Tesla Inc - Discussion about the company and CEO.

[JSH]

Tesla has announce they will attempt to raise capital by offering $650 million in common stock and $1.35 billion in convertible bonds.

https://ir.tesla.com/news-releases/n...tible-senior-0

[redpoint5]

What is a convertible bond, and how does the risk/reward sound to you as an investor?

[JSH]

Originally Posted by redpoint5

What is a convertible bond, and how does the risk/reward sound to you as an investor?

A convertible bond means that the principal can be converted to stock instead of paid back in cash if certain criteria are met.

As an investment the devil is in the details. Convertible bonds usually pay lower interest than a straight up bond. For the investor the risk or reward is all based on the difference in the stock price at maturity vs the conversion rate set when the bond is issued. If the stock price is higher at maturity than the conversion rate they win. If it is lower they at least get their money back*

*Assuming the company is still in business and has the cash to pay the principle.

[redpoint5]

What sets the rate of return on the bond if the stock price criteria is not met, or during the maturation period? It sounds like convertible bond holders would always want to achieve the stock price.

At maturation, must the bonds be converted to cash, or can they carry forward as bonds?

...and this discussion reminds me of how I saved all my meager money as a kid and bought gov't bonds. It amounted to insignificant amounts of money 15 years later; perhaps $800. I did use most of it to pay for college classes.

I remember cashing in the last $200 in bonds to fund a kegger back when I had no money. I'm familiar with the process in which the poor remain poor.

Shortly after that I started working full-time and living in my car for nearly 2 years. I amassed cash very quickly and haven't looked back.

[JSH]

Originally Posted by redpoint5

What sets the rate of return on the bond if the stock price criteria is not met, or during the maturation period? It sounds like convertible bond holders would always want to achieve the stock price.

The interest rate (coupon in bond terms) it set when the bond is sold. It pays out just like a normal bond with interest payments scheduled for the life of the bond. That schedule could be monthly, quarterly, yearly, etc. It depends on the terms set when the bond is sold.

Originally Posted by redpoint5

At maturation, must the bonds be converted to cash, or can they carry forward as bonds?

At maturate the principle is either paid in cash or paid in stock.

The advantage of a convertible bond for the company issuing the bond is that there is the potential to pay the bond in stock (which is basically free) instead of burning cash. The advantage to the buyer is that their is the potential to get gains above and beyond the simple interest earned on the bond.

[Piotrsko]

So back a while ago, there was some sort of trigger requirement that the stock value had to have a threshold value otherwise it was a cash repayment.

Anything like that in this issue?

[JSH]

Originally Posted by Piotrsko

So back a while ago, there was some sort of trigger requirement that the stock value had to have a threshold value otherwise it was a cash repayment.

Anything like that in this issue?

Yes there will be a conversion price but we do not know what it is. From the press release:

"The notes in this offering will be convertible into cash and/or shares of Tesla’s common stock at Tesla’s election. The interest rate, conversion price and other terms of the notes are to be determined."

EDIT: There is no update to Tesla Investors page but Bloomberg is reporting the following for the bonds:

2% coupon compounded semiannually.
Conversion at 27.5% above a $243 stock price so that would be $310
Maturity in 2024

In comparison you can get a fully guaranteed 5 year CD that compounds daily at 3% interest. No investor is buying these bonds for the interest payments. They will only really pay off if the bonds convert to stock at a much higher price than $310. (Converting at $310 would be a 5% annual return + the 2% coupon for a total gain of 7%)

Another interesting note is that 25% of the money raise today will be used to pay off older bonds that mature in November.

In another article it was noted that Tesla convertible bonds are popular with Tesla short sellers. They use the bonds as a hedge against the stock rising.


The Bloomberg Article: https://www.bloomberg.com/news/artic...rings-jv82k0mf

[ME_Andy]

Tesla tech is so amazing. First production car ever to break 2.3s 0-60 in MotorTrend testing, beating out an $845,000 Porsche. Also, lots of Autopilot comparison videos are popping up now. Looks like it could handle my commute these days:

https://insideevs.com/news/348726/vi...opilot-1-vs-2/

[Hersbird]

Originally Posted by ME_Andy

Tesla tech is so amazing. First production car ever to break 2.3s 0-60 in MotorTrend testing, beating out an $845,000 Porsche. Also, lots of Autopilot comparison videos are popping up now. Looks like it could handle my commute these days:

https://insideevs.com/news/348726/vi...opilot-1-vs-2/

But the Demon runs 2.1 by that standard, did it 2 years ago, and was $85,000. Who needs awd when the front tires aren't even on the ground?

[JSH]

Originally Posted by Hersbird

But the Demon runs 2.1 by that standard, did it 2 years ago, and was $85,000. Who needs awd when the front tires aren't even on the ground?

More on the topic: https://www.motorauthority.com/news/...theres-a-catch

Dodge Demon 0-60
W/ Rollout - 2.1
W/O Rollout - 2.3

Tesla S P100D 0-60
W/ Rollout - 2.28
W/O Rollout - 2.53

Reality... It doesn't matter if you aren't racing.

If you are looking for straight line performance per dollar you will have a very hard time beating a motorcycle. There are lots of bikes that will run 0-60 in less than 3 seconds for under $20K new.

EDIT. I have a BMW R1200RT touring bike. Apparently it will do 0-60 in 3 seconds.