Tesla's Capital Raise Offered No Real Benefit To The Company Or Its Suffering Shareholders

As I began to write this column on Tesla, as I always do, I checked the price of Tesla shares. Tesla shares' Wednesday closing price of $244.84 deserves some historical perspective. On February 28th, 2014, Tesla shares closed at $244.81. So, in honor of CNBC's mindless"if you put $10,000 into stock X on this date you would have this much today" articles, I would note that if you put $10,000 into Tesla on February 28th, 2014, today you would have $10,001.20.

So, we’ll call that an even $2.7 billion to begin. First and foremost, we have to deduct the net proceeds from the “additional note hedging transactions” Tesla entered into as part of the convertible note offering. Essentially Tesla buys long-dated calls on its stock from the underwriters of the deal, which would lessen the dilution to existing Tesla shareholders if Tesla shares were to rise beyond the notes’ indicated conversion price of $309.53.

Make no mistake: Tesla sold new debt in large part to pay off old debt. So, I will subtract that $1.1 billion in maturities from our tally of $2.4 billion--the end of 2019 is less than 7 months away, after all. Less the costs of financial engineering, Tesla only raised $1.3 billion from the combined offerings.

So, we started with $2.7 billion in net proceeds from the offerings, and Tesla’s financial engineering, massive debt load, and prior-period cash burn have already used up $1.9 billion of it. Doesn't leave much to run the business, but it is in covering the costs to maintain the business that that $800 million disappears.

So if Tesla should be spending about $680 million per quarter in capex, but spent only $280 in the first quarter and $325 in the fourth quarter of 2018, that leaves a deficit of $750 million that needs to be covered.

Fake news.

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