Short-Term TSLA Price Movements - 2015

[uselesslogin]

Isn't this line of credit what Deepak is referring to in the Q4 2014 conference call?

​Andrea James - Dougherty & Company LLC

So just quickly can you help me get to a free cash flow figure, looks like you can do $1.5 billion in CapEx, but what’s going to be the operating cash flow to offset that?

Deepak Ahuja - Chief Financial Officer

Yes, we will have clearly significant - Deepak here, hi Andrea.

Andrea James - Dougherty & Company LLC

Hi.

Deepak Ahuja - Chief Financial Officer

We would have significant positive operating cash flow, obviously as our business --our volume gross and our gross margin continues to improve. We’ll also have some cash used on our direct leasing program. Our expectation is that we will establish shop via warehouse line for leasing cars and that will continue to grow and fund the big portion for leasing funding required. So overall, we feel pretty comfortable where we are in terms of our 2015 look from a cash burn perspective.

 

[Causalien]

I have to admit, I don't understand, why to do that.

Same as in personal finance. I have the ability to access a credit line that's half of my net worth, but it's almost never used.
Sometimes I use it because that interest is at 3% and some opportunity is at 5%. I could lose an arm next day and I know I will be allright

 

[Bgarret]

Same as in personal finance. I have the ability to access a credit line that's half of my net worth, but it's almost never used.
Sometimes I use it because that interest is at 3% and some opportunity is at 5%. I could lose an arm next day and I know I will be allright

Except you would have one less arm.....

 

[techmaven]

Isn't this line of credit what Deepak is referring to in the Q4 2014 conference call?

Yup. It is also referenced in the Q1 '15 Shareholder Letter:

During the quarter, we closed on a $100 million warehouse line in connection with our direct leasing program, and drew down $78 million of the line by quarter end. We anticipate closing on additional financing lines in the coming months.

This shouldn't be a surprise. They don't have to draw from it, but it's good to have it place in case they want to use it. Certainly they can get more favorable terms to do it now (you don't want to start to approach a banker when you are in actual need). No change in their stated position on cash burn or whether or not they will be cash flow positive in Q4. This move should have been fully anticipated, so it will be interesting to see if the stock price takes any hit.

From the 10-Q:

As of March 31, 2015, we had $1.51 billion in principal sources of liquidity available from our cash and cash equivalents including $874.3 million of money market funds. Amounts held in foreign currencies had a U.S. dollar equivalent of $408 million as of March 31, 2015, and consisted primarily of Norwegian krone, Japanese yen, euro, and Chinese yuan.

They hold a bunch of money in foreign currencies and are spending a lot of capex in the U.S. It might make more sense to borrow money at low rates instead of moving that cash from overseas to the U.S. and take a hit on both taxes and the current exchange rate.

 

[Causalien]

Except you would have one less arm.....

I've always been pro cyborg. Maybe I will start a cyborg implant empire if that happens

 

[AudubonB]

It's Saturday...</mod off>

Except you would have one less arm.....

Just head to the nearest igor*



For the record: when did a certain crystal ball hit 10? End of last week? Just curious....


*let's see who 'fesses up to knowing that​ reference......

 

[jhm]

One more little thought, borrowing in foreign currencies is on way to build up a natural hedge against a strong dollar. As the the dollar increases against, say, the euro, then euro debt loses value in terms of dollars. Moreover a warehouse line used for euro denominated leases already locks in an exchange rate with respect to the lease payment stream in euros. So Tesla is locked in in dollars whether euros rise or fall. So even if Tesla has the cash to self-lease in foreign currencies, it makes sense to use a warehouse credit facility to minimize exposure to exchange rate risk.

 

[techmaven]

One more little thought, borrowing in foreign currencies is on way to build up a natural hedge against a strong dollar. As the the dollar increases against, say, the euro, then euro debt loses value in terms of dollars. Moreover a warehouse line used for euro denominated leases already locks in an exchange rate with respect to the lease payment stream in euros. So Tesla is locked in in dollars whether euros rise or fall. So even if Tesla has the cash to self-lease in foreign currencies, it makes sense to use a warehouse credit facility to minimize exposure to exchange rate risk.

Sure, but Tesla already has a lot of money overseas and a lot of expenses in the U.S. in this year and next. At some point, with GF2 and/or Tilburg becomes more of a factory, then they will spread the currency risk around a bit more. Therefore, it makes sense to keep a lot of euros as euros and yen as yen instead of converting them to USD, which means possibly borrowing for now depending on the timing of cash flows with the factory expansion.

 

[Causalien]

It's Saturday...</mod off>
Just head to the nearest igor*



For the record: when did a certain crystal ball hit 10? End of last week? Just curious....


*let's see who 'fesses up to knowing that​ reference......

May 23, 2015

 

[jhm]

Sure, but Tesla already has a lot of money overseas and a lot of expenses in the U.S. in this year and next. At some point, with GF2 and/or Tilburg becomes more of a factory, then they will spread the currency risk around a bit more. Therefore, it makes sense to keep a lot of euros as euros and yen as yen instead of converting them to USD, which means possibly borrowing for now depending on the timing of cash flows with the factory expansion.

This is why a credit facility makes more sense than bonds. With credit line in multiple currencies, you can dial up or down your exposure to different currencies. For example you can model all your future inflows and outflows in euros. This would depend on both expected sales, expenses and a certain level capital investments. Then with a credit line in both euros and dollars you can make day by day adjustments to minimize exposure to the euro/dollar exchange rate. Bonds would not give you the ability to adjust your exposure on a daily basis.

In a way, a credit facility (plus cash accounts) is like a battery. You can anticipate local production and consumption within a microgrid. Then determine an optimal state of charge for the battery to handle the net power need. Moment by moment that optimal state of charge changes. Buying and selling into the grid keeps the battery at optimal SOC. So all of Tesla's business in euros is like a microgrid. The credit facility is like the battery. And Tesla's dollar denominated business is like the grid. Of course, there is cost to using storage and this is like interest rates. There is also a variable cost of grid power, and this is like the dollar / euro exchange rarte. This microgrid should be a net generator of energy so want to manage the SOC so that it tends to sell power into the grid win grid prices are high and draw from the grid when price are low. So by analogy you want value to flow from euros to dollars to happen mostly when the dollar is weak (high grid rates). So the challenge and opportunity to create value from stationary batteries is not unlike the complexities of using credit and cash deposits to manage FX and interest rate risks in multiple currencies.

The notion that Tesla would not need this credit if they didn't need the cash is quite simple-minded. Tesla needs to manage its FX and multicurrency interest rate risks.

 

[pGo]

I think market will like this flexible credit line compared to flatly going out with offering CB or shares. This credit line is huge (almost a B $). I don't now expect Tesla to raise money this year.

In other news, Model X spotted without a nosecone?
Spent some time behind the wheel of a Tesla Model X today! - Imgur
Spent some time behind the wheel of a Tesla Model X today! : spotted

 

[Krugerrand]

I think market will like this flexible credit line compared to flatly going out with offering CB or shares. This credit line is huge (almost a B $). I don't now expect Tesla to raise money this year.

In other news, Model X spotted without a nosecone?
Spent some time behind the wheel of a Tesla Model X today! - Imgur
Spent some time behind the wheel of a Tesla Model X today! : spotted

I'm taking bets on how long this photo stays up.

 

[maoing]

Good to see the photo first time with falcon wing open. I bet the credit line news is negative, we usually see model X leak immediately with bad news.

I think market will like this flexible credit line compared to flatly going out with offering CB or shares. This credit line is huge (almost a B $). I don't now expect Tesla to raise money this year.

In other news, Model X spotted without a nosecone?
Spent some time behind the wheel of a Tesla Model X today! - Imgur
Spent some time behind the wheel of a Tesla Model X today! : spotted

 

[doggusfluffy]

Same as in personal finance. I have the ability to access a credit line that's half of my net worth, but it's almost never used.
Sometimes I use it because that interest is at 3% and some opportunity is at 5%. I could lose an arm next day and I know I will be allright

Arrested Development- Buster is ALL right - YouTube

 

[SteveG3]

Good to see the photo first time with falcon wing open. I bet the credit line news is negative, we usually see model X leak immediately with bad news.

why do you think the credit line is negative? They are in effect paying $1 million a year to have access to a $500 million buffer to managing their cash flow (or $1.5 million if they expand the available buffer to $750 million). Just to begin with, this seems to take considerable pressure off how they launch the Model X.

 

[doggusfluffy]

why do you think the credit line is negative? They are in effect paying $1 million a year to have access to a $500 million buffer to managing their cash flow (or $1.5 million if they expand the available buffer to $750 million). Just to begin with, this seems to take considerable pressure off how they launch the Model X.

I was initially thinking they needed it for tooling up the old Solyndra factory...presumably to meet 'off the hook' Powerwall demand. The equipment was auctioned off so this is the empty factory they just leased:
Solyndra Fab 2 - YouTube

 

[SteveG3]

I was initially thinking they needed it for tooling up the old Solyndra factory...presumably to meet 'off the hook' Powerwall demand. The equipment was auctioned off so this is the empty factory they just leased:
Solyndra Fab 2 - YouTube

Makes sense for some of it. I think it's mostly a buffer.

 

[maoing]

As I said, it's based on the coincidence with model X new leak.

why do you think the credit line is negative? They are in effect paying $1 million a year to have access to a $500 million buffer to managing their cash flow (or $1.5 million if they expand the available buffer to $750 million). Just to begin with, this seems to take considerable pressure off how they launch the Model X.

 

[AlMc]

As I said, it's based on the coincidence with model X new leak.

why do you think the credit line is negative? They are in effect paying $1 million a year to have access to a $500 million buffer to managing their cash flow (or $1.5 million if they expand the available buffer to $750 million). Just to begin with, this seems to take considerable pressure off how they launch the Model X.

I think the credit line news is great. It is a nice buffer. I know the bears may spin it as a negative so I see Maoing's point that a spy shot of the X or other positive news out of TM may be coming IF the market perceives it as a negative.
My theory is that TM had to have access to more capital. If they did it before the X release and hopeful run up of TSLA then it would be an interest bearing bond sale/line of credit to prevent dilution via stock sale. If after a run up to ATH (hopefully) then a stock sale.

Eventually, I think they will do both. Buffer now to get us through X release/positive cash flow (hopefully) in Q4 and then stock in Q1/Q2 2016 to help finish the GF, set us up for enlargemnt of Fremont/second factory and GF2.

 

[Lump]

Eventually, I think they will do both. Buffer now to get us through X release/positive cash flow (hopefully) in Q4 and then stock in Q1/Q2 2016 to help finish the GF, set us up for enlargemnt of Fremont/second factory and GF2.

:wink: