Tesla's Most Aggressively Marketed Option

1405 Views 4 Replies 3 Participants Last post by Upper5Percent, Dec 4, 2017

Mister Dave

Discussion Starter · Dec 3, 2017

Tesla's Most Aggressively Marketed Option Is Gross Inefficiency

https://seekingalpha.com/article/4118053-teslas-aggressively-marketed-option-gross-inefficiency

Given its enormous cash-flow deficits, ludicrous market capitalization, multiple instances of production hell and immense debt burden, I think Tesla is a bug in search of a windshield. While the descent into the valley of death would have been painful if Tesla had funded its growth with equity, it will almost certainly be fatal since Tesla funded the bulk of its growth with debt.

Investment conclusion

As a working lawyer, I’ve frequently watched in horror as development stage companies ignored sage advice and used debt financing for business expansion when they had no ability to repay the debt. Without exception, the debt financed activities took longer, cost more and yielded lower returns than management expected. In every case, the creditors eventually pushed management up against the wall while threatening body cavity searches. One lucky management team was able to arrange a buy-out for about 10% of their peak market capitalization, but the rest ended up in bankruptcy court and their stockholders lost everything.

I’ve witnessed the interplay of debt and the hype cycle often enough to adopt an ironclad rule for my own portfolio. Development stage companies that are big enough to borrow money they can't repay are too big to have me as a stockholder.

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Upper5Percent

· #2 · Dec 3, 2017 (Edited)

Actually...Tesla's Most Aggressively Marketed Option is DEBT...They have sold stock, and then diluted the stock seven more times, sold bonds, convertible bonds, and finally junk bonds...

Musk previously tapped his cult-like followers in the equity market for capital eight times in seven years to fund Tesla’s growth. Apparently, his pitch works on debt investors, too: The company could wind up paying no more than 5 percent on the junk-rated bonds, the people said, asking not to be identified because the discussions are confidential.

The 5.300% notes, which mature in 2025, were trading at 93.81 cents on the dollar on Friday to yield 6.320%, according to trading platform MarketAxess. On a spread basis, they were trading at 393 basis points above comparable Treasurys. The bonds fell under par within a week of issuance, but were holding above 97 cents for much of October.

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Upper5Percent

· #5 · Dec 4, 2017

Mister Dave said:
The big problem with this is that there was supposed to be revenue flowing in by now. The debt keeps accumulating with no relief. So as (or if) model 3 revenue comes in, the smaller margin has a bigger and bigger deficit to overcome. You could say the scale of the revenue will make a difference. I say maybe, but the scale of the accumulated debt is something you can't dismiss.

What happens when we hit Q1 2018 and the assembly line still isn't producing? That's days away now. Want to make a prediction when that line is producing as promised?

Here's mine: Never. It's not possible. The reasons have already been outlined. Every quarter will be subject to criticism of that truth, and the lie told.

https://www.macroaxis.com/invest/ratioPatterns/TSLA

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