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An Update from Elon Musk

teslamotors.com

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Re: An Update from Elon Musk

#51

Post by confluence »

I've been 100% long TSLA since the beginning and really don't understand the reasoning behind the doubts people have - given how little they actually know about a) the car industry and b) electric batteries and c) the ability to think on first principles and not by analogy. But I guess everyone has the right to an opinion - even if most of them aren't a) warranted b) backed up or c) logically reasoned.

We are past peak oil. Battery tech will reach oil parity within the decade. Solar PV will reach grid base line within the next 2 decades. Fusion will be introduced within the next 3 decades. Electric engines already run 92% efficiency (vs the combustion engines 15%) and global warming externalities are finally being priced.

The electric car is a no brainer (it wasn't a decade ago, and it'll be too late a decade from now) just like the electrification of trains were. This company will electrify suburbia and reduce costs while they are at it.

Timing + skill = Very nice stock returns (timing is about 10x more important).

Disclaimer: Goes without saying - I am long TSLA and will continue to be long for the foreseeable future.

Re: An Update from Elon Musk

#52

Post by codex »

westicle wrote: post #50
codex wrote: post #37

As of last quarter, Tesla had $777M in assets and a whopping $715M in liabilities--leaving a net balance of only $64M. Given that their balance sheet is decreasing by an extraordinary $30M a month, that would have left only two months until the company was insolvent. No wonder the U.S. government wants their $465M paid back more quickly than planned. The company has lost over $850 million since being founded in 2003.

That isn't actually what "insolvent" means. Insolvent refers to a situation in which an entity is unable to pay its debts as and when they fall due. Not whether they have a positive or negative asset position. Strictly speaking, the balancesheet is irrelevant to Tesla's solvency. My tennis club owns a property worth $20m from which it operates. It has debt of only $1m and repayment obligations of $100,000. It generat…

"Insolvent" can be defined either relative to cash flow or to the balance sheet; from http://en.wikipedia.org/wiki/Insolvency:

"Cash flow insolvency involves a lack of liquidity to pay debts as they fall due. Balance sheet insolvency involves having negative net assets—where liabilities exceed assets. Insolvency is not a synonym for bankruptcy."

Re: An Update from Elon Musk

#53

Post by csomar »

westicle wrote: post #50
codex wrote: post #37

As of last quarter, Tesla had $777M in assets and a whopping $715M in liabilities--leaving a net balance of only $64M. Given that their balance sheet is decreasing by an extraordinary $30M a month, that would have left only two months until the company was insolvent. No wonder the U.S. government wants their $465M paid back more quickly than planned. The company has lost over $850 million since being founded in 2003.

That isn't actually what "insolvent" means. Insolvent refers to a situation in which an entity is unable to pay its debts as and when they fall due. Not whether they have a positive or negative asset position. Strictly speaking, the balancesheet is irrelevant to Tesla's solvency. My tennis club owns a property worth $20m from which it operates. It has debt of only $1m and repayment obligations of $100,000. It generat…

Nope, your tennis club is not "insolvent". It's illiquid. It means it doesn't have cash but enough worth to take pay his obligations. At least, that's what Sal has explained in his KA videos.

Re: An Update from Elon Musk

#54

Post by dredmorbius »

rdl wrote: post #8
witoldc wrote: post #6

Earlier quoted context omitted.

That's why Obama win is so important to Tesla Government Motors.

I think the DOE loan has probably hurt Tesla's stock price more than it's helped -- the rumors about late repayment, etc. have probably depressed it from 33-35 down to 29. If Tesla hadn't taken $1 from DOE, it would be able to attack Fisker and Chevrolet and others for being Government Motors, and wouldn't have gotten name-checked in Romney's debate answer tonight. The only money MuskCo's should be taking from the go…

The Government can be a fickle VC / angel investor, at times. Especially when there's no broad political support for a particular position.

Much as any other investor representing a non-monolithic interest base can be fickle.

When the government's all-in (oil, energy, ag, air travel, transport, military), it's very dependable.

Re: An Update from Elon Musk

#55

Post by pyoung »

saraid216 wrote: post #49
intended wrote: post #42

Earlier quoted context omitted.

No you would never do this. Right or wrong as a matter of managing your finances this is just not something a competent CFO would allow on his watch. You accepted a loan, the loan originator had some terms and you are both in compliance and acceptance of those terms. There is no rational or financial reason to make that choice. I understand doing good, but there is a consistency in the choices firms which do good mak…

Okay, you've called this action incompetent, irrational, and inconsistent, but you haven't actually explained why it is any of these things. Maybe it's obvious to someone with more working knowledge of accounting, but it's not clear to me. Could you explain?

A extremely simple analogy here would be home loans. If your home loan costs you ~4%, but you can make 10% in the stock market, than it would make no sense to pay off your home loan early, because you could use that money and invest in the stock market (a net of 6%).

I am no accountant, but in Tesla's case, it sounds like they now have a pile of money that they are going to sit on for emergencies, and that it may make sense for them to pay down this loan early with some of this cash because it reduces their liabilities (by reducing the interest they owe), whereas sitting on it nets a 0% (or near 0%) interest rate. Also, I wouldn't be surprised if there was some political/strategic motivation for paying off the loan. Unfortunately, Solyndra has become synonymous with the loan program, and I wouldn't be surprised if there is some pressure from investors or the board to distance Tesla from the program because of that.

Re: An Update from Elon Musk

#56

Post by revelation »

waterlesscloud wrote: post #45
droithomme wrote: post #10

Musk's public statements are the nicest and most logical ones I've seen made by a modern CEO. No sense of spin. Always a pleasure to read.

The sentence "I don't know how to state this more clearly." is a minor mistake. I often say things like that, and it never works to my benefit. I'm trying to cut it out. It indicates frustration with the audience, and it almost always comes across that way.

Well, he probably is frustrated. I'd be if I had to take time out of my work to respond to something that amounts to some bizarre political pissing contest.

Having to justify a 500m loan to a pioneering technology company in one of the biggest recessions? That's a rounding error compared to the billions spent on rescuing failed banks or in researching fancy new ways to blow stuff up.

(Sorry, I, too, am frustrated.)

Re: An Update from Elon Musk

#57

Post by intended »

saraid216 wrote: post #49
intended wrote: post #42

Earlier quoted context omitted.

No you would never do this. Right or wrong as a matter of managing your finances this is just not something a competent CFO would allow on his watch. You accepted a loan, the loan originator had some terms and you are both in compliance and acceptance of those terms. There is no rational or financial reason to make that choice. I understand doing good, but there is a consistency in the choices firms which do good mak…

Okay, you've called this action incompetent, irrational, and inconsistent, but you haven't actually explained why it is any of these things. Maybe it's obvious to someone with more working knowledge of accounting, but it's not clear to me. Could you explain?

In brief it comes down to cost of capital.

There is X cost to holding debt, and Y cost of holding cash.

The cost of debt is pretty clear - its the interest rate.

The cost of cash/equity is the opportunity cost of what you could be doing with it. (Either invest or spend it on growth or if none of the above are viable, then give it to the investors who can use it more effectively)

A CFO's job is to figure out the lowest possible cost of capital the firm can obtain, by having the right loans and investments and cash on hand as required.

Many companies may even find carrying debt to be cheaper than holding cash.

Doing moral good is a great thing, but its not part of the remit.

Now if you had a firm which does "good". You would usually do that through a different set of vehicles - you could support a foundation (which has tax breaks too! so makes even more sense).

There are lots of ways you can incorporate moral good into your daily activities and there are many incentives by the government to encourage such behavior.

Very few incentives though (if any) are centered around the concept of repaying loans to the govt faster so that they could * hypothetically* use the loans for something else equally or more worthy.

Especially since govt loans are usually part of a programme that has a corpus decided by legislation which matters more to disbursement than repayment.

Re: An Update from Elon Musk

#58

Post by hristov »

QuantumGood wrote: post #36
hristov wrote: post #22

Earlier quoted context omitted.

Ok, even though i am generally pro tesla and like musk, in order to prevent this from becoming a total worshipfest i will provide some facts that elon is not sharing. It is true that tesla has made all their payments under the doe loan agreement. But they were not in total compliance with said agreement. The agreement required that tesla keep certain financial ratios up to certain levels, and tesla failed to do that.…

Well, he seems to address this directly where he states: "We did suggest that holding nine months worth of principal payments in advance in a reserved account was a bit extreme and, moreover, was never part of our original loan agreement. The DOE agreed and reduced the advance payment reserve account to six months." You saying "keep certain financial ratios up to certain levels, and tesla failed to do that. As a resu…

The ratio I was talking about was the debt/ebitda ratio. See e.g.:

http://www.investorguide.com/article/11088/tesla-tlsa-crashe...

Re: An Update from Elon Musk

#59

Post by pyoung »

rdl wrote: post #28
mullingitover wrote: post #13

Earlier quoted context omitted.

> The government is a horrible VC or lender, and the MuskCo's could do a lot better. 96% success rate is 'horrible'? http://www.greentechmedia.com/articles/read/what-abound-sola...

96% on this program so far is possible, but there are numerous other examples of the USG investing in businesses which fail, and even worse records for state/local governments (stadiums and convention centers being the classic example)

There are numerous intangible benefits to these programs beyond the success rate of the businesses. Jobs get created, technology is invented or improved, and supply chains and support networks are created or are made more efficient. While VC's might only care about the balance sheet, the government isn't in this to make money, they are in this to make our lives better.

Re: An Update from Elon Musk

#60

Post by netcan »

droithomme wrote: post #10

Musk's public statements are the nicest and most logical ones I've seen made by a modern CEO. No sense of spin. Always a pleasure to read.

There are a few comments here regarding disclosure & such.

Still, I think it's amazing how much speaking with the voice of a person stands out in a positive way. It's similar to the impact that a Warren Buffet shareholder letter has. It's describing an enormous conglomerate/investment-fund/financial-institution/holding-company, but it's being described by a person and its being described for you.

We are so used to things that sound like they are written by institutions for other institutions, that when something sounds like it was written by a person for people, it stands out.

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