The Money Mustache Community

Learning, Sharing, and Teaching => Investor Alley => Topic started by: Runge on October 02, 2013, 03:43:57 PM

Title: Tesla Stock
Post by: Runge on October 02, 2013, 03:43:57 PM
Can anyone translate this into normal-speak?

http://techcrunch.com/2013/10/02/tesla-takes-a-breather-passing-184share-due-to-outstanding-convertible-debt-warrants/

Thanks ahead of time.
Title: Re: Tesla Stock
Post by: grantmeaname on October 02, 2013, 04:05:44 PM
Tesla sold bonds that could be converted to debt with an effective price of $184. Now that the stock is worth $184 investors are converting, which is increasing the number of shares outstanding and slowing the share price increase temporarily.
Title: Re: Tesla Stock
Post by: Runge on October 02, 2013, 04:52:14 PM
Interesting. So I suppose this is still good for Tesla (and TSLA), long term?
Title: Re: Tesla Stock
Post by: grantmeaname on October 02, 2013, 04:56:22 PM
What do you mean, it's still good? It was a deliberate decision of the CFO and management team when they decided to issue convertible bonds. This isn't really even an event...
Title: Re: Tesla Stock
Post by: KingCoin on October 02, 2013, 06:31:56 PM
In fact, in retrospect, it was a mistake for Tesla to issue converts and warrants. They would have been much better off using traditional debt financing. Of course, it's a "good" problem for them to have.

The zero-hedge take:
http://www.zerohedge.com/news/2013-10-02/tesla-plunges-potential-dilution-speculation-car-fire
Title: Re: Tesla Stock
Post by: workathomedad on October 02, 2013, 06:36:58 PM
Considering how insanely over priced this stock is, I'd take the Motley Fools advice and sell for a profit before it plunges.
Title: Re: Tesla Stock
Post by: zunachy on October 03, 2013, 06:09:33 AM
Interesting. So I suppose this is still good for Tesla (and TSLA), long term?

If you own TESLA then you now own a little less of it because the company had to take a small part of every shareholder ownership stake and give it to the bond holders.

For this though they no longer have to pay interest and principal on bonds they issued. 

Its the same thing really as say having a two partner business with debt.  A third guy comes in and says "hey let me repay the debt but you guys give me 33% of the business".

You would need to calculate the ownership loss and the reduced interest expense and principal repayment gain to figure out if this is a good thing.

The second part is easy to figure out -- its just straight arithmetic. 

The first one is hard or impossible to figure out -- what is a part ownership of Tesla worth?
Title: Re: Tesla Stock
Post by: Runge on October 03, 2013, 07:03:32 AM
Interesting. So I suppose this is still good for Tesla (and TSLA), long term?

If you own TESLA then you now own a little less of it because the company had to take a small part of every shareholder ownership stake and give it to the bond holders.

For this though they no longer have to pay interest and principal on bonds they issued. 

Its the same thing really as say having a two partner business with debt.  A third guy comes in and says "hey let me repay the debt but you guys give me 33% of the business".

That makes sense now. I'm not too familiar with the investing world jargon, and I mostly invest in ETFs. TSLA is my only non-ETF stock and it's only a handful of shares.

Anyway, thanks all for clarifying. Interesting stuff for someone who doesn't know much at all about the investing world.
Title: Re: Tesla Stock
Post by: tooqk4u22 on October 03, 2013, 09:06:15 AM
All that said is correct, but the 6% drop is due more to the reported battery fire - given the meteoric rise of the stock even a little event will spook investors.  The markets would have already priced in the dilution of the convertible bonds. 
Title: Re: Tesla Stock
Post by: KingCoin on October 03, 2013, 09:11:06 AM
All that said is correct, but the 6% drop is due more to the reported battery fire - given the meteoric rise of the stock even a little event will spook investors.  The markets would have already priced in the dilution of the convertible bonds. 

True. Most of the warrants and converts are owned by institutional investors who will be delta hedging. Therefore, the dilution effect will be gradual (and already priced in) rather than binary.