* Free use of state-subsidized infrastructure.

* Free use of state-funded research and development. (This is huge.)

* Government contracts.

* For the finance industry, they are backstopped by the government if they are "too big to fail."

* Government limits on liability for many risky industrial processes.

... and so on.

Tesla is threatening the status quo in a stale, moribund industry. That is what people don't like.

Where's the cost/benefit analysis to show that those services you tout (infrastructure, etc.) are actually provided efficiently? For those cases where private examples exist alongside (FedEx/UPS/email vs. Postal Office; SpaceShipOne/SpaceX vs. NASA; Google self-driving cars vs. California train-to-nowhere; Coursera/Udacity/Khan vs. Dept. of Ed) the comparison is not flattering.

IF a market is such that it can be serviced by the private sector efficently that's always the better choice. In many cases here the government, if it was in it already, will remove itself over time (USPS is going through this now on a massive scale) But there are multiple examples over the course of time where only something like a national government can rationalize the investment in infrastructure that results in dramatic improvements down the road (Eisenhower's Federal Highways, Massive Power projects, Telecommunications)

http://eh.net/encyclopedia/article/klein.majewski.turnpikes

> Private road building came and went in waves throughout the nineteenth century and across the country, with between 2,500 and 3,200 companies successfully financing, building, and operating their toll road.

Again, government investment in infrastructure makes a lot of sense, and happens, when the economics do not make sense for a private company.

  spending that the private sector would not take on... 
  The Internet would never...private telephone companies 
  (dial up) would never...SpaceX would not...only something 
  like a national government

But api made no references or comments about the efficiency of government services; he merely stated that companies use government services.

Not to be rude, but it seems like you are looking to start a political debate where there isn't one (and a conversation that has been had over and over again in HN threads).

As for Tesla leaching off the government, it is important to note that $85m of Tesla's revenue in the last quarter came from regulatory credits. The vast majority, ~$67m, came from California's zero-emission program. All told, 15% of Tesla's revenue came from state and federal credits. Forget politics and perception: the impact of regulatory and tax credits on the company's finances and sales prospects over time is something any long-term Tesla investor should thoroughly understand.

2. Tesla is smart to raise capital now while money is still so cheap thanks to an almost unprecedented compression of risk premiums. The odds that capital will become more expensive in the next several years is certainly higher than the odds that it will become much cheaper.

But raising capital doesn't guarantee that capital will be deployed effectively. Celebrating the capital raise without acknowledging that there's execution risk is like celebrating a championship before the season has even started.

3. Elon Musk's obvious confidence in Tesla is a good thing, but you should not oversimplify the details of his stock purchases. Business Insider has more on this at http://www.businessinsider.com/elon-musk-borrows-150-million....

4. Raising capital for companies is one of the things that firms like Goldman Sachs and Morgan Stanley do.

As for Morgan Stanley analysts taking a positive view on Tesla's prospects, consider that in July 2008, Morgan Stanley was advising clients to buy Lehman Brothers stock because "we think near-term risk of incremental write-downs is balanced by solid liquidity and capital footing."

Tesla may or may not be successful long-term, and its stock may or may not be a good investment at current prices, but I think your analysis here is akin to looking at the exterior of the vehicle without examining what's under the hood.

2. Totally agree Tesla was smart to do it now and agree that execution isn't guaranteeing success. But money in the hands of a wise person can really accelerate a roadmap and enlarge success. I personally think Tesla is at an inflection point where the money will be very well spent and will accelerate growth and demand.

3. Regarding Elon Musk's purchase, it's true he's borrowing a bunch of money but even that still signals his confidence in the stock and its current price. And I think that's overall good to ensure investors since the stock has been very volatile of late.

4. It's true investment banks have made terrible mistakes in the past, but still lots of investors and institutions are influenced by the top investment banks. Fidelity owns $1.5b of common stock and Morgan Stanley owns $500m of TSLA common stock (as of 3/31/13, http://www.nasdaq.com/symbol/tsla/institutional-holdings). Lots of institutions and funds are starting to invest in TSLA and this is providing upward pressure on the stock over time (especially if TSLA keeps meeting/surpassing expectations.

The next big milestone for Tesla is reaching 25% gross margin (which is rarely had in the auto industry). Elon Musk is promising they'll reach this milestone 4th quarter this year. If they reach it this year, it is nothing short of miraculous.

I would say so, considering they're at 5% now.

Edit: Strike that. It's actually 2%. Musk had this to say:

"I am highly confident that we will have a gross margin of at least 25%, and — I mean, the emphasis on at least. I think we will do better than those numbers. So, I want to be very clear about that."

The man is all in. I'll give him that.

That said, Tesla clearly has a brilliant track record of putting money to use. They built a frickin fully electric luxury sedan in 2 years on a $450M budget.

The ZEV credits are granted to Tesla by California. By regulation, other car manufacturers have effectively been forced to purchase these, giving them value. Put simply: these credits only exist and have value because of government.

You can play games with semantics, and political pundits can argue about the merits of programs like California's, but those doing due diligence on Tesla should understand the regulations and how these credits may be valued in the future. For instance, if more auto manufacturers develop electric vehicles, the value of the credits will likely decrease over time, perhaps substantially, while the competition in the EV market will at the same time increase. Will Tesla suffer substantially in this scenario? Maybe or maybe not, but I haven't seen many analyses of the company delve into this, at least around here.

As for Tesla's track record: I think one can be truly impressed by what the company has accomplished thus far from a technology perspective without jumping to the premature conclusion that the company's investment has produced a viable long-term business.

Your wording simply suggested to me that you thought these were somehow backed with government money. I'm sorry if I misinterpreted here.

Musk has said in conference calls that their 25% margin target is not predicated (at all) on credit revenue, but he can't magically make money appear, so that remains to be seen.

There is a very worthwhile recap of the regulatory credits systems here:

http://www.teslamotorsclub.com/showthread.php/16357-Regulato...

The whole point of the various laws is to make sure the dealers have a presence and are not cut out by the manufacturers, which is exactly what Tesla is trying to do.

There's nothing different about that, except that Tesla is trying any way conceivable to get around those laws and nobody else is. It's not surprising that they're updating the laws to catch up with Tesla's hacks that clearly circumvent the intent of the laws.

Put another way, not only will the car dealers get pissed, but why would ford, toyota, honda, GM, etc allow Tesla to operate with an advantage? One way or another, Tesla will wind up playing by the same rules as everyone else. And given how local and how dug-in the dealerships' political power is, I'm guessing they will suck it up and sell though dealers.

I hope I'm wrong. I would love to see manufacturer-run car stores.

http://www.teslamotors.com/it_CH/forum/forums/massachusetts-...

It is the middleman's job to remain relevant in changing economies, not resist changes so that relevancy is guaranteed. I think competition laws should be encouraged.

I keep wondering where I can find an example of a person who clearly is not an owner/employee/etc of a dealer who genuinely feels protected. There are probably far more people who enjoy going to the Apple Store (which was created by the same guy who now works at Tesla to set up Tesla's showrooms) than who enjoy the dealership experience.

Also, in a lot of the rest of the world, there apparently are no independent dealers, and that seems to be pretty non-disasterous.

But the price of Tesla is not based on such things like cash flow and future profits. So I'm not sure it is bad - for now.

Dilution is defined as the reduced ownership in a company. It is 100%, always, take-it-to-the-bank, written-in-stone bad for the shareholder who gets diluted.

Financing a company may create dilution and still put the shareholder in a better spot ultimately. For Tesla, a high-growth capital-intensive business, you can bet on the dilution part happening (they have to get the money from somewhere). The better off part is still an open question.

No, this isn't true at all. If it were, companies would never issue new shares, since shareholders wouldn't allow it.

No. This is wrong. Dilution is the reduction in percentage of ownership of the company, not a reduction in the stock price. It may reduce, increase, or leave the price of the stock unchanged depending on whether or not the market thinks the company will make good use of the incoming money.

Owner a has 50 shares. Owner B has 50 shares. Total is 100 shares. They decide they want to give Jim Bob some shares for his birthday. They issue 50 more shares to do so. Owners A and B have been diluted and the value of their shares has decreased. That is dilution.

You cannot increase the number of shares in a company without decreasing the value of the shares. This is a hard, mathematical relationship.

Dilution is not financing. Dilution does not change the value of a company. Dilution is bad. When someone way up this thread quipped "yeah, it's great except for the dilution" (paraphrased), that is what he meant (I think - forgive me if I misread). In other words, "Yawn. Tesla is still in business".

Everyone seems to be confusing the definition of dilution with the reasons someone might choose to be diluted.

There does indeed seem to be some confusion. The problem is you're the one who is confused.

>Owner a has 50 shares. Owner B has 50 shares. Total is 100 shares. They decide they want to give Jim Bob some shares for his birthday. They issue 50 more shares to do so. Owners A and B have been diluted and the value of their shares has decreased. That is dilution.

The part where they issued new shares is dilution. But the part where they give them away, guaranteeing a drop in the price of the stock, is not.

In the real world corporations don't give stock away. They will sell those 50 shares on the open market and use the money to, say, buy capital equipment. In most cases the price of the shares will remain unchanged, because the value of the company's assets have increased by a corresponding amount. The price is absolutely not guaranteed to go down.

Issuing new shares has no more effect on the share price than raising capital through other means like borrowing from the bank or issuing bonds.

Cash on a balance sheet almost never gets a one to one value in a public corporation. In fact quite the opposite, it almost always gets a significant discount.

If you need a great example of this, take a look at how the market valued Apple's cash vs market cap as their cash exploded to the moon rapidly while their market cap imploded (or Microsoft's similar demonstration a decade prior). Berkshire Hathaway has also regularly demonstrated this principle in action over the last 20 years. Cisco has been demonstrating it for a decade as well. None of these companies have seen their market valuations well supported or increased by huge cash positions, their cash is and was always heavily discounted (in the case of MSFT and AAPL it's not viewed as particularly valuable because it can't or won't likely be used to fuel growth, but rather discharged gradually as a modest dividend, or left to rot on the balance sheet earning very little; in the case of Berkshire, the market would rather see Buffett doing acquisitions or holding equities to boost the return (both of which he prefers to cash)).

There are a lot of companies that are publicly traded, where if you calculated their cash as part of their market valuation, they'd be trading at extremely low discounts (eg AAPL at 6 times earnings). The market is simply telling you in those cases that it does not believe their cash is very valuable.

Good point. It all comes down to the (perceived) return on investment that a company can get using its cash.

In cases where companies are selling stock to raise cash it's usually perceived that the company will be able to get a decent ROI. So in most cases where a company raises cash (through funding or sale of stock) their market value will stay constant or increase. This is Tesla's situation.

In contrast Apple/Google/Cisco have shown very little ability to get a high return on investment on any additional cash, because they already have so much. This ROI is perceived by investors to be lower than what the investors could get on their own, which is why the cash is discounted.

edit: to further explain what I have apparently not (judging by the speed with which I got the first downvote), what I am saying is that Tesla trades at a massive premium to any normal way of valuing a public company - far more than the dilution of another offering. Clearly, the people investing in Tesla are not worried about dilution, and are betting on the Big Plan and the ability of Elon Musk to create something absolutely freaking massive. Either that, or they're just not doing the math. But I'd bet on the former.

Elon seems more interested in accelerating EV adoption than making his shareholders rich, so we'll probably see more of these secondary offerings if they can happen on terms Tesla finds reasonably good.

Also note that a large part of this money was raised in convertible debt, where shares won't show up in the float for many years (certainly in Tesla-time-periods).

Dilution by secondary offering does not require shareholder approval, up to a threshold. On the NASDAQ, the threshold is 20%. A company could, if it felt like it, dilute by 20% every single year for twenty years, and leave the original shareholders with 4% of the company.

The theory is that because the secondary offering will take place at fair market value, the cash raised will adequately compensate the existing shareholders for the dilution.

The value of a stock is determined by what people are willing to pay for it on the market, and if a company simply issues more stock, its entirely possible that the price of the stock will go up, go down, or stay the same.

This is of course only true for public companies, and in the case of private companies dilution is a completely different issue.

This is one of the most common forms of funding for young (or weak), publicly traded biotech and pharma companies.

It was very frequently done during the dotcom bubble days.