It turns out Elon Musk kicked in $100M of his own cash, and it looks like Tesla (TSLA) successfully raised $1B in a recent public offering. They are really going for it; The DOE loan will be paid off and the Model X will likely be manufactured.
TSLA, which closed at $87.59 on May 21st, has seen an impressive rise since they announced beating earnings on May 8th. I would have guessed that we would see a price drop after the dilution announcement, if it had not been for Musk kicking in $100M. I was curious where Elon got the money from so I decided to investigate. All his cash is tied up in SpaceX, Tesla and Solar City (SCTY) so I knew something tricky was going on. Don't forget, he almost went broke in 2010. It didn't take long until they let the cat out of the bag; he borrowed the money from Goldman Sachs. Adding to his previous, Musk's total debt to Goldman after the deal will be $275M. That said, Musk's stake in Tesla is probably 29% which would make his shares worth around $3B. Considering he has pretty much committed to making sure that Tesla will be a $43B company by 2022, it seems unfair to question his dedication. That said, I can't help but wonder what Musk will do once he is freed of the terms and conditions of the DOE loan. Once the loan is paid off, Musk will be free to sell shares in Tesla without violating some of the terms. In other words, it's possible that Musk is borrowing money from Goldman in order to maintain his ownership percentage in TSLA during the upcoming offering which then allows Tesla to pay back the DOE loan which then allows Musk to finally sell a few shares. How's that for seeing ahead a few chess moves?
Obviously he has to pay off some of his debts. Obviously he'd rather be on Mars. Obviously he's getting pretty sick of being single (so is Cameron Diaz apparently). Obviously there is certainly a possibility that Musk will transfer some of his TSLA wealth to SpaceX. But for totally illogical reasons, let's just blindly assume Elon Musk is truly dedicated to Tesla for the long haul.
I know many Seeking Alpha readers own shares in TSLA. Some of you sold half recently, and some of you have sold the balance. The logic behind selling is very sound: short squeezes tend to come back down nearly as fast as they went up. And when applying DCF or pretty much any other conventional valuation method, clearly TSLA is overpriced. That said, are you feeling what I'm feeling? A sense of hope about the future!
My Trefis estimate for TSLA is an exuberant and borderline fanatical $88.63 per share. To be clear, I'm not seriously recommending anyone should actually buy shares. My position is this: I don't mind holding on to Tesla stock for 20 years, and I mainly own it because it makes me feel good to be a part of this phenomenon. I'm not rich enough to buy a Tesla Model S, but I had enough money back in the summer of 2010 to buy a few shares of TSLA!
Many people now think of Musk like somewhat of a superhero. I'm a bit embarrassed to say that I have felt this way about him for a long time. He's pretty much doing what I have dreamt of doing my whole life: fighting global warming and pushing boundaries in outer space. I haven't even touched space travel in my career yet and he's doing both at the same time! The ideals that motivate his businesses align with my own better than anything I've ever come across. It is a very strange feeling to be an engineer/entrepreneur in the EV industry and watch someone living your entrepreneurial dream. I'm jealous. I'm stoked. I'm in awe. I'm inspired.
I guess what I'm getting at here is this: people have been so gloomy and depressed for so long about energy and the future that they just might need a superhero. I'm not joking. Musk embodies a sense of optimism about the future and he has been succeeding against all odds. After countless failures that made clean-tech pundits look like fools, Ballard Power (BLDP), A123 (AONEQ.PK), Solyndra, EnerDel, BP Solar to name a few, it was hard to be bullish about clean-tech. If you tried to tell people that, "the future looks bright green", most of them would just point to the huge list of failed clean-tech companies and laugh. There has been a compelling narrative brewing in the USA for the better part of the last 30 years that I call "The Green Debacle Narrative". It goes something like this: global warming is not real, there is nearly unlimited oil, laissez-faire capitalism is good, government subsidies for clean-tech innovation is bad, and therefore all companies who fundamentally adhere to the bright green narrative will fail.
This explains a big part of the reason for the last couple weeks of irrational exuberance. My theory is that there has been a lot of pent up demand for successful clean tech companies chasing after too few profitable companies. There are many ordinary and independent investors out there who simply want to invest in companies they really believe in but they have probably been talked out of doing so because their father/mother/sister/brother/wife/husband will laugh at them after pointing to all the failures of the past. Like a phoenix rising from the ashes of failed EV launches, the Tesla Model S has given people hope again. Before Tesla you really only had a small handful of profitable clean tech companies who had any chance of becoming multi billion dollar companies. The rest of the profitable clean tech earnings pie was/is held by large-cap companies who do "a little clean tech on the side" such as Panasonic (PCRFY.OB), GE (GE), and Toyota (TM). Furthermore, I imagine it would have been really hard for a hedge fund investor to make a bet on TSLA three weeks ago when all his/her friends were short!
I once drove a Tesla roadster through the mountains of Colorado with nothing but the sound of the wind in my hair and the chirps of the tires. That's what pushed me over the edge. If you know someone who is short Tesla, tell them to do themselves a big favour: go out and test drive the Model S. I'm a former Prius owner and I have also driven a Nissan (NSANY.OB) Leaf, a Chevy (GM) Volt, and a Fisker Karma. I have engineered battery packs and drive trains. Nothing compares to what I have seen with the engineering and manufacturing quality of a Tesla Model S. The vehicle itself is a breakthrough and the NUMMI manufacturing plant is nothing short of phenomenal.
But I'm not saying "buy TSLA". I'm not predicting TSLA will go higher. I'm not even saying that Tesla will succeed. What I am saying is this: if you believe in the bright green narrative, (that humans will innovate, and flourish in the face of challenges like global warming) and if you really believe in the long term future of industries like Solar and EVs, go out there and vocalize your irrational exuberance from the mountain tops! And let Elon Musk lead the way.
Anyone else care to join in on the fun?
Additional disclosure: I'm an engineer, an environmentalist and an entrepreneur. I recently sold 3/4 of my TSLA shares. This the first article I have ever written.