Tesla’s (financial) engineering feat


By Steven Mufson

Tesla Motor’s stock is always in overdrive – and not just because of its sleek cars. To keep moving forward in recent months, Tesla has relied on feats of financial engineering as much as automotive engineering, courting wealthy investors and selling additional stock as the stock price soared. .

“There are a lot of people who thought Tesla would fail. Many of them recklessly chose to short our shares,” Tesla Chief Executive Elon Musk, 42, said at an annual shareholder meeting on June 4. He added with a laugh: “I guess those people aren’t here today.”

Since then, the stock has steadily climbed, hitting an all-time high of over $180 per share on Thursday. It has quintupled this year, bringing Tesla’s market value to nearly $22 billion, nearly a third of Ford Motor’s. Some other comparisons: In the first half of the year, Ford sold 1.29 million vehicles in the United States and over 400,000 in China, while Tesla sold a total of around 10,500. Ford made $2.8 billion in profit in six months, while Tesla lost $19 million.

Tesla’s over $70,000 Model S isn’t your grandfather’s Oldsmobile (or Rambler). The luxury sedan goes from zero to 60 mph in 5.4 seconds, it has retractable door handles, a 17-inch touchscreen and a liquid-cooled lithium-ion battery that sits under the body of the car.

The company is also not like other automakers. Its stock has behaved like a 1990s tech company, one whose disruptive potential and promise shares more with Silicon Valley than Detroit. South African-born chief executive Musk, who made his fortune on PayPal, the money transfer service, is a seller and a brand in his own right. He turned his Model S into something like an expensive watch, a stylish handbag or a nifty gadget rather than just a way to get to work.

Much to the hype, Musk unveiled plans for stations that would offer free high-speed charging or, borrowing an idea from a now-bankrupt rival, a 90-second battery swap. (Musk declined to be interviewed for this article.)

Musk’s cachet was bolstered by his other futuristic visions, such as his SpaceX commercial company and his sketch of a 600mph solar-powered “Hyperloop” to ferry people in pods from Los Angeles to San Francisco in half a mile. -time. (Details have yet to be released.) On Tuesday, Musk announced on Twitter that Tesla would build a self-driving car within three years that would drive more than 90% of the miles driven; he also issued a call for engineers to work on the project. “Intense efforts are underway at Tesla to develop a practical autopilot system for the Model S,” he said.

“Expectations are sky high,” said University of Houston finance professor Craig Pirrong. “He has an almost cult following among a lot of people. All of these things create the risk of a very big fall.

Yet Musk was able to build Tesla by relying on big financial firms, which played multiple roles – and gave him time to lose money while striving to make a profit. It’s the kind of financial respite that few start-ups get.

Goldman Sachs, for example, serves as an analyst, investor, underwriter and personal banker. He owns a 0.34% stake in Tesla shares, up from 0.66% earlier this year. He also subscribed to Tesla stock offerings and gave $275 million in personal loans to Musk so he could add to his own stock. Musk owns 23.3% of the company, a stake worth more than $5 billion. The stock offering in May was done quickly and well-timed as the stock price jumped to $92.24.

Morgan Stanley, one of the managers of Tesla’s recent $600 million convertible bond offering, owns 4% of Tesla shares. Toyota (2.4%) and Daimler-Benz (4%) were the first Tesla investors to give the established auto industry a stamp of approval.

“One of the things we try to do at Goldman Sachs is to identify the most promising people and companies and provide them with banking services. This helps entrepreneurs grow their business and hire people, generates wealth for them and investment banking for us,” said Stuart Bernstein, global head of the cleantech and renewable energy group at Goldman Sachs. “We believe Elon Musk is one of the greatest entrepreneurs most exciting of the century. He has the qualities of Henry Ford, Steve Jobs and Bill Gates all rolled into one. »

Not everyone thinks Musk belongs in this pantheon. An unusually large number of investors bet against the company by shorting its shares – a trade in which investors profit when the stock price falls. So far this year, it’s been a bad bet, and the volume of Tesla shares being sold short has fallen from an astonishing 40% of available stock to 25%, still 10 times the level considered typical in most markets. companies.

The company received rave media coverage. A Bloomberg Businessweek cover story in August, which surrounded the car with hearts on a pink background, sang, “Anyone hoping to take Tesla Motors’ hype down a notch will want to ignore the company’s second-quarter results released Wednesday after -midday. Tesla made a profit, surprising Wall Street analysts, and said it shipped a record number of its Model S luxury sedans that are a hit with the wealthy and environmentally conscious.

In fact, Tesla recorded a loss of $30.5 million, which included the sale of regulatory credits. Under California law, automakers must sell a certain percentage of zero-emission vehicles. Those who don’t must buy credits from companies such as Tesla. Tesla has also sold credits to companies seeking to meet US energy efficiency standards. Together, those credit sales amounted to $69.4 million in the second quarter, or 17% of Tesla’s revenue or $13,475 for each of the 5,150 cars sold.

By the end of the year, the market for these regulatory credits will largely dry up as more automakers introduce new electric or hybrid vehicles.

WP Bloomberg


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