Tag: Tesla

Source: EWN

Elon Musk, the charismatic chief of electric automaker Tesla, has overtaken Bill Gates to become the world’s second richest person, according to the Bloomberg list of billionaires.

The South African-born Musk, 49, added $7.2-billion in wealth on Monday alone following Tesla’s latest surge. He now has an estimated $128-billion.

The outspoken Musk, who is also cofounder of SpaceX, had already overtaken numerous luminaries in recent weeks, including Facebook Chief Executive Mark Zuckerberg and Bernard Arnault, the head of French luxury giant LVMH.

Now the only person he stands behind is Amazon founder and CEO Jeff Bezos, whose wealth is estimated at $182 billion.

The upheaval of the coronavirus pandemic has allowed the ultra-rich to amass even more wealth as technology companies have gobbled up more market share of the economy.

In 2020, Tesla shares have surged more than 500% and the company is now valued at more than $500-billion.

Musk, who owns about 18% of the shares, has made some $100-billion during this stretch.

Tesla shares have gained further since the presidential election of Joe Biden, who favours more aggressive policies to address climate change. Tesla was also boosted by an announcement that it is being added to the prestigious S&P 500 index.

 

By Molly Smith/Bloomberg for Fin24 

One hundred and forty-three days. That’s how much time Elon Musk has till the big bills start coming due in the debt market.

That, in truth, wouldn’t be considered a ton of time in most circumstances. But in 2018, with capital markets still minting bonds and loans by the trillions, it’s still relatively comfortable runway for a company like Tesla to secure a financial reprieve.

So, despite all the hand-wringing over the manufacturing setbacks and the perplexing Musk tweets and the run-ins with regulators, Tesla’s stock still trades at astronomical valuations and its bonds show almost no concern of a default in the near term.

For now, at least. The question is whether Musk can use these 143 days to appease the Securities and Exchange Commission with changes to Tesla’s board – including his own removal as chairperson – and then start producing electric cars fast enough to generate the cash needed to either start paying back those debts outright or convince creditors to roll them over.

Third-quarter production numbers were solid, with Tesla hitting its target for its crucial Model 3 sedan, but that growth needs to be sustained in the months ahead.

“The market isn’t indicating there’s any imminent danger, they have time,” said Chris Hartman, a senior portfolio manager at Aegon Asset Management. “It’s only five months, but as long as there isn’t some global liquidity crisis, they should be able to access the capital markets, albeit at a much higher rate, to keep the story alive.”

Representatives for Palo Alto, California-based Tesla didn’t respond to requests for comment.

More than $1.5bn out of Tesla’s total debt of $11.5bn is coming due in the next 13 months. Some of the first maturities actually fall over the next few weeks but the first payment of real consequence comes due on March 1: a $920m convertible bond with an equity-conversion price set at $360.

With the stock trading now at a mere $262, it seems unlikely that investors will be able to swap into the shares, meaning that Tesla will be on the hook to pay the money back.

With the stock trading now at a mere $262.80, it seems unlikely that investors will be able to swap into the shares, meaning that Tesla will be on the hook to pay the money back.

Credit markets, for now, are taking that in stride. Tesla’s 5.3% bonds due 2025 are now yielding more than 8%, in line with other debt with similar CCC ratings, according to Bloomberg Barclays index data.

But there are signs of doubt: More creditors are hedging their bets in the derivatives market. It now costs almost $2m upfront to insure $10m of Tesla bonds from default over five years in the credit derivatives market. Just two months ago, the upfront cost was less than $1.3m.

Tesla has put its investors through the wringer with a series of high-profile departures, persistent operational challenges, and most recently, a lawsuit from the SEC that threatened to remove Musk, the visionary who has become synonymous with the Tesla name, from the company entirely.

He settled that case late last month by agreeing to pay a $20m fine, appoint a new chairperson to the board and add two independent directors.

To the relief of investors, he was allowed to stay on as CEO. (Days afterward, Musk unnerved investors again by expressing his frustration with the settlement – which isn’t final yet – in a tweet that mocked the SEC.)

Expensive financing

Musk has said that Tesla won’t need to raise more money as it will generate positive free cash flow in the second half of this year and crank out sustainable profits for the first time in its 15-year history.

In any event, there are no good financing options right now anyways. The most likely, according to Bloomberg Intelligence analyst Joel Levington, would be the sale of another convertible bond or a capital raise in the equity markets.

The sale of collateralised debt – typically a cheaper form of financing – would be possible too, but such a transaction would likely rattle existing bondholders because the new creditors would jump ahead of them in the repayment line, Levington said.

All of which just underscores the urgency of Musk’s efforts to sell more cars and start generating steady profits before the first of those big bills comes due.

By Tom Schoenberg, Greg Farrell and Matt Robinson for Fin24 

All it took to draw the US Justice Department into investigating Tesla was a single tweet by chairperson Elon Musk. But now that prosecutors have a toehold, they can dig in to look for other signs of misconduct at the electric-car maker.

The investigation is in its very early stages and where it leads is anyone’s guess. Many securities fraud probes over the years have started with a bang like the one that knocked as much as 6.6% off Tesla’s shares with Bloomberg’s report of the probe on Tuesday.

Some of those are flash news reports that trickle off without charges. At the other extreme are companies like Theranos, which pumped up its valuation with what the government said were false promises, leading to charges against founder Elizabeth Holmes and another senior executive.

“Criminal investigations are never good if you’re a public company because they open up a Pandora’s box and prosecutors will follow threads wherever they lead,” said Paul Pelletier, a former Justice Department prosecutor.

Tesla co-operating

Tesla said it’s co-operating with the Justice Department, noting that it received queries but no subpoena. The initial scrutiny surrounds Musk’s tweet on August 7 that he had money lined up to take the company private. Shares jumped. Later, he and his board said there was no formal proposal for the funding and they abandoned the plan.

The Securities and Exchange Commission quickly opened a civil investigation into the tweet and issued a subpoena for information, people familiar with the matter told Bloomberg.That was followed by the Justice Department probe. Neither the SEC nor federal prosecutors have accused Musk of any wrongdoing.

To prove criminal securities fraud, prosecutors would have to show not only that Musk’s statements were false, but that they were made willfully. That would require establishing that Musk purposely planned to inappropriately drive the shares higher or prevent them from going lower.

One area investigators would look for such evidence is in emails or other internal documents, according to former federal prosecutors.

Musk has often vented his frustrations with short sellers on social media. In May, Musk tweeted that he was expecting the “short burn of the century” and suggested that investors who were betting against the company start “tiptoeing quietly to the exit …”

The “funding secured” tweet did in fact trip up bearish sellers when the company’s shares rallied more than 10%. Government investigators will be trying to determine whether there was any connection to that statement and his desire to hurt short sellers.

Once federal prosecutors begin looking into Musk’s comments, they may also examine other things, including why the company’s new chief accountant picked up and left after just a month on the job – though he said at the time he had “no disagreements with Tesla’s leadership or its financial reporting.”

Under securities fraud laws, prosecutors could go back five years and more if they find evidence of a conspiracy.

Very often what starts out as an investigation of one subject takes a completely different turn, said Michael Koenig, who prosecuted former Qwest CEO Joseph Nacchio for insider trading.

‘Wait a minute’

“When we were investigating Qwest, we initially thought there were accounting fraud and revenue recognition type issues,” said Koenig, now a partner at Hinckley, Allen & Snyder. “As we started digging into it, however, we realised, ‘Wait a minute. Joe Nacchio is selling large amounts of his stock at the same time he’s telling the general public that the company is doing great, when he knew it was not.’”

Nacchio served four years and five months in prison after his 2007 conviction in the case.

A more recent example, according to Koenig, is the Hillary Clinton email investigation, which was reopened by the FBI after agents came across possible undiscovered evidence while investigating former New York congressman Anthony Weiner for sexting with a minor.

The lack of a subpoena from the Justice Department doesn’t mean its investigation is limited, according to Pelletier. Prosecutors can piggyback on the SEC’s subpoena to get a hold of whatever information Tesla discloses, obviating the need to issue a grand jury subpoena of its own, he said.

“That’s the normal course of action when the SEC has already issued a subpoena,” Pelletier said.

The SEC already was investigating whether Musk’s vehicle production forecasts misled investors before the regulator started scrutinising whether he had secured funding for a Tesla buyout, Bloomberg News reported on August 9.

Some of Musk’s predictions have been way off. Musk said during a May 2016 earnings call that, during the second half of 2017, he expected Tesla would produce 100 000 to 200 000 Model 3 sedans – the lower-priced car that’s pivotal to the company generating profit. Tesla ended up building fewer than 3 000 Model 3s in last year’s second half.

The Justice Department’s interest in Tesla isn’t good for investors, who saw the company’s share price drop just after the investigation was revealed. But the probe doesn’t mean that Palo Alto, California-based Tesla will go the way of Theranos.

Unlike Theranos, Tesla manufactures popular automobiles. While the SEC and the Justice Department might find that the company and some of its executives exaggerated Tesla’s financial performance, government officials would probably be hesitant to inflict a critical blow on a company that employs more than 35 000 people globally.

The nature and depth of any exaggerations by Tesla will ultimately determine how the company is treated.

If Musk’s conduct at Tesla is deemed to be a case where the CEO’s unregulated passion led him to hyperbolic claims, the resulting penalties are likely to be serious, but measured. But if evidence emerges that a win-at-all-costs mentality from the top led some executives to cook the books, the penalties could be severe.

Dyson, best-known as a manufacturer of vacuum cleaners, hand driers and air filters, will build an electric car by 2020, founder James Dyson said Tuesday.

The company is investing one billion pounds ($1.34 billion) to develop the car, plus the same sum to create solid-state batteries to power it, Dyson said. These investments will dwarf money the company is spending on research and development for its vacuums and air filters.

Dyson is joining a crowded field, with manufacturers from Volkswagen AG and Daimler AG to Toyota Motor Corp. and Elon Musk’s Tesla Inc. all competing to popularize electric vehicles. While most of these companies are using lithium-ion batteries in their current models, Dyson said its car would use solid-state batteries that are smaller, more efficient, easier to charge and potentially easier to recycle. Toyota is also working on solid-state batteries and said earlier this year it hopes to have them in electric vehicles by the early 2020s.

Dyson said his electric car would be “radically different” than those being designed by other car makers, including Tesla. “There’s no point doing something that looks like everyone else’s,” he said. “It is not a sports car and not a very cheap car.”

He said he hopes the vehicle will be just the first of a line of electric vehicles from Dyson and predicted that within a few years electric cars would be the largest source of revenue for the company, eclipsing its existing products.

Dyson has been investing in battery technology for several years. In October 2015, it bought a startup called Sakti3 for $90 million. The Ann Arbor, Michigan-based firm had claimed major breakthroughs in the design of solid-state batteries. But these were disputed by other battery researchers, and in April Dyson said it was abandoning its agreement to license Sakti3’s patented battery technology from the University of Michigan, which had spun out the company.

Dyson said Tuesday that his company now has two competing solid-state battery development groups: Sakti3 and a separate team working on a different approach. The U.K. government has given Dyson a 16 million-pound grant to help it do battery research.

Dyson said the company already has 400 engineers dedicated to its car project, which has been working in secret for the past two-and-a-half years. In the past year, the company has made a number of prominent hires from Aston Martin and Tesla. Dyson employs about 4,000 in the U.K.

The founder said Dyson was going public with its project now — even though it does not expect to be able to deliver a car to its first customers until 2020 or early 2021 — because secrecy around the project was constraining its ability to do deals with auto parts suppliers for the new car and also hampering recruiting.

One of the biggest impediments to electric car adoption has been the lack of charging infrastructure, and some manufacturers including Tesla are building station networks. But Dyson said his company did not have enough money to build its own charging network as well as the cars and the batteries.

“Tesla has $5 billion, I don’t have that kind of money,” he said. He said he hoped the U.K. government would provide money to help subsidize the installation of 21 kilowatt plug points in people’s homes, allowing them to rapidly charge an electric vehicle in their own garage. Today, only a handful of homes have these hook-ups.

While design work for Dyson’s car will be at Hullavington Airfield, a former training site for Britain’s Royal Air Force in Wiltshire, England, battery and car manufacturing facilities will likely be in Asia, the company said. Dyson currently makes products in Singapore, Malaysia and the Philippines.

“We will make it wherever it is best to make it,” Dyson said of the car. The largest market for the new electric cars will be in “the Far East” and this argues for putting the manufacturing facilities there too, he added.

Source: Bloomberg

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