What's your take on Tesla?
Discussion
I don’t know whether any announcement that can impact the share price must be pre-approved but in the US it must be truthful or it is stock manipulation on the Securities Exchange Act.
So he has to have proof that he has secured $70bn of funding to take Tesla off the market at $420/share. If he doesn’t have proof of that funding then the charge is stock price manipulation and he would need to go to court and argue that he is thick, stupid and clueless so didn’t know what he was doing. It might be easier to plea a mental breakdown and then pretend to resign while retaining full control in the background.
At this moment in time the two acts of getting the Saudis (this type of money is typically referred to in London as ‘dumb money’. The ME is where you go when no credible entity will lend or invest or you just want to bring on investors who are never going to ask the right questions) to buy in the open market and leaking this to the FT combined with announcing a buyout at a much higher price all while the stock is being extremely heavily shorted and the company desperately struggling to meet targets and very vulnerable has to make any sane person suspect that there is a chance this is manipulation.
In the small cap, penny share end of the market (which is the home of news driven stock prices) when this is done they will usually have a shill already set up to claim that they are the backers looking to underwrite and they will then fake a few months worth of meetings and supposed due diligence before claiming that they couldn’t agree terms and walking away. During that period all the parties involved will be cashing in offshore options and holdings, refinancing critical debt deals etc etc.
So he has to have proof that he has secured $70bn of funding to take Tesla off the market at $420/share. If he doesn’t have proof of that funding then the charge is stock price manipulation and he would need to go to court and argue that he is thick, stupid and clueless so didn’t know what he was doing. It might be easier to plea a mental breakdown and then pretend to resign while retaining full control in the background.
At this moment in time the two acts of getting the Saudis (this type of money is typically referred to in London as ‘dumb money’. The ME is where you go when no credible entity will lend or invest or you just want to bring on investors who are never going to ask the right questions) to buy in the open market and leaking this to the FT combined with announcing a buyout at a much higher price all while the stock is being extremely heavily shorted and the company desperately struggling to meet targets and very vulnerable has to make any sane person suspect that there is a chance this is manipulation.
In the small cap, penny share end of the market (which is the home of news driven stock prices) when this is done they will usually have a shill already set up to claim that they are the backers looking to underwrite and they will then fake a few months worth of meetings and supposed due diligence before claiming that they couldn’t agree terms and walking away. During that period all the parties involved will be cashing in offshore options and holdings, refinancing critical debt deals etc etc.
Thank you DA.
I don't follow the Company very closely (the fundamentals remind me of the many speculators who piled in to the highly valued loss making tech. companies in 1998 & 1999), but the two announcents I think did significantly move the Tesla share price.
I wish the Company well, but the established players in the industry, will surely not just give in without a fight.
As this is PH, a motoring comment might be appropriate.
The Tesla cars have a very traditional design, presumably to appeal to buyers. Being electric powered, probably with the batteries set low in the car, there appears to be no engineering reason for there to be a traditional bonnet. Perhaps we will see new shape designs, giving much greater space inside the car.
Jon39 said:
I wish the Company well, but the established players in the industry, will surely not just give in without a fight.
This.I wouldn't buy Tesla shares with your money. No wonder Musk is in such a spin. If his confidence bubble gets popped there won't be much left. At least when Trump's property empire turned inside out his lenders could still see the "unique assets" and simply had to take a view on what those assets would one day be worth. Tesla is a completely different proposition - an upstart new entrant into an established manufacturing sector with big global players ready to apply the squeeze. I wouldn't touch it.
zubzob said:
Every bull is well aware of these arguments. But neither Musk nor Tesla's long term investors, consider Tesla to be in direct competition with 'established car companies'.
Musk has repeatedly stated it would do Tesla more harm than good, if any established car company dropped out of the EV race.
That’s not true. That’s the hyperbole. Musk has repeatedly stated it would do Tesla more harm than good, if any established car company dropped out of the EV race.
Here is the key: what is the single element that is currently holding the share price up and defining the premium? What is the single product that the market is waiting for?
The answer to that is the Model 3. The entire global enterprise of TSLA is based solely around the successful delivery and sale of a mid level automobile.
Now let’s look at the second para, very basic economics states very clearly that more entrants in a new market creates more sales and profit for everyone. It is the school boy view that no competition in a new market means you have it all to yourself and can make all the money but this is not correct and not how first mover advantage works.
The clue is actually in the word ‘first’. To be first there is a second, third, fourth etc. In a new market you want to define your brand but it is essential that as many other firms join you as possible as it will be the combined night of all these enterprises that reshape the consumer, define the concept and create the market. And it is from that new market that the first mover or the entity with the strongest brand or the best product, or the cheapest product will take market share.
Its THE stepping stone. It’s the fundamental pivot of the entire business. It is direct competition with the car industry as a whole. If it fails then the whole enterprise in its current legal form fails.
The point the company is currently at is that delivering the 3 is the only objective that matters.
But you are confusing this with general market competition. The more manufacturers of EVs there are then the larger the consumer market grows and the more customers Tesla has. Other manufacturers delivering other EVs is essential to creating that market. The Musk waffle about defining the market and changing the world is just waffle. All he is doing is repackaging basic economics into PR. Something he has a tremendous skill at.
He isn’t redefining business as you suggest but following its basic rules and formulas to the letter and he has done brilliantly at it to date but the business is now at a delivery crossroads and is struggling. Hence all the short positions. Those shooters are not betting that the Tesla brand will go away but that the company in its current form will fail to deliver the 3 quick enough to maintain the stock premium and at worst to need a restructuring.
The point the company is currently at is that delivering the 3 is the only objective that matters.
But you are confusing this with general market competition. The more manufacturers of EVs there are then the larger the consumer market grows and the more customers Tesla has. Other manufacturers delivering other EVs is essential to creating that market. The Musk waffle about defining the market and changing the world is just waffle. All he is doing is repackaging basic economics into PR. Something he has a tremendous skill at.
He isn’t redefining business as you suggest but following its basic rules and formulas to the letter and he has done brilliantly at it to date but the business is now at a delivery crossroads and is struggling. Hence all the short positions. Those shooters are not betting that the Tesla brand will go away but that the company in its current form will fail to deliver the 3 quick enough to maintain the stock premium and at worst to need a restructuring.
zubzob said:
But if Musk has secured private funding, based on a 10 year plan to roll out the GFs, does it matter if he hits model 3 targets or not?
Isn't this precisely the point, to get away from short term targets, and focus more on the long term targets?
Surely the only real objective that matters now, is how quickly he can build the chinese GF?
If he does have xxbn in private funding from investers with a long term horizon, I don't really understand why missing model 3 sales targets in 2018, is going to make any material difference.
How has he secured $70bn of private funding without it being linked to the delivery of the 3? Any funding at that level will manifestly be linked to that. All due diligence will be linked to that. The current share price is all about that. Without that there wouldn’t be $70bn of private funding. Isn't this precisely the point, to get away from short term targets, and focus more on the long term targets?
Surely the only real objective that matters now, is how quickly he can build the chinese GF?
If he does have xxbn in private funding from investers with a long term horizon, I don't really understand why missing model 3 sales targets in 2018, is going to make any material difference.
Edited by zubzob on Wednesday 8th August 12:45
The funding is likely to be a combination of ME wealth looking to hedge against the decline of oil and Chinese money looking to dominate the EV market. The 3 is integral to everything. Take away the 3 and there is no $70bn value.
Jon39 said:
The rules will differ between USA and UK, but I was surprised that a director of a publicly quoted company, makes a market moving statement openly on social media, before formally announcing to the exchange.
If a FTSE 100 CEO did that, there would be trouble.
Is it allowed in the US?
As a side note, who had the authority to suspend TSLA yesterday - the exchange?
zubzob said:
Well that is the trick isn't it. His 'claimed' achievement is to secure such long term funding without such short term constraints, that he 'claims' will free Tesla from such short term obsession with 3 sales.
Many don't believe him.
ETA as a (very tiny) long term investor myself, if I magically had the choice, I'd be much more interested in linking my investment to delivery of the Chinese GF in < X yrs, than xx k car sales in under 12 months.
That isn’t it at all. You’re confusing the confinement’s of the stock exchange with the need to deliver product. Delisting doesn’t change the business model at all and new investors aren’t suddenly ignoring what underpins the business. Many don't believe him.
ETA as a (very tiny) long term investor myself, if I magically had the choice, I'd be much more interested in linking my investment to delivery of the Chinese GF in < X yrs, than xx k car sales in under 12 months.
Edited by zubzob on Wednesday 8th August 13:21
In many regards it makes perfect sense to delist. They can no longer raise funding through stock issue and staff are probably focussing more on their stock options than their work and Musk is suffering from having to respond to Wall Street. But not a single bit of that changes the model or what the proposed replacement investors are basing their valuation on. You can’t confuse the two.
JaredVannett said:
Surely its a no-no over there too?
As a side note, who had the authority to suspend TSLA yesterday - the exchange?
More an obligation by the exchange to suspend trading. Firstly because various limits were hit and secondly because it was unverified market sensitive news. It was a case of the Exchange abiding by its own rules. As a side note, who had the authority to suspend TSLA yesterday - the exchange?
As I mentioned earlier, I don‘t follow Tesla closely, so I might be wrong about this.
When the Model 3 was first announced, the price I think was about $30,000.
When production started, no basic $30,000 cars were built, only high spec. versions costing almost double the publicised price. If that is true, presumably customers who want a $30,000 car will have wait the longest, and might give up hope of buying their 'reasonably priced car'.
zubzob said:
DonkeyApple said:
Delisting doesn’t change the business model at all
I guess we will just have to agree to disagree about this. I'm sure the business model will change dramatically. This is just really basic stuff. The current value regardless of who owns the equity does not change.
You seem to be arguing that if the owners of the stock change then so does the entire business model and valuation, instantly. You must be able to see that this is a bonkers position to try and be arguing?
If I sell you a toilet roll it does not cease to be a toilet roll. It just remains a toilet roll but is owned by someone else. If you chose to do something to it later that changes its value then that’s one thing but it doesn’t at the point of purchase cease from being a toilet roll.
All that Musk is talking about doing is changing who owns his toilet roll. He’s not talked about that toilet roll mystically becomeing a unicorn because a different person now owns it.
All a delisting is is a change of ownership structure and a change of transactional method going forward.
arguti said:
Maybe i am being ultra thick but if his intention was to buyout the company/take it off the market, would it not be in his interest to do so at a lower share price? so why pre-announce that you intend doing so at a higher (than yesterday's) share price?
He’s not buying. Premium is needed to encourage enough of the other 80% to sell to the new stockholders. But it could also just be a ruse to squeeze out the shorts and give the Saudis a nice fat profit. He has been talking to the Saudis for months as they initially wanted him to issue new stock but that wouldn’t have helped his share price which he vitally needs to maintain. By forcing them to buy existing shares in the open market the process firstly mops up stock supply so shifts the price slowly up or at least stems any falls, the announcement then gives a further boost and then a cheeky little tweet to slam up demand when there were no sellers and the end result is a shored up share price, a return to positive sentiment, a phycologically important new higher price at a time when many brokers have been downgrading (everyone now thinks 420 is the price so it’s almost certainly going to go there) and huge numbers of shorts will have been forced out. Ultimately it’s kind of irrelevant whether anyone buys the company out at 420. So as not to be charged with stock manipulation someone has to step up to say that it’s them thinking of doing it but it doesn’t really matter. And if it is true then it’s probably not a bad move anyway.
WindyCommon said:
The phrase “Funding secured.” below may attract intense scrutiny. If he has a backer who has signed up for $420/share (perhaps plus the existing debt) then no problem.
This is a fascinating twist in a fascinating story. If he pulls it off, it will be perhaps the largest ever instance of “sticking it to the man”...
You have to think the "secured funding" is largely equity....the idea of banks funding what is effectively an MBO/LBO on this scale just doesn't seem possible to me. The biggest ever LBO was TXU which is a US Utility company (story didn't end well). banks lend against cash-flow which Tesla doesn't have enough of to develop it's vehicles never mind servicing bank debt. This is a fascinating twist in a fascinating story. If he pulls it off, it will be perhaps the largest ever instance of “sticking it to the man”...
So maybe he's found a Sovereign Wealth Fund or three that want to buy into the equity and take a significant stake of the company. Can't think how anything else could be possible. The idea of transferring the existing shareholder base to a private company is just nonsense IMHO.
Jon39 said:
An article that may be of interest.
Yes, and for me the extract below summarises the whole Tesla situation - a massive bet on a projected level of sales which is completely dependent upon there being no competition from established players in the industry. ".....reflecting shareholders’ expectations that Tesla will grow its production exponentially, its market capitalisation is equivalent to about $626,000 for every car it sold last year, compared to GM’s valuation of about $5,500 per car it sold."
I’d agree although competition is essential as it’s the only way the market will grow and allow Tesla to grow.
The ongoing risk is that the incumbents can build better quality cars, in every size and shape conceivable much more quickly and much cheaper.
They are running out of cash and at present wouldn’t be able to raise in the market without decimating their share price. They have $1bn of debt maturing next year that is linked to a shareprice being above 360 or they have to pay it back. Their credit rating is close to junk and they claim that they will be building a $2bn factory in China but haven’t the cash for that, the share price security or the borrowing capacity. Unless they get the 3 out the door rapidly and successfully to bring in the real cash to underpin absolutely everything.
The ongoing risk is that the incumbents can build better quality cars, in every size and shape conceivable much more quickly and much cheaper.
They are running out of cash and at present wouldn’t be able to raise in the market without decimating their share price. They have $1bn of debt maturing next year that is linked to a shareprice being above 360 or they have to pay it back. Their credit rating is close to junk and they claim that they will be building a $2bn factory in China but haven’t the cash for that, the share price security or the borrowing capacity. Unless they get the 3 out the door rapidly and successfully to bring in the real cash to underpin absolutely everything.
A vaguely interesting UK comparison is the career path of Richard Branson,
"He has never been a friend of the City. The relationship soured in the late 1980s when he listed his Virgin music business on the stock market, and the share price bombed. An outraged Branson took the company private, buying out institutional shareholders who he claimed did not understand the business."
However, he has had many failures in his time and much of the visibility of the the "Virgin" brand today is through licensing of the Virgin name or complex cross-share holding structures with other businesses.
One notable difference between Branson and Musk is that,
"Branson doesn't sit on the board of any of the companies within the Virgin group – underpinning his claim to be an entrepreneur rather than a businessman in the conventional sense."
"He has never been a friend of the City. The relationship soured in the late 1980s when he listed his Virgin music business on the stock market, and the share price bombed. An outraged Branson took the company private, buying out institutional shareholders who he claimed did not understand the business."
However, he has had many failures in his time and much of the visibility of the the "Virgin" brand today is through licensing of the Virgin name or complex cross-share holding structures with other businesses.
One notable difference between Branson and Musk is that,
"Branson doesn't sit on the board of any of the companies within the Virgin group – underpinning his claim to be an entrepreneur rather than a businessman in the conventional sense."
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