This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Tesla's Elon Musk: A Financial Wizard

NEW YORK (TheStreet) -- Tesla Motors (TSLA) deserves the attention it is getting after repaying all of its Department of Energy loans, but few in the hyperbolic business press are focusing on the right things.

Tesla's DOE loan repayment, characterized in the media as a breakthrough in repaying taxpayer-backed alternative energy loans, actually speaks bigger volumes about the Elon Musk-run company's financial savvy as it nears a third year trading on public stock markets.

Musk, Tesla and its bankers Goldman Sachs (GS), JPMorgan (JPM) and Morgan Stanley (MS) should get the biggest praise for their canny use of a brief moderation in financial markets to improve the company's financial footing in coming years.

Tesla's May 17 capital raise and it's DOE loan repayment on Wednesday were both likely inevitable. Doing so now, however, greatly improves the company's ability to report profits for shareholders and fund its continued growth.

A look behind the numbers of Tesla's capital raise and it's DOE loan repayment indicates the deals have little to do with the optics of weaning the company from the support of Uncle Sam. Ford (F) and Nissan, after all, are in no rush to repay even larger DOE loans.

In the rearview mirror, Tesla's $913 million capital raise by way of a $600 million convertible note offering and a $313 million secondary stock offering is likely to prove a particularly shareholder friendly move.

Creating shareholder value, after all, is CEO Elon Musk's top job, even if he has ascended to an almost super-hero stature in some media circles.

First off, Tesla's note and stock offering may actually be accretive to current shareholders, over the long-term. The company also appears to have managed a harrowing few years funding its rollout of the Model S sedan without the help of booming bond markets, only to gain access to markets at near-record cheap rates.

Both moves augur well for Tesla's continued use of financial markets to fund expansion efforts.

Had Tesla been less opportunistic, the company easily could have found itself in a position of destroying shareholder value to raise capital and at a competitive disadvantage to competitors such as Ford, General Motors (GM) and Nissan.

Tesla had to repay its $465 million DOE loan by 2022, and by 2018 to extinguish millions of stock warrant contracts that carried highly dilutive exercise prices of $7.54 and $8.94 a share, given current prices.

Within that prism, the company's capital raise may slightly dilute near-term earnings per share, according to Goldman Sachs estimates, but accretive over the long-run.

For instance, in Tesla's secondary stock offering, the company issued 3.4 million new shares at an offer price of $92.4 a share to help it fund its loan repayment. On Wednesday, the company confirmed in an 8-K filing with the Securities and Exchange Commission it had extinguished about 3.1 million stock warrants at prices of either $$7.54 or $8.94 a share.

Issuing stock at $92 a share to help cancel warrants less than a tenth the price ultimately delivers shareholder value, even if the creation of 3.4 million new shares is dilutive to current earnings-per-share forecasts.

Of course, Tesla CEO Elon Musk said the company was well on its way to repaying DOE loans ahead of schedule even before the company's near $1 billion capital raise, signaling there was little likelihood the DOE's stock warrants would ever hold value.

Swapping out of $465 million in cheap government financing for $600 million in similarly cheap private market financing through the convertible note offering also stands out as smart financial management.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,943.81 +28.74 0.17%
S&P 500 1,967.57 +2.89 0.15%
NASDAQ 4,415.49 +19.2860 0.44%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs