There has been some controversy concerning Tesla’s convertible bond offering to finance the Gigafactory, even among Tesla bulls. In issuing debt rather than stock, Elon Musk is betting the farm.
Skeptics point out that if business conditions change adversely during the five years that the bonds mature, such that the stock becomes unattractive for conversion purposes, Tesla will face a liquidity crisis that could throw it into receivership.
Moreover, short sellers can buy the convertible bonds and hedge their shorts, which disincentivizes them to exit their positions. This could make a stock decline even worse.
Elon Musk, however, has history of making successful all-in bets.
Musk bet the farm with SpaceX, the first private company to send a payload to the International Space Station. It wasn’t an easy shot. After two spectacular failures, Musk reportedly put up the last of his personal savings from the sale of PayPal in an 11th hour deal to raise funds for a third and final launch attempt.
Had that rocket failed to achieve orbit, we would not be discussing Tesla’s convertible offering because Musk would be regarded as a brilliant visionary and engineer, but not bankable. Elon Musk, however, believes in himself and his mission in the same way that other pragmatic visionaries before him have.
The first Apple computer was assembled from parts bought after Steve Jobs and his partner sold their van and some possessions in order to raise $1300 to build a prototype. After securing a purchase order on COD terms from a local retailer, they then convinced a national electronics chain to give them 30 days to pay for parts to build 50 more. The rest is history.
Visionaries believe in themselves, but they cannot succeed alone. Internal management issues plagued Apple and they are endemic in the U.S. auto industry, as well. When the Freemont factory that Tesla bought in 2011 was managed by GM, it had the lowest morale of any auto factory in the country, plagued by absenteeism and even sabotage.
Tesla has a bold leader, a great product line and the seal of approval from Wall Street’s investment banking establishment. Morale and management at Tesla Motors are the critical variables going forward. Nothing else matters now.
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Learn more at Reid’s comprehensive Tesla analysis site here.
