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But if everyone had cancelled their order Tesla would have gone out of business, and as a result of the bankruptcy all the reservation holder would have to get in line together with all other creditors as the bankruptcy handlers sold of all the assets, including the Fremont plant etc, to try and scrape up as much as possible.
I agree with Cosmacelf; the money needs to go in an escrow account but by taking up a loan against it you'd get a very good deal on that loan as the cancellation rate would be expected to be low and if the escrow account contains piles of reservation money it sends a strong signal about solid demand and low risk.
Well, OK, so Tesla goes free-cash-flow positive, the stock takes a huge jump upwards as the news comes out...
...at that point I'd do a capital raise. Tesla still has astounding amounts of capital needs.
- They need to expand the Gigafactory, because battery demand is higher than expected
- They still need to build a lot more Superchargers
- They need to open a hell of a lot more Service Centers
- They need to finance a lot of solar panels to fulfill the promise of "solar powered Superchargers"
- They'll want to connect the Gigafactory to the not-quite-adjacent rail line to cut transportation costs
And worse...
- In order to achieve Musk's promise of North American raw materials sourcing for the Gigafactory, they need to secure sufficient North American supplies of lithium, cobalt, and graphite, and this requires *opening mines which are closed or idled* which *do not currently have capital financing*. Which means they're going to have to make sure those mines get their financing. (The other minerals appear to be available in sufficient volume from existing sources).
This is a lot of capital needs. Some of it isn't going to be done directly by Tesla, but there's a LOT of capital needed. If I were them I'd be planning to sell more stock -- preferably at a high stock price, so if they're expecting stock to go up after Model X deliveries start, they might want to wait to issue the stock until then.
The interest is a bad thing.
NO NO NO! They mustn't do this. Tesla needs to keep expanding very quickly. The Supercharger network needs to be nearly-complete when Model 3 comes out. They need to quadruple the number of Service Centers and scatter them across the country -- before the Model 3 comes out. They need the Gigafactory to be producing at a sufficient rate to supply the Model 3 pipeline...
They really mustn't. Failure to expand service centers would be disastrous for sales, especially with the cutbacks in Ranger service.
This is the correct thing to do. There's a very long list of capital needs, well in excess of a billion dollars, and they need to be done well before they can be paid for entirely from internally generated cash. Some may be limited by factors other than money (training time etc.) but I strongly suspect the Service Center expansion is actually limited by money, and I know that the domestic sourcing of raw materials for batteries is money-limited. The only question is when and how much -- obviously Tesla wants to dilute the stock as little as possible, pay as little interest as possible, and raise as much money as possible.
LargeHamCollider
Battery cells != scalable
I actually looked into this. It turns out that customer deposits that Tesla takes in are all sources of cash and go straight to the "Cash and Cash Equivalents" line on the balance sheet. This is evidenced in the most recent 10-Q, which states the following in the "Liquidity and Capital Resources" section:
That cash can then be spent as part of Capital Expenditures (CapEx) which is by definition, the purchase of property and equipment. That expensed cash will then move from the "Cash and Cash Equivalents" asset line to the "Property and Equipment" asset line on the balance sheet and will begin depreciating. Therefore, it is okay for Tesla to spend this cash because the expensed cash is still an asset that can be liquidated if the customer deposits need to be returned.
As for the question of whether Tesla will need to do a capital raise any time soon, assuming the fact that Tesla will be cash flow positive from Q4 on and the fact that Model 3 deposits will come some time in 2016 and give a cash boost is not evidence enough that Tesla doesn't need a capital raise, is still somewhat unanswered... By people on this forum. But Tesla, on the other hand, has answered these questions in the very same "Liquidity and Capital Resources" section of the 10-Q (and 10-K) that I referenced earlier. Just check out the changes in the wording over time:
November 7, 2014:
February 26, 2015:
May 11, 2015:
Tesla has grown more confident (and remains that way) about their capital resources and is confident that they will have "adequate liquidity over the next 12 months", and has stopped writing "We may seek additional capital resources to partially fund certain long-term growth initiatives" in this section. Therefore, it seems unlikely that Tesla will do a capital raise any time soon.
Nice research. I think they might have to do a raise only if something really goes wrong with the Model X launch.
jhm
Well-Known Member
Blind Faith Price Targets - Page 3
Generally, I am in the no capital raise camp, but consideration of advancing the stationary business raises questions. I estimate that in 2019 about 40 GWh productive capacity will be needed if auto uses 2/3 of this capacity. However, if stationary comes to need 2/3 of the capacity, then about 60 GWh of capacity is needed at this time. See link above for details. Thus, on a nominal 50% growth trajectory, advancing stationary could speed up the time line to Gigafactory 2 by a whole year. Alternatively expanding Gigafactory 1 from 50 to 75 has the same effect as accelerating the time frame by a year, but only one year.
So as we look at prior statements from Tesla about capital adequacy, we need to question whether these statements assumed 1/3 stationary or 2/3 stationary mix. If we jump to the latter, this means advancing the GF roll out by a year. What was adequate cash flow for 1/3 stationary might not be adequate for 2/3 stationary. If the business model has truly changed in this way, we need to know it.
Generally, I am in the no capital raise camp, but consideration of advancing the stationary business raises questions. I estimate that in 2019 about 40 GWh productive capacity will be needed if auto uses 2/3 of this capacity. However, if stationary comes to need 2/3 of the capacity, then about 60 GWh of capacity is needed at this time. See link above for details. Thus, on a nominal 50% growth trajectory, advancing stationary could speed up the time line to Gigafactory 2 by a whole year. Alternatively expanding Gigafactory 1 from 50 to 75 has the same effect as accelerating the time frame by a year, but only one year.
So as we look at prior statements from Tesla about capital adequacy, we need to question whether these statements assumed 1/3 stationary or 2/3 stationary mix. If we jump to the latter, this means advancing the GF roll out by a year. What was adequate cash flow for 1/3 stationary might not be adequate for 2/3 stationary. If the business model has truly changed in this way, we need to know it.
RobStark
Well-Known Member
"The filing said the revolving line of credit, secured by property, inventory and equipment owned by Tesla, was for $500 million but could be extended to $750 million by meeting certain conditions.
The filing said the agreement was with Deutsche Bank, Bank of America, Goldman Sachs, J.P. Morgan Chase, Morgan Stanley,Wells Fargo and Credit Suisse."
http://www.wsj.com/articles/tesla-motors-obtains-credit-line-from-five-banks-1434147236
The filing said the agreement was with Deutsche Bank, Bank of America, Goldman Sachs, J.P. Morgan Chase, Morgan Stanley,Wells Fargo and Credit Suisse."
http://www.wsj.com/articles/tesla-motors-obtains-credit-line-from-five-banks-1434147236
RobStark
Well-Known Member
'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.'
Deepak speaking on Q2 call: No need for raise now, credit line largelgy unused, "we are comfortable with the cash levels". Elon: "There is not a need to raise capital, but there could be value as a risk reduction".
My take: they are not planning on it but could take advantage of high stock price, and are not ruling it out.
My take: they are not planning on it but could take advantage of high stock price, and are not ruling it out.
RobStark
Well-Known Member
Interesting. Elon getting pressured on Q2 call by Robert Kallo from Baird: "Please set the record straight. Will you do a capital raise in the near term, or not". Elon: "We can't comment on that. Next question".
I think they want to see what combined ongoing S/X demand is. They more or less lowered 2016 guidance from 100K+ to 80-90K. I wouldn't be surprised if at the time they suggested entering 2016 at at 100K run rate, they thought 130K or more vehicles per year was a likely demand level in the out years. It's still possible, but they are more cautious about it. That's probably about a $500 million difference in cash available to spend on expansion (GF, Model 3, etc), each year depending on whether demand turns out to be more like 80K or 130K.
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