Tesla`s Convertible Bonds
| Case Code: FINC179 Case Length: 10 Pages Period: - Pub Date: 2021 Teaching Note: Available |
Price: Rs.300 Organization: Tesla, Inc. Industry: Automotive Countries: United States Themes: Convertible Bonds, Debt Instruments |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Financials of Tesla
Tesla’s revenue grew from US$97.08 million in the IPO year ended December 31, 2010, to US$7 billion in 2016 and then to US$31.54 billion in 2020. In early 2021, it announced its first-ever annual profit of US$721 for the year ending on December 31, 2020. Tesla’s total revenue increased from US$24.58 billion in 2019 to US$31.54 billion in 2020 (Refer to Exhibit I for selected financial information about the company)..
Convertible Bonds From Tesla
Tesla was in a capital-intensive car business which required huge investments. In addition to this, the company was involved in manufacturing electric cars, an area which none of the companies had ventured into on the scale in which Tesla was trying to do. After the IPO, the company decided to garner funds through debt instruments. Experts stated that there were various types of debt instruments available to raise funds, but the company had decided to use convertible bonds..
Growth in Tesla’s Stock Price
In 2010, when Tesla came up with an IPO, the company sold its shares at US$17 each (US$3.40 split-adjusted). At that time, the company’s market capitalization was about US$1.7 billion. Over a period, Tesla’s stock showed extraordinary growth. On July 1, 2020, the share price reached an all-time high of $1,135 per share. This helped the company become the most valuable automaker in terms of market capitalization (market cap). At that time, Tesla’s market cap of US$206.5 billion surpassed Toyota’s market cap of US$202 billion..
End of convertible bonds era at tesla?
Analysts believed that incredible growth in Tesla’s stock price would end the era of convertible bonds at the company. Many investors believed that at US661.75 per share (on April 1, 2021) and the US$635.18 billion market cap (on April 1, 2021), Tesla’s stock was significantly overvalued. In such a situation, investors would not be interested in purchasing out-of-the-money options embedded in the new issue of convertible bonds. Experts opined that if Tesla was continuously able to improve its credit rating and profitability, then it could easily go in for a less complicated method of financing by issuing plain vanilla bonds in place of convertible bonds..
Exhibits
Exhibit I: Selected Consolidated Financial Data of Tesla
Exhibit II (A): Tesla’s Debt Details as of December 31, 2019
Exhibit II (B): Tesla’s Debt Details as of December 31, 2020
Exhibit III: Details of Various Convertible Bonds Issued by Tesla
Exhibit IV: Monthly Adjusted Closing Price Movement Tesla’s Stock
Buy this case study (Please select any one of the payment options)
| Price: Rs.300 |
Price: Rs.300 | PayPal (7 USD) |
