An interesting view. The author's comments about the...

An interesting view.  The author's comments about the "possibility of margin calls" is a spooky thought

This is Tesla. When does Musk crash?

Dan McCrum

| Aug 13 15:28 | 26 comments | Share

Part of the THIS IS NUTS. WHEN'S THE CRASH? SERIES
Mr. Elon Musk, our Chief Executive Officer, Product Architect and Chairman of our Board of Directors, has indicated his preliminary interest in purchasing up to an aggregate of 83,974 shares of our common stock in this offering at the public offering price for an aggregate purchase price of approximately $20 million.
Tesla Motors, the loss making manufacturer of electric cars, has announced plans to sell an additional 2.1m shares to its investors, to raise $0.5bn in cash.

After raising the cash to help build a so-called “gigafactory” Tesla will have 130m shares in issue. At $245 per share the company is worth $32bn, about nine times annual sales. It expects to deliver as many as 55,000 cars this year.
Tesla has aspirations to be a significant manufacturer of batteries, as well as introducing a third model of electric car, which requires investment, about $1.5bn for this year alone, it predicts. We previously calculated Tesla had spent $3.1bn on capex and research and development up to the end of 2014, which works out to about $40,000 per car sold, so far.

At the end of June the company had access to $750m in bank funding lines, but has also said it may raise cash when the opportunity arises. Shareholders appear to like the opportunism, and the mild dilution, bidding up the price of the stock by 2 per cent, at pixel.

For anyone pleased to see Mr Musk investing alongside them, may we draw your attention to his remuneration. The CEO, PA & COB was granted 5.3m stock options in August 2012, vesting in ten “tranches”. As of the end of June, six of the tranches had been approved, and a further three were considered probable to be achieved.

Some might suggest the Tesla stock price is far more important to Mr Musk’s fortune than the impact of $20m spent in a symbolic show of support to the latest fundraising.

Indeed, according to the most recent quarterly filing, Mr Musk (and the Elon Musk Revokable Trust) borrowed from affiliates of the company’s underwriters to buy Tesla Stock, both in private placements in June 2011 and 2013, as well as at the time of the public offering in May 2013. Tesla said (with our emphasis):
We are not a party to these loans, which are full recourse against Mr. Musk and the Trust and are secured by pledges of a portion of the Tesla common stock currently owned by Mr. Musk and the Trust and other shares of capital stock of unrelated entities owned by Mr. Musk and the Trust.
The possibility of margin calls causing Mr Musk to sell stock, in the event of a share price decline, is listed as a risk factor by Tesla.

Mr Musk owns 22 per cent of Tesla. He also owns 22 per cent of SolarCity, the loss making US listed solar panel group where he is chairman, and controls SpaceX, the rocket company.

Fortune recently reported SpaceX had invested $165m in a new investment product issued by SolarCity.
Late last year, SolarCity said it would start selling what it called the first public offering of solar bonds in the U.S. The product gives regular retail investors (investors that don’t need to be accredited) a way to buy solar bonds that are backed by the company’s solar panel systems.
…
SolarCity started off offering $200 million worth of these bonds in October 2014. Now as of the end of SolarCity’s second quarter (earnings were announced a week ago, Wednesday), SolarCity had $202 million worth of solar bond debt outstanding. Roughly $165 million of that was to sister company SpaceX.
The bonds are the shortest available, one year maturities, and SpaceX told Fortune it was simply because of the return available.

Mr Musk has enthralled investors, and the media, with his grand world changing visions. Renewable power, electric cars, actual rocket ships.

It’s an empire of dreams built on grand visions and even grander spending. Just don’t look at the financials.

http://ftalphaville.ft.com/2015/08/13/2137334/this-is-tesla-when-does-musk-crash/