Morgan Stanley Underwrites TSLA Convertible Offering Day After 100% Stock Price Upgrade

Tyler Durden's picture


Tesla has just announced it intends to issue a $1.6 billion convertible note offering "for the development of a "Gigafactory" and a "Gen III" vehicle." While not that unusual - and of course, why not take advantage of low cost financing and a surging momentum in your stock - what we did find at least intriguing was the underwriters included Morgan Stanley. This is the same firm (though we would be very sure that Chinese walls ensured total lack of knowledge) that doubled their price target (from $153 to $320) for TSLA yesterday (following the analyst's now almost clairvoyant questions during the earnings conference call). Paging Henry Blodgett?

Four things jump out at us...

1. During the recent conference call, MS analyst Adam Jonas seems to be advancing the idea of a capital raising for this battery factory on the behalf of Musk, who just agrees with the concept...

Adam Jonas: Elon, the stock price and the results have been obviously performing very well lately. You’ve got some great investment opportunities and some growth opportunities ahead of you, not only in the auto business but also in the non-auto business and the battery business. So I’m just wondering, how are you thinking about being opportunistic and pulling in some fresh capital to help derisk the plan, plan for a force majeure, or to see some of these opportunities that you have.


Elon Musk: Yes, I think that’s a good idea. I agree with that. I think that would be the smart move. We can talk more about that next week with — and also discuss the Gigafactory plans. Unfortunately, I can’t say anything [indiscernible] right now, except that I agree. I think your advice is good.


Adam Jonas: Okay. And I don’t want to follow up [ph] or anything, but as a follow-up to that, I guess, is a — would a capital raising be a prerequisite to launch the Gigafactory? Or is that an understatement?


Elon Musk: I think it’s necessary to have it occur in 3 years. It’s not necessary if we allow that time frame to expand.

2. Morgan Stanley raises their price target for TSLA by over 100%

January 25: Raising our price target to $320 from $153 previously.

We understand the change to our fair valuation of TSLA shares is significant – more than $13bn on a fully diluted share count of 142m.


This magnitude of value attribution is equivalent to an additional $1.7bn of after tax free cash flow by 2020, growing at 5% with a 12% discount rate. A $1.7bn NOPAT number is enormous within the scope of Tesla’s existing business path (our current forecasts call for $0.8bn of net income by 2015 and $2.1bn by 2020).


However, from the perspective of a global auto industry (>100 million annual unit sales and >$2 trillion of revenues by 2020) or a global electric utility industry (0.7 billion households combined in US + Europe + China out of households 1.4 billion globally) it is a tiny number. Our previous forecast of 500k complete TSLA vehicles by 2028 would account for 40bps of global market share.


Successful? Yes. Disruptive? Not really at all.

3. Day after Stock soars $60, Morgan Stanley underwrites a huge convertible note issue for TSLA (implicitly reducing an dilution via the stock ramp).

Tesla announced today an offering of $1.6 billion aggregate principal amount of convertible senior notes in an underwritten registered public offering. Of the total offering, Tesla will offer $800 million aggregate principal amount of convertible senior notes due 2019 and $800 million aggregate principal amount of convertible senior notes due 2021. In addition, Tesla intends to grant the underwriters a 30-day option to purchase up to an additional $120 million in aggregate principal amount of convertible senior notes due 2019 and an additional $120 million in aggregate principal amount of convertible senior notes due 2021, for a total potential offering size of up to $1.84 billion.


Goldman, Sachs & Co., Morgan Stanley, J.P. Morgan and Deutsche Bank Securities are acting as joint book-running managers for the offering.

and 4. In the disclosures, of course, Morgan Stanley admitted it would seek compensation from Tesla (which it did)...

In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from Autoliv, Avis Budget Group Inc, BorgWarner Inc., Dana Holding Corp., Delphi Automotive PLC, Ford Motor Company, General Motors Company, Goodyear Tire & Rubber Company, Hertz Global Holdings Inc, Johnson Controls, Inc., Lear Corporation, Magna International Inc., Tenneco Inc., Tesla Motors Inc., TRW Automotive Holdings Corp.

As long as CNBC (and everyone else in the status quo hugging mainstream media) keeps pumping every word from the sell-side as gospel, this will never end...

While we are sure this is a mere coincidence and that sell-side research which absolutely cannot pay its own way has learned its lessons, as one smart chap wrote us...

This is exactly the modus operandi of the dot-com analysts: roping retail investors in at higher and higher levels while the companies concerned massively diluted shareholders leading to an implosion... I cant remember a time apart from Dotcom where price targets were jacked up in this way right before a capital raising.

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Wed, 02/26/2014 - 17:53 | 4482131 NOTaREALmerican
NOTaREALmerican's picture

In a nation of pathological optimists the most pathologically optimistic are kings.

Wed, 02/26/2014 - 17:58 | 4482150 Deathrips
Deathrips's picture

DHS and NSA controlled cars are good for the markets and children, I tells ya!


Guess MS needed something to balance their books.


Wed, 02/26/2014 - 18:23 | 4482256 Manthong
Manthong's picture

Screw batteries.. if I win the lottery, one of these goes in the garage.

Wed, 02/26/2014 - 18:44 | 4482332 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Nice toys for the rich. For the rest of us, we have to drive real vehicles.

Wed, 02/26/2014 - 19:12 | 4482443 WayBehind
WayBehind's picture

What market manipulation?

Wed, 02/26/2014 - 20:13 | 4482645 disabledvet
disabledvet's picture

a hot butt in your face with dollar bills hanging off it?

Wed, 02/26/2014 - 18:58 | 4482393 Bunga Bunga
Bunga Bunga's picture

The European cars are even better, they will come with a "kill switch" for the police.

Wed, 02/26/2014 - 19:34 | 4482523 max2205
max2205's picture

There's no business like show business....step right up....

Wed, 02/26/2014 - 20:26 | 4482683 disabledvet
disabledvet's picture

Ummm...yep to this comment above and "step right up" if you like to the comment below.

The purpose of the media is without a doubt first to pump their own stock price (think Blackberry for example...or even better Time Warner which is now the subject of not just mere "buyout speculation" but an outright offer) and then pump up the stock price of "pretty much everything else in town."

We also live in the Age of New Media (WTF is What'sApp?)
Ummmm "why not join the Party?"????

These folks at Morgan Stanley and GS put it mildly...not just doing their job but "doing it exceptionally well." (ye olde "hint hint" approach is both novel, creative, functional--the stock price, incredibly, rallied on this news, and i agree...PURE EEEEEEEEEEEVIL.)

At the end of the day this is really exceptional work. This is not "the" folks....i've actually seen a Tesla...sure, only one...but i have seen it! it does exist! And yes...i've been to Cape Canaveral too...i have seen the Space Shuttle on the launch missed the launch because a friggin' Cat 1 hurricane came through...and while it didn't ruin my vacation it sure would have been icing on that cake to see "that candle get lit." (i just happened to be down there.)

So...sure, "this comes to us as in a dream."
But if you're short....

Wed, 02/26/2014 - 17:57 | 4482137 TruthInSunshine
TruthInSunshine's picture

Blodgett can't dump that POS Business Insider for 100 million measly Bernankebucks.

Back on core topic, HOLY SHARE DILUTION, and as soon as common posts/comments from "day traders" and "stock pickers" having IQs of at least 85 start to mention it is not possible to do what Tesla claims it is going to do (in terms of securing enough lithium & base chemicals to produce the number of batteries it will need to to meet their projected vehicle production target - but hey, at least they partnered with a de facto Bankrupt Panasonic to build out an alleged gigabatteryfactory to do so in the alleged future -, or that their per unit vehicle production costs are RISING) it will be too late to short TSLA, one of the greatest short opportunities in a long, long time.

Wed, 02/26/2014 - 18:32 | 4482285 Babaloo
Babaloo's picture

To be perfectly honest, we don't know the share dilution yet, because we (or least I) haven't seen the conversion terms yet. 

Or have the terms been announced?

Wed, 02/26/2014 - 17:56 | 4482147 Central Bankster
Central Bankster's picture

"As long as CNBC (and everyone else in the status quo hugging mainstream media) keeps pumping every word from the sell-side as gospel, this will never end..." 


well, until it goes straight vertical up, then followed by straight vertical down.  this is bubble mania part2.  The only quesiton i have, does this end with bubble stocks crashing or the currency crashing?

Wed, 02/26/2014 - 20:36 | 4482715 disabledvet
disabledvet's picture

"caviar emptor." having said that...the battery factory is not projected to be finished in the next six months. you can't say the company itself is putting forth unrealistic expectations.

our VIEW of these expectations is obviously "fodder for debate."
and that IS real money on the table.
Know any folks who held ten thousand shares of Apple from say...ten years ago?

This place has a problem in thinking that "money doesn't exist period."
That's why i get all "uppity" about people who are billionaires that avoid paying their taxes. Is the market not going through the roof enough to say "the system your paying into matters"?

That "system" includes bail outs for YOUR banks!
That "system" includes a WAR!

The argument seems to be for those seeking "shelters" that Government need not exist in any form whatsoever...not merely "crony capitalism."
I would label that "anarchy"...which sounds, well...kinda dangerous to me.

I mean "the fact that we're all doing it" makes it okay?
Tesla is going up.
What if the market itself gets a little toppy here though?
How can the Fed lower interest rates any further again?
Shall we throw in a Russian "take out" of Ukraine just for fun?

Why not indeed...

Wed, 02/26/2014 - 17:58 | 4482153 FuzzyDunlop21
FuzzyDunlop21's picture

2028 lol. I could be dead by then. TSLA certainly will be. One thing is for sure though. My gold coins will still be around. 

Wed, 02/26/2014 - 18:19 | 4482239 NotApplicable
NotApplicable's picture

Since when do bankster scams die?

Thu, 02/27/2014 - 10:05 | 4484172 TruthInSunshine
TruthInSunshine's picture

That's the question.

Tesla is now trading @ negative 404 dollars (investors are lending them 404 dollars for every 1 dollar of losses they demonstrate).

Wed, 02/26/2014 - 18:03 | 4482176 buzzsaw99
buzzsaw99's picture

Wed, 02/26/2014 - 18:13 | 4482206 Rainman
Rainman's picture

< keep em comin' >

Wed, 02/26/2014 - 18:45 | 4482341 Vampyroteuthis ...
Vampyroteuthis infernalis's picture


Wed, 02/26/2014 - 19:23 | 4482442 1fortheroad
1fortheroad's picture

Infospace INSP, one of Henrys favs.


Somethings never change.


When the game was up, the investors took a beating. Stock worth $1,000 in March 2000 was worth only $2.67 by June 2002. The company once worth more than Boeing fell to the value of two Boeing 777s.

Wed, 02/26/2014 - 18:15 | 4482223 Sufiy
Sufiy's picture

Lithium Catalyst: This Week Is Tesla Lithium Battery Gigafactory Week. 

Tesla brings the spotlight to the Lithium Battery industry and Lithium as strategic commodity. Numerous reports have shown that further rapid production development by Tesla Motors is impossible without the advance in production of Lithium Batteries. Only economy of scale can bring the cost benefits allowing Tesla Model E for electric cars mass market to happen. Tesla Model X roll out was affected as well due to the shortage of Lithium Batteries. Elon Musk replies to the challenge in style with the announcement of the Lithium Battery Gigafactory with still mysterious partners involved and a lot of rumours about the talks with Apple.
  Lithium batteries mass production means much lower prices and it will be the new long awaited catalyst for Tesla Motors and Electric Cars market in general. Situation will be even more interesting with serious development of Lithium Power Storage Batteries for Wind and Solar industries. Elon Musk's foundation of Solar City helps to bring this story up to the scale as well.
  AutoGreenBlog reports:
"The production volume is expected to be at least 30 gigawatt-hours-worth per year. That's more storage than all the lithium battery factories in the world combined produce now."

   It means that only Tesla's Gigafactory will take all Lithium supply allocated today to Lithium Batteries and the production of high purity Lithium will have to double. Industry insiders know that Nevada in no way is able to produce even any close amount of Lithium required, so it will be taken from international market.

  Lithium ETF LIT is breaking out to the upside after the long consolidation phase and double bottom reversal in 2013. We are finally reaching the stage we were writing about for years here, when security of Lithium Supply will become the main priority not only the price. Companies like Ganfeng Lithium from China were quietly rumping up its production facilities to meet upcoming Lithium demand and acquiring strategic stakes in Lithium developers like International Lithium with projects in Ireland, Canada and Argentina. ILC.v has waken up recently in the market and we will monitor the developments next week. Junior miners with solid Lithium projects and access to the Capital with strong strategic ties to Lithium industry end-users will be the beneficiaries of this new Bull stage in Lithium market.

Thu, 02/27/2014 - 01:16 | 4483543 Oh regional Indian
Oh regional Indian's picture

As long dong as GengFen Lithium is merely RUMPING up their production, our asses should be fine.



Wed, 02/26/2014 - 18:24 | 4482260 walküre
walküre's picture

Elon Musk: Well, we have the flux capacitator now and it shouldn't be a question of "if" but "when" every car in America will be a flying car. Congress needn't worry about upgrading our desolate infrastructure when cars won't be using roads anymore.

Wed, 02/26/2014 - 18:34 | 4482294 SniffySniff
SniffySniff's picture

This is isolated - the bubble saw dozens of crappy companies explode in value, with out revenues, or in some cases , a product.  Have you ever been for a ride in a Tesla? It is magical.  I'll take this trade.

Wed, 02/26/2014 - 19:22 | 4482481 walküre
walküre's picture

the valuation is not in the car, let me tell you this much

Wed, 02/26/2014 - 19:47 | 4482565 goldflows
goldflows's picture

Ill be enjoying a magical ride down TSLA with puts.  Then maybe Ill buy one. 


I recomend you go long lube.. you know, as a hedge?

Wed, 02/26/2014 - 18:37 | 4482300 Flakmeister
Flakmeister's picture

Talk about ringing the bell at the top.... 

This may be a repeat of the MolyCorp convertible....

Traded as high as $135, currently at around 10....

Wed, 02/26/2014 - 18:49 | 4482361 Winston Churchill
Winston Churchill's picture

We finally agree on something.

Probably both wriong.

Wed, 02/26/2014 - 18:56 | 4482383 Cacete de Ouro
Cacete de Ouro's picture

Adam Jonas (after thinking the conf call is finished): So Elon, nicely handled, so what time is the dinner party in your house on Friday night?

Elon Musk: shhh, you numbo, there might be someone still on the line. I'll call you on your cell ok?

Wed, 02/26/2014 - 19:03 | 4482411 Cacete de Ouro
Cacete de Ouro's picture

Also...this must win some kind of sell-side grovelling prize of the week...or even the month.

Adam Jonas:."Elon, the stock price and the results have been obviously performing very well lately. You’ve got some great investment opportunities and some growth opportunities ahead of you, not only in the auto business but also in the non-auto business and the battery business."

These sell-side Kuntz have no shame...bend over and back it in

Wed, 02/26/2014 - 19:07 | 4482431 Downtoolong
Downtoolong's picture

Fiat stock pricing.

Yes we can, so we definitely will.


Wed, 02/26/2014 - 19:20 | 4482455 EtTuEtTu
EtTuEtTu's picture




Seriously though the parts of article above might as well be entered verbatim into the congressional or criminal trial record to save time on the eventual circle jerk hearings about; "how can things like this happen?", "weren't there any warning signs?", "any safeguards in place?", "what can we do to make sure this never happens again?".    

Wed, 02/26/2014 - 19:21 | 4482476 NOTW777
NOTW777's picture

this is the new norm - Roth did it recently on RNN - pump with a $3 price target and less than 5 days later bang, an offering and guess the ID of the placement agent - Roth;  stock has been languishing in the $1 range

Wed, 02/26/2014 - 19:28 | 4482504 InanimateCarbonRod
InanimateCarbonRod's picture

zzz...zzzz......wha? whazzup?  oh, sorry. Yes, you have reached market surveillance department of the SEC....I'm napping, dammit!

Wed, 02/26/2014 - 23:00 | 4483242 Emergency Ward
Emergency Ward's picture

Hey ICR!  Ya hear Tesla's gonna come out with a convertible?

Wed, 02/26/2014 - 19:40 | 4482544 Godisanhftbot
Godisanhftbot's picture

 Ode to Shorty


 You Musk remember this,

 A miss is just a miss,

 A buy is just a buy,

 The fundamental things apply,

 As they squeeze your skanky ass into oblivion!!!!!

 (c) 2014 All Margin Calls Reserved



Wed, 02/26/2014 - 20:38 | 4482721 highwaytoserfdom
highwaytoserfdom's picture

TARP FED notes released tomorrow  FIVE YEARS....   How long before Elon's carbon credit per car sold to GM to move to China  gets released?  This crony capital is UN F$CKIN believable. What real engineers look like.. Not some Goldman, Sachs & Co., Morgan Stanley, J.P. Morgan and Deutsche Bank Securities book-running vampires praying on pensions of the uninformed Muppets worthless middlemen and their propagandist.

Wed, 02/26/2014 - 20:49 | 4482766 ejhickey
ejhickey's picture

cheap FED dollars at work.  wish i could tap into some that .   i have a few projects that need some cheap  financing.

Wed, 02/26/2014 - 21:12 | 4482866 adr
adr's picture

So the traders start getting into lithium derivatives, lithium futures, etc driving the market price of lithium up substantially causing battery prices to skyrocket causing any hope of a sub $30k Tesla to evaporate.

I thought the Model X was the gen III car? What does Elon need money for? I thought production of the Model X was paid for through the Model S.

The "affordable" Tesla is at least ten years off at the current rate of development. Tell me how Tesla is going to sell more cars than every single luxury manufacturer combined by 2018 again. 

The entire market of luxury cars in the US, including every Audi, BMW, Mercedes, Jaguar, Porsche, Acura, Infiniti, Lexus, Lincoln, Volvo, Cadillac, and Buick model is 1.5 million cars. How is Tesla going to take the entire market share of twelve brands and 100 or so models with two models in four years to justify its stock price? If you count cars over $75k it is only a few hundred thousand units. It is impossible to sell a few million $75k+ cars. 

Wed, 02/26/2014 - 22:04 | 4483067 toomuchtom
toomuchtom's picture

Jack Grubman's LVLT upgrade comes to mind. Yes, folks, it's back to Jack. That's how bad it has gotten.

Thu, 02/27/2014 - 01:58 | 4483594 edge
edge's picture

The same questions were asked regarding a capital raise days prior in either a CNBC or Bloomberg news interview....nothing clairvoyant about asking how you'll pay for your new factory (after the plan has been announced). But everything else here is hauntingly familiar...Mary Meeker anyone?

Thu, 02/27/2014 - 02:52 | 4483649 TheCosmicTaco
TheCosmicTaco's picture

Junk bonds redux...

Paging Michael Milken... Michael Milken... Michael Milken has NOT left the building... Michael Milken please report to front office...

The end is near...

Thu, 02/27/2014 - 07:22 | 4483798 Sufiy
Sufiy's picture

Lithium Stocks Surging On $5B Tesla Gigafactory Plan To Ramp Up Mass-market Electric Car

Now we have more details on Tesla Gigafactory and Elon Musk's plans  to produce Lithium Batteries on a mass scale and dramatically reduce the cost. This plan brings catalyst to the whole electric cars and energy storage industry. As we have discussed before, Lithium materials industry is getting the boost as well. Investors are taking notice and Western Lithium is already up 300% this year. Rodinia Lithium and International Lithium are getting the bids now as well. After the initial hype in the Lithium sector the main question was when the mass market for electric cars will be coming to life. Now we have this answer and access to the capital will define the new winners among Lithium Juniors. International Lithium with its strategic partner Ganfeng Lithium from China, one of the top lithium materials prioducers in the world, are getting ready for the surge in demand.

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