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$2 billion TSLA offering for Model 3 funds

$2 billion TSLA offering for Model 3 funds

After hours close on Wednesday...

Tesla will sell $2 billion of its shares, the company said Wednesday.

"Tesla is offering about $1.4 billion of shares with the remaining shares to be sold by Elon Musk to cover tax obligations associated with his concurrent exercise of more than 5.5 million stock options," the automaker said in a statement.

"On a net basis, Mr. Musk will increase his overall Tesla shareholdings through these transactions."

Tesla said that it would use the capital it raises to "accelerate the ramp" of its Model 3 mass-market vehicle.

lolousa | 18. Mai 2016

http://insideevs.com/tesla-to-raise-2-billion-373000-people-have-reserve...

It s also 373 000 reservation net ???? And no 400 000 or more.

Chunky Jr. | 18. Mai 2016

If they sell 400K cars a year with a profit of $5K per car (assuming they sell a lot of options for each car), that's $2B a year in profit. Seems like a good investment.

Bubba2000 | 18. Mai 2016

The return on the $1.4B should quite significant. I do not think it is enough to scale all the way to 500,000 S+X+3 and the GF capex. I think it will be enough to get the S+X+3 to 200,000 and pay for the tooling of the existing factory, Supercharger and service center expansions.

Regardless, I expect the initial ASP of the Model 3 to be closer to $60-70k, loaded up with options like higher capacity battery, AWD, Performance, Ludicrous, Autopilot software upgrades, air suspension, fancy seats and interior, Supercharger use package, fancy paint, etc. Priced like a BMW M3. The ASP of the 200,000 S+X+3 may be closer to $90k, or $18B in revenue. Net profit from operations could be 15% depending how the economies of scale achieved.

I do not see how the $35,000, 200 mile M3 is viable... not anymore than the Model S40 was viable either for Tesla or the consumer at the $59,000 price point. It is the equivalent of building a fancy ICE car like Mercedes S550 and then limiting it with 4 cylinder 2.0L engine and a 5 gallon gas tank and a "low price".

Not like Tesla needs to worry about the Bolt, Leaf, i3. Those are city cars. Tesla will be competing with the the ICE autos within its class.

Red Sage ca us | 18. Mai 2016

Bubba2000: Please, don't worry about the base Model ☰. It will be fine. Not a blight on the brand. Not a weight to be borne. Not a problem to be dealt with reluctantly.

Oh, and as for that 4-cylinder Mercedes-Benz S-Class...? Welcome to 2010. I'm pretty sure that every variant of the Model ☰ will be far more capable -- all without running on diesel.

"It will try to maintain a semblance of performance for the 2-ton-plus sedan even with a 2.2-liter diesel four-cylinder: The S250 CDI, due at dealers next year, will have a two-stage turbo that is expected to be good for 204 hp., a 149 mph top speed and 0-60 in about 8 seconds." -- USA Today, 'Green luxury? Mercedes-Benz to offer 4-cyl. in top-line S-Class'

"Daimler AG’s Mercedes-Benz is rolling out an S-Class sedan with a four-cylinder engine, a first in the model’s 60-year history as it vies with Bayerische Motoren Werke AG and Volkswagen AG’s Audi for the 'green' luxury driver." -- Bloomberg, 'Mercedes Downsizes S-Class in CO2 Race With BMW, Audi'

mos6507 | 18. Mai 2016

Tesla's financials and its mission-statement are in opposition. The quickest path to profitability for them would be to exploit cost-reductions by keeping the price artificially high based on the public's perception of Tesla as a prestige brand (ala Apple). Instead the S and X are being relegated to the high-end and the base model 3 will be sold at a low margin. If investors aren't happy with that they really should not have invested, because Tesla's mission statement has been transparent from the start and unwavering.

george210 | 18. Mai 2016

Finish the Gigafactory!!

david.jones24 | 18. Mai 2016

I think either there will be another capital raise in the future, or maybe the Gigafactory is further along in its pace, financially speaking, than we thought.

With Panasonic not releasing payments yet, and the capital raise being 2b, I wouldnt think so. Next shareholders meeting should be interesting.

Red Sage ca us | 18. Mai 2016

Profitability is an eternally beaten dead horse from one quarter to the next, forever and ever, without end. Elon Musk has other things in mind. Sell a product that people like at a profit. Take that money and do something even better with it. Money is a tool that allows you to forge more tools to reach new heights, bore through problems, and reach new goals -- which you use as a jumping off point to further endeavors. It's... a strategy.

david.jones24 | 18. Mai 2016

@ Red Sage

I agree with that, but no company can not be profitable and survive forever, right?

Drdpharris | 18. Mai 2016

@Red Sage ca us +1

john | 18. Mai 2016

Companies like BMW, Mercedes, and Volvo are fully capable of creating objects of desire when they put their minds to it. Your best friend, if you'd like a ~$35,000 awesome electric car, is Tesla's desperate need to reach scale in electric cars and fill the gigafactory before the incumbents wake up. They have perhaps 3-5 years at the most to do that.

Even another $70,000 car would not have done that.

slasher0016 | 19. Mai 2016

Bubba I hope to god you are not right, if the ASP is 60-70k that is way too much considering a lot of us are hoping the absolute max price is in the high 50s to mid 60s. If the average is that high then we're taking mid 70s to mid 80s for the max price which is absurd on a base 35k car.

millsdmb | 19. Mai 2016

Elon said that the Model 3 will be the best car available at 35K, why would that not be true? I have zero dollars above 35k to spend on my preordered Model 3.

mos6507 | 19. Mai 2016

"I agree with that, but no company can not be profitable and survive forever, right?"

Sure, but to the investment community, "forever" = the next earnings report.

TeslaTap.com | 19. Mai 2016

Amazon has done rather well using the growth over profits approach . It's one of many business strategies that can be used to be successful. Tesla is using this strategy combined with making a product that helps the world is just icing on the cake!

Red Sage ca us | 19. Mai 2016

david.jones24: Like I said, money is a tool. Just depends on how you use it. Some take a hammer and use it to build things. Others take the same hammer and use it for demolition. You can do much the same with money.

Ask yourself... Do you believe Elon will use his tools to build or demolish? Your answer to that question determines your position on his business principles.

SamO | 19. Mai 2016

@bubba2000,

I agree that a fully loaded M3 will likely fall between $60k and 70k.

However, the entry level M3 will be longer range than the entry level S60 by at least 7 miles. (208 v 215). My Wild Ass Guess is that options at minimum of Supercharging and AP for $3500 and a $38,500 will allow 99% of functionality. 0-60 in under 6 seconds.

Leather, Color, Roof, Ludicrous, Dual Motor, Extended Range are all great options but not necessary.

@slasher016,

Elon has predicted an Average Sale Price of $42,000 for the Model 3 but even if he's off by 20%, you seeing a sub $50K Model 3 ASP. Tesla did underestimated the ASP with the Model S which is now ~$100,000. Model X ASP is ~$125,000 but they aren't delivering X75 variant yet.

@david.jones24,

As long as Tesla is growing at 50% or more per year, then they want to invest all profits in expanding capacity.

@millsdmb,

I recommend Supercharging and Autopilot which will add to the price. However, they both can be activated AFTER purchase so that you can change your mind when you can afford them.

Octagondd | 19. Mai 2016

The problem with S40 was no SC. Also, the majority target market for S are people who tend to max things out because they can or because it helps long term value. Base M≡'s will sell and many people like me will extend our budget to get one which adds more target market to the equation than the regular BMW 3 series crowd.

Time will show that if you have an EV as a second vehicle, then you don't really need much more than double your round trip commute. If the EV is your only vehicle or you only own EVs then SC and range are important for the rare long trips.

Personally, M≡ is overkill for me. My family has a Highlander for long trips and carrying more payload. My Chevy Spark has plenty of range for my daily commute. The key for me with the M≡ is the "compelling" part of the equation. The Spark is a tiny box that is uncomfortable and is not very nice. M≡ gives me full family access as well as overkill on range for my commute which I can also use along with the SC network to take the little lady to Santa Barbara, Vegas or San Diego once in a while. If I could custom design my battery pack, I would choose a pack with 110-120 miles range. That would handle all my commuting needs, but unfortunately, it would not work for Supercharging or distance between SC, so I understand the need for 215 minimum.

Haggy | 19. Mai 2016

I would imagine that many people will buy the base version who never spent close to $35K before just as many Model S customers never spent half as much before. The base version might not be loaded with options, but if it gives drivers what other cars in the price range give, then it will be compelling, especially with tax credits, even to some people who never spent more than $20K before on a new car. For a person who spends $50/week on gasoline, a $30K car loan will have payments that are about the same as those of a $20K car loan plus gasoline expenses. If you live in a state where you get $10K in tax incentives and the car will cost $25K effectively, then it would come out to be as cost effective as getting a car for $15K and spending $50/week on gas. If a person has the ability to plan ahead and lower payroll deductions to save up the $7500 by the time they get the car, they will be in a good position.

david.jones24 | 19. Mai 2016

@ Haggy

I get what you're saying here. It will save money not having to buy fuel, no doubt. But there will be an increase in electricity usage to charge the Tesla, right? I think that often gets forgotten. The extra $40 a month on the electric bill would only save me $35 a month or so, but I'm a Prius driver. Only pointing that out because many folks out there are going to go from a hybrid to an EV.

adias.angel | 20. Mai 2016

@david.jones24 " Only pointing that out because many folks out there are going to go from a hybrid to an EV."

Where did you get this impression? From what I read between a few different "studies" of the typical Model ☰ customer, most actually seem to be coming from a small ICE vehicle. Is there some research I missed? Please share as I would love read.

topher | 20. Mai 2016

Anecdotal evidence of a thread on TMC has a lot of prius drivers planning on a model 3.

SamO | 20. Mai 2016

Hybrids account for less than 2% of total sales US sales.

http://www.hybridcars.com/december-2015-dashboard/

Badbot | 20. Mai 2016

My Model ☰ will be more than 2 times any other new auto I have bought before options.
Model ☰
RANGE
AP
Paint upgrade

david.jones24 | 21. Mai 2016

@ adias.angel

There was a "what car are you coming from" thread over at TMC. I also read an article here:

http://www.fool. com/investing/general/2016/05/10/who-are-all-these-tesla-model-3-buyers-anyway.aspx

They don't give actual numbers, so no idea where they're reporting that from either. I'm not claiming that Prius drivers will account for a large percentage of model 3 owners, rather that the number won't be small. Most environmentally conscious people that can afford the car will reserve one being the conventional wisdom.

mntlvr23 | 21. Mai 2016

@Adidas & @SamO -
I believe that DavidJones is right. A quick scan of the "Cars I've Owned" thread, shows that 14 of the 39 posters own hybrids. Not a scientific poll, but probably fairly representative.

That means perhaps around 36% of new M3 buyers are Hybrid owners (statistically significantly above the 2% hybrid owners in the general population).

Haggy | 25. Mai 2016

My numbers were very rounded but before I got my model S, I was spending about $75/week in gasoline. I spend under $600/year in electricity. That's maybe 17% of what I spent before. Since then, gas prices have dropped. I now spend closer to 22% of what I would have spent on gasoline. That doesn't mean my expense went up one bit. It means that if I used gasoline, I'd still pay many times what I pay now, but not as much as I would have when gasoline was more expensive.

On the other hand, it's fair to say that electricity prices are more predictable. Gasoline prices could go up on a moment's notice and might even go up several times a day in theory. Electricity prices are regulated by a state PUC and there will be months of wait, public hearings and justification before they can raise the price by a penny.

If gasoline dropped to 50 cents/gallon, it would be cheaper for me to buy gasoline. But if it meant saving $300/year, then I'd still go for the Model 3. In other words, gas can't drop low enough to steer most people away from a Model 3, but it can go high enough to steer people to an EV. On the other hand, if I factor in tax credits, gasoline could be free and it would take 12 years to break even. It goes to 16 years when I factor in the state rebate.

david.jones24 | 26. Mai 2016

@ Haggy

I'm with you, but I do have concerns about long term cost of ownership. I recently read the story of a Model S customer that had a $6,000 replacement cost for BRAKES on his car. That's extraordinarily expensive. If that cost outside of warranty is typical, many people will be discouraged from buying.

Maybe that was an extraordinary situation, but I guess we'll see as more and more Teslas age out of the warranty period. I've only read about this one instance, so it might be an outlier. It's early in the life of the car though.

Bubba2000 | 26. Mai 2016

It will take time for Tesla to bring costs down for Model 3. The initial cost of the battery, either from Panasonic or GF, may be on the hi side. Supply chain and manufacturing processes may not be optimum at the start. It makes sense to sell those initial cars loaded with options like a BMW M3.

Afterwards costs come down as processes are optimized. Volume goes up. Reliability increases. Supercharger network will double. In a tight budget situation, I would wait.

I test drove a SigP, bought a P85. Looked at a P90DL. Big difference and improvement.

Bubba2000 | 26. Mai 2016

Any significant GAAP profits and cash flow from operations would not only increase the stock price, but also allow the company to raise big capital with minimal dilution. Then Tesla could rapidly scale manufacturing, GF and equally important, the SC network.

Just the short squeeze would need $6-10B of stock to cover.

JeffreyR | 26. Mai 2016

@Bubba2000 wrote, "The initial cost of the battery [pack], either from Panasonic or Gigafactory, may be on the high side."

From my Tesla Advantage post:

- The Gigafactory will cut Battery Pack (BP) costs by at least 30% by reducing shipping costs, eliminating many import tariffs, reducing taxes, supply chain management, and economies of scale.
- In addition to hard cost savings, by having the production of battery cells and packs under one roof, the Gigafactory should help drive innovation and improvements.

Both Elon and JB are on the record about saving at least 30% on BPs from the Gigafactory. There is also the expectation that chemistry and form-factor changes will improve things. We know from the Model ≡ Unveiling that the BP has a different layout (see CAD renderings behind Elon).

 

How will the Model ≡ be $35K?

- BP will be at least 30% cheaper (probably more)
- Body in White (BiW) will be cheaper because of materials and focusing on ease of manufacturing
- Components will be cheaper because of economies of scale
- Single 15-inch screen instead of 17-inch + digital dash (rumored HUD may be an option, but should be less expensive than a digital dash regardless)
- Focusing on ease of manufacturing will save other costs beyond BiW; like all-glass roof
- High-profit options will help cover costs until The Great Ramp is in full swing: Autopilot, Supercharging upgrade (maybe), Ludicrous Mode, wheels and paint come to mind.

Red Sage ca us | 26. Mai 2016

Haggy wrote, "In other words, gas can't drop low enough to steer most people away from a Model 3, but it can go high enough to steer people to an EV."

+42! Bravo! The Ultimate Answer to the Ultimate Question of Life, the Universe, and Everything about "Why Does Red Sage Keep Waiting for a Fully Electric Corvette?" Yeah, even if gas were free, and a 'Vette got 100 MPG, I'd still want to drive electric.

JeffreyR: +21! Well said.

Haggy | 26. Mai 2016

That Canadian brake issue came up as a thread in the Model S forum, and if it were typical, there would be threads like that regularly. But it's the only one I've ever seen, and many who posted in it have said the same thing and have been in the forum for years. Of course that's expensive and it makes people think about whether they want a service agreement once the warranty expires. But you also have to consider that annual maintenance for the Model S is optional but is a few hundred dollars, and if the person got it done right before 50,000 miles, it would have included flushing the brake system and fixing any problems found since they would have been under warranty and it doesn't seem likely to me that the owner did that and then had problems 10,000 miles later.

It also seemed to be in a location with severe weather conditions. I'm not saying that people who live where weather is severe and salt is used heavily should expect their cars to fall apart, but I'd understand if anybody in that situation were concerned and wanted to pay extra attention to annual service and the extended service agreement. It seems more typical that people don't need any brake work done outside of maintenance aside from flushing the brake fluid which is now recommended for all cars at that interval.

Bubba2000 | 26. Mai 2016

I was expecting more repair issues with MS, but for a new company and car, it is not bad. Regardless, I bought 8 year warranty and service agreement. Why take a chance with $100+k car?

Nexxus | 27. Mai 2016

JeffreyR wrote:

- The Gigafactory will cut Battery Pack (BP) costs by at least 30% by reducing shipping costs, eliminating many import tariffs, reducing taxes, supply chain management, and economies of scale.
- In addition to hard cost savings, by having the production of battery cells and packs under one roof, the Gigafactory should help drive innovation and improvements.

What we're likely to see once the gigafactory is up and running, is a new form factor for the batteries. Something along the line of a 25850 (25mm dia. X 850mm tall). This will allow more capacity per cell even if the energy density remains the same chemical makeup it has today. They could keep the same skateboard platform and possibly not increase the thickness of it to make packs that achieve 100Kw or more for the Model ≡ and 120Kw or more for the Models S & X. While this will add some weight to the car the overall performance and range will be much better.

Time will tell...

rockyouever | 27. Mai 2016

I really hope Tesla uses some of that money to increase capacity of its service centers. In the CA bay area, it takes one month to schedule an appointment and that does not include two more weeks waiting after dropping off the car. it will be hell after M3 delivery.

topher | 28. Mai 2016

Just so no one is confused:
"25850 (25mm dia. X 850mm tall)"
should be 25mm dua x 85mm tall. The '0' appears to stand for 'round'.

Thank you kindly.