6 votes

With cash dwindling, Tesla seeks to raise $2 billion in debt and equity

5 comments

  1. [5]
    asoftbird
    Link
    Probably a stupid question, but how can they make money off of selling debt?

    to raise another $2 billion by selling a mix of debt and equity.

    Probably a stupid question, but how can they make money off of selling debt?

    1. unknown user
      Link Parent
      It's a mannerism that isn't entirely clear. They're not selling pre-existing debt that Tesla has, but rather selling debt as a product. i.e. If you give us x dollars, we are indebted to you, and...

      It's a mannerism that isn't entirely clear. They're not selling pre-existing debt that Tesla has, but rather selling debt as a product. i.e. If you give us x dollars, we are indebted to you, and will pay you back at a rate that benefits you in the long term, and us in the short term.

      Effectively, it's a loan.

      7 votes
    2. nic
      Link Parent
      They are selling convertible senior notes—Tesla sells the debt to a lender, and the lender gives Tesla cash. By 2024, Tesla will have to repay the debt along with interest. It's a convertible...

      They are selling convertible senior notes—Tesla sells the debt to a lender, and the lender gives Tesla cash.

      By 2024, Tesla will have to repay the debt along with interest.

      It's a convertible bond, so it will pay less than a regular bond. Convertible gives the lender an option to take Tesla stock (at a fixed price) rather than cash when the loan matures. If the stock has gone up by 2024, the lender will take the stock at a lower price, and then sell the stock at a profit. So the upside can be massive.

      If Tesla goes bankrupt, the lender may not recover the full amount loaned, if any.

      Currently Tesla's bonds are all rated as Junk, as there are serious concerns if Tesla will be around by 2024, so the market rate is 8.37%.

      5 votes
    3. TheInvaderZim
      Link Parent
      They're pretending to be a bank but on a public market. So if you bought one of these notes, you'd basically be giving them money (presumably with interest) and putting them into debt, but, after...

      Tesla will also be offering $1.35 billion in convertible senior notes—debt that gives the lender an option to take Tesla stock (at a fixed price) rather than cash when the loan matures.

      They're pretending to be a bank but on a public market. So if you bought one of these notes, you'd basically be giving them money (presumably with interest) and putting them into debt, but, after a period, be given the option to take stock at way cheaper prices than what the market, instead of cash.

      3 votes
    4. json
      Link Parent
      It is analogous to getting a mortgage from a bank, but instead of going to the bank you go to the debt securities market and spread the debt across potentially thousands of investors. This is done...

      It is analogous to getting a mortgage from a bank, but instead of going to the bank you go to the debt securities market and spread the debt across potentially thousands of investors. This is done in the form of issuing bonds. A bond is a representation of a piece of the amount owing by the company, the term length and the interest rate (bond yield) that the company will pay.

      This is just my understanding and I'm not that well versed in financial instruments. I welcome anyone to correct me if necessary.

      3 votes