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Short-Term TSLA Price Movements - 2015
- Thread starter Robert.Boston
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CALGARYARSENAL
Member
Hey Lump! Will this have an impact on stock price? I'm kind of embarrased to even ask the question (head-scratch).
Jonathan Hewitt
Active Member
I had the same thought. It seems bears can't complain about TSLA running out of cash this year now. I think the demand question has been silenced finally. Next bear argument is.....?
As a long term investor, I really like this solution to any short term capex spending. Flexible low-cost loan on favorable terms, no dilution to longer term earnings.
I think a lot of analysts will see it the same way in terms of their models.
I think a lot of analysts will see it the same way in terms of their models.
BoerumHill
not great not terrible
Thank you to all that weighed in on the revolving credit issue. Having other opinions is what makes the short term thread so valuable to every investor. I thought it was a positive, but understanding the lack of dilution makes the reasoning more sound.
It's Friday, I'll take a few guesses for fun...
"New line of credit means big Model X delays Tesla hasn't revealed"
"CFO Ahuja departure and new credit deal mean CFO could not convince Wall Street to buy a secondary share offering"
"New line of credit a drop in the bucket compared to Tesla's $5 billion subsidy life support pipeline from government"
"2016 Camaro, the Tesla Terminator" (didn't want to leave out Anton Wahlman)
The bearish arguments have already arrived. Check the comments section of this Seeking Alpha article. Here's a summary of the bearish comments:
1. $750 million will be spent very quickly
2. The revolving line of credit is secured by assets (supposedly 'heathy' companies do not need to offer assets as collateral) and has a floating rather than a fixed interest rate.
3. It supposedly shows a negative outlook of banks on Tesla's future cash flows
4. It prevents Tesla from incurring more debt
5. Paraphrased: "We were right and Tesla Bulls were wrong, they did need cash after all! And this means they won't be cash flow positive anytime soon!"
Have fun with these guys.
The only thing about the "bear" argument or the "bull" argument, or the "TMC" argument or the "WSJ, Corey, Anton, comments section of Seeking Alpha" argument, is that they are the same argument, in that they are inconsequential. Which is more important - the fact that SUNE (Sun Edison) is wildly in debt and unlikely to be profitable any time soon, or that David Einhorn has blessed them and the top 10 hedge fund managers own SUNE so therefore they are up over 70% when the majority of the solar sector has lagged and when there are better, more solvent, more competent solar firms in the marketplace.
If I were reading the tea leaves on this one, the "market" or those with enough money to matter, will look at this as an insurance policy and viable "Plan B" that has the ability to take into account delays and happenstance without a dreaded "dilution". It is an implicit endorsement from Goldman, Deutche Bank....etc. etc. etc. And regardless of the "Chinese Walls" or "Veils of Ignorance" that are supposed to exist within these banks/brokerage/ratings agencies, people in finance will give more weight to Goldman loaning Tesla $250 million than their lowball analyst rating of $215-220, more weight to B of A putting their money on the line than John Lovallo creating a new catchy title for his latest work of speculative fiction.
There was discussion about Tesla monetizing some of its leases and inventory....it just did. One of the best responses in the last conference call was Deepak's (will miss him) when one of the analysts asked why the revenue associated with leases spiked dramatically in Q1 and his response was essentially, the math is right, we have a significant amount of deferred revenue from leases that will now start hitting the bottom line.
To me, this is like the end of The Guardians of the Galaxy - Elon Musk, "What should we do with this line of credit, something good, something bad.....Little bit of both?(whatever you want Starlord). A bit of both!"
The company that had the "eye-watering" cash burn just had the masters of finance give it more fuel for the fire. Burn, baby, burn.
jhm
Well-Known Member
Can someone remind me what quarter Tesla was supposed to generate free cash flow.
What's more puzzling is what Tesla wants to do with this cash. Tesla has not officially said it would expand the GF1 to 75 GWh, but it seems to me that Tesla's investment would need to be in the neighborhood of $500M to $750M, as I believe they spent about $1B on plant and property and another $1B or so on equipment. If this facility is just about expanding GF1, then shareholders should be pretty pleased. This is a really cool opportunity to jump into an explosive stationary battery market. Bears can say what they like, but when you've got this kind of opportunity in sight, you seize it. All these banks syndicating this credit know that Tesla's Gigafactories have the potential to print money. A 20% GM on $250/kWh which radically saves money for the vast energy market. So that extra 25 GWh can produce $1.25B per year in gross profit. But actually, Tesla expects to get their cost down to $100/kWh, whence the could drop their price to $200/kWh and make $2.5B gross profit on this 25 GW expansion. So until competitors can scale and cut cost, Tesla could be printing money on this deal.
What's more puzzling is what Tesla wants to do with this cash. Tesla has not officially said it would expand the GF1 to 75 GWh, but it seems to me that Tesla's investment would need to be in the neighborhood of $500M to $750M, as I believe they spent about $1B on plant and property and another $1B or so on equipment. If this facility is just about expanding GF1, then shareholders should be pretty pleased. This is a really cool opportunity to jump into an explosive stationary battery market. Bears can say what they like, but when you've got this kind of opportunity in sight, you seize it. All these banks syndicating this credit know that Tesla's Gigafactories have the potential to print money. A 20% GM on $250/kWh which radically saves money for the vast energy market. So that extra 25 GWh can produce $1.25B per year in gross profit. But actually, Tesla expects to get their cost down to $100/kWh, whence the could drop their price to $200/kWh and make $2.5B gross profit on this 25 GW expansion. So until competitors can scale and cut cost, Tesla could be printing money on this deal.
Its a safety net, - contingency
also helps cash flow considering Tesla leases
interest rate?
'Availability under the Credit Facility will be based upon periodic borrowing base certifications valuing certain of the Borrowers’ inventory,accounts receivable and equipment, as reduced by certain reserves. Outstanding borrowings accrue interest at floating rates plus an applicablemargin of 1.0% for LIBOR rate loans, and 0.0% for base rate loans. The commitment fee payable on the unused portion of the Credit Facilityequals 0.25% per annum based on utilization of the Credit Facility.'
quick take, its in both USD and foreign currency, foreign currency part is LIBO +1.0%
its a facility for the export pipeline + inventory
not sure if it relates to leases at all?
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deonb
Active Member
I don't have specific context here, but there are many reasons for it. Including favorable interest rates, exchange rates & tax policies.
In 2010 Microsoft had $92 billion in the bank... and yet went and borrowed $10.75 billion.
In general (not related to Tesla since I don't follow them that closely), a business wants to borrow money or at least set up lines of credit when they're doing well. Banks will line up to offer good rates because they want to loan out the money and make the interest. It gives flexibility in case the company needs the money later. When a company is struggling, no one wants to loan money to that company so it's really hard to get good rates or even get a loan from the big banks but it's a huge risk for them.
Microsoft (and other giant multi-national companies) earn income in lots of countries. The USA only taxes the money when it comes back to the USA. So Microsoft leaves the money in overseas accounts to avoid the huge corporate taxes for repatriating the money and borrows money in the USA to do stuff, like general operations and/or paying shareholders, etc.
For example, if cash is held up in foreign subsidiaries and bringing it home would incur heavy corporate taxes, you may be better off borrowing to pay out dividend. But it's getting off topic, because Tesla is not in such a position.
Has there been any communication on what Tesla wants to do with the line or are suggestions here merely informed speculation?
deonb
Active Member
There's a saying behind this:
"A banker is a person who lends you an umbrella when it’s sunny, but wants it back when it rains."
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