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Tesla seeks $1.5 billion in junk bonds to fund Model 3 production
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Gotta pay the Model 3 bills! With other people's money.
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Tesla has been operating on OPM since the IPO. I don't think that's a big issue. What is an issue is that they have to keep returning to the capital markets to stay afloat, which belies the notion that they are a viable operation.
In a truly free market economy, if you want to judge viability (going concern) of a company, just look at their stock price. People don't talk out of their ass when real money is on the line. Everything else is just that - talk.
Yes, GM will go bankrupt again soon. Profits are highly overrated when it comes to business operations.
EDIT - Seriously:
Tesla proves they can produce Model 3's as a retail product, on time, and over specifications. Stock tumbles on the news.
Tesla proves they still cannot make money selling Model S/X automobiles, and lost another $2 a share and need more cash influx. Stock shoots upwards.
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Interesting that I haven't heard a peep about this from the talking heads at FBN who usually worship at the altar. The only Tesla mention so far was to spew some of the electric car ignorance I've come to expect. Lizzy Mac probably misspoke when she said the "Chevy Volt" had more range than the model 3. She probably would have said "Bolt" if she had it right, though that's not quite right either.
I think the script writers may be in an internal battle today. It's either that or they're saving this for Liz Claybag, so she can seem to have "breaking news".
I think the script writers may be in an internal battle today. It's either that or they're saving this for Liz Claybag, so she can seem to have "breaking news".
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Inflation of the stock price is one of the things that has helped Tesla continue to dip into capital markets. This is not a strategy that can continue indefinitely. Tell us now why they didn't just offer more stock and convertible bonds, but rather had to issue junk debt. I'm always into learning new things.
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I asked a person who knows far more than I do about these things why tech companies who continually operate in the red have such high valuations. She told me it's about "aquisition potential". I understand Musk tried to sell Tesla in 2013 to Google's Larry Page.
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Tesla is using the high risk, high rewards technique to get their business going at a pace faster than they could if they took it a step at a time. The only problem is, although it is certainly high risk, it's uncertain whether it will be high rewards if they drop down into the mass market vehicle that cannot command the high price that the S and X can command.
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I doubt that the Musk clan will buy any of these bonds...like they did with Solar City...because in that case they knew they were going to bail out Solar City with Tesla Stock...
I'll start by saying I don't own a Tesla EV or Solar or any stocks, never had.
With access to "deep" capital market, it makes sense to raise operating cash from the lowest financing cost option. In this case - bond.
An analogy to an average person, say I want to borrow cash to start donut shop - is should I borrow from bank A, or B, or C, or sell partial ownership of the donut shop, borrow from my 401k, withdraw from my retirement early, or charge the cost on a credit card. Each borrowing option has it's cost and other non-monitary factors to consider.
You asked why don't they just issue more stock - analogous to asking me why don't I just put it on the credit card - probably because it doesn't make sense since it might cost me more in the long run? Many reasons why a rational person wouldn't choose that route. No big conspiracy here, just common sense.
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I see, well I'm curious why the last 2 rounds (after the IPO) of debt and equity selling were in stock and convertible bonds. Why didn't they just start issuing junk bonds?
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Just the term Junk Bonds makes me think they're getting desperate for cash. So if they cannot raise $1.5B, does that mean no model 3s will be delivered?
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Junk bonds shift 100% of the risk to the buyers. If they pay back it's great for the bond holders but if they don't the bond holders have zero recourse. Junk bonds also don't vote. Tesla probably doesn't want any more common stock running around as it would dilute the existing large shareholders votes.
It was smart the way they timed the bond announcement for right after all the positive press and hoopla of the Model 3 release event.
I think Tesla can produce the Model 3 with or without all or part of the bond money. The only difference is at what volume of production. They have a lot of orders to fill, and doing it faster will take cash to set up production lines and buy parts and materials.
I think Tesla can produce the Model 3 with or without all or part of the bond money. The only difference is at what volume of production. They have a lot of orders to fill, and doing it faster will take cash to set up production lines and buy parts and materials.
Either that or Absinthe Consumption. Either one are valid methods to evaluate the stock market, and both seem to work.
I think the idea that Tesla needs more money "to fund Model 3 production" is somewhat misleading. Tesla needs money to fund operations because it eats cash and can't fund production from current operations. Tesla has had to raise capital before the Model 3 showed up. Ascribing to to Model 3 production does, however, make for a good story. Basically the story is: "we need the money because we have a gazillion customers who want our product and we need money to make that happen". Sounds like a success, which is critical because Tesla is a "story stock". End the story and the stock crashes. This doesn't mean the larger story is wrong, just that this detail is obviously incomplete.
Right. That worked out just perfectly for Enron or, perhaps more appropriately, Boston Chicken. Or, if you want to look at it a different way, if the market is a perfect predictor of future success, why wasn't Tesla's stock price this high from Day One?
The interest rate gets raised. Supply and demand at work. At some interest rate they'll raise the capital they need. I'm actually quite surprised the interest rate is that low but since I don't invest in corporate bonds, much less junk bonds, I'm hardly an expert on junk bond rates. FWIW I don't like corporate bonds because the goals of management and bond investors are diametrically opposed.
The cheapest way to raise money is with stock.
A company doesn't issue junk bonds, it issues bonds which are poorly rated by the ratings agencies. Not sure I'd say this is desperate for cash. As mentioned, if the subscription is under subscribed the rate goes up until there are enough investors willing to lend the money.
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Well, actually they do...
Junk Bonds - These are the bonds that pay high yield to bondholders because the borrowers don't have any other option. Their credit ratings are less than pristine, making it difficult for them to acquire capital at an inexpensive cost. Junk bonds are typically rated 'BB' or lower by Standard & Poor's and 'Ba' or lower by Moody's.
There are even JUNK BOND FUNDS you can invest in...
SPDR Barclays High Yield Bond ETF (JNK)
Vanguard High-Yield Corporate (VWEAX, 0.13% expense ratio)
Vanguard Emerging Markets Bond, this one conveniently available as an exchange-traded fund (VWOB, 0.34%)---this is one that deals with countries as junk bond issuers...
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