity came much sooner than expected.

Yes you're correct. That was the opening he left that time. But to say "we aren't planning on it" and then one week later they announce it... They don't expect us to believe they made the decision on Tuesday and the whole thing was ready to be announced on Friday?

The Blue Owl · May 11, 2015

Johan said:
Yes you're correct. That was the opening he left that time. But to say "we aren't planning on it" and then one week later they announce it... They don't expect us to believe they made the decision on Tuesday and the whole thing was ready to be announced on Friday?

It's possible they had the plan in place, but only intended to execute it under much better terms than what appeared to be possible on that Tuesday. As I recall, the subsequent jump in stock price was dramatic both in magnitude and speed, possibly exceeding their wildest expectations, so they seized the moment.

maoing · May 11, 2015

Q4 beat is much harder than Q2/Q3. With Elon's response for model X production ramp question in Q1 CC below, I tend to believe the chance of miss is much larger than beat unfortunately.

I mean, actually with Model X production ramping up quite heavily in Q4 depending upon how that ramp goes and obviously it's difficult to predict that with perfect clarity, but our volume essentially doubles in Q4. So depending upon how the ramp goes. So, I do want to emphasize that, like sometimes people don't totally appreciate is that, there are several thousand unique parts in a car and if even one of those parts is not available for any reason, then you cannot ship, you cannot scale production.So essentially, the production ramp goes according to the unluckiest and worst performing supplier or project of Tesla.

Johan said:
More or less, he said the X could be in full production during Q4 ("as many X as S built) and he was talking about it all depends on where the ramp up curve is situated with regards to quarters if we will see a small or large effect of this in the full year of 2015 or not. It could be the set up for a big beat in Q4, that would be announced in Q3 if they feel confident they will make it. .

- - - Updated - - -

What's the short term events in next a few months in order to hype the stock?
1) Q2 delivery beat at beginning of July; (highly possible with lowballed guidance)
2) Model X open configuration in July; (highly possible from Elon's comments in Q1 CC)
3) positive Q ER at the end of July; (highly possible based on #1)
4) model X delivery in September; (very possible from the Q1 shareholder letter, but could be delayed again)
5) energy storage delivery; (highly possible somewhere in Q3)

I smell some great trading opportunities to time this captical raise.

Lump said:
I predict a capital raise will occure when Model X hype is in full force, sometime between the reveal & customer deliveries.

- - - Updated - - -

Similar feeling. It's likely to be in August or September. Any good strategy for trading? Buy September and Jan. call?

pGo said:
I think it is very likely that they will raise money before q4 starts. Even if they have enough money to keep the operations and investment flowing at their desired place, I think around q3, the margin of error reduces drastically as model x ramp is unknown to the company as well. Tesla did raise money as buffer before the S went into full production. Times are different, but scale is different too.

Ideally I would like them to raise money after opening registration for Model 3, but the amount of spending has me worried a bit. Yes the spending is necessary but the company is realizing even more urgency to a bigger GF. We'll see that reasoning as well as Model 3 as the basis for new funding.

IMO this is not a bad news as long as they stay true to their cash flow positive guidance and stay in positive territory from there on.

Will Tesla do at capital raise in 2015?

Will Tesla raise capital in 2015

Yes, by issuing stock

Yes, by selling convertible debt

No

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