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Tesla (NASDAQ: TSLA) to Shed Government Loan

Brian Hicks

Written By Brian Hicks

Posted May 17, 2013

Tesla Motors (NASDAQ: TSLA) is putting its stamp on the auto industry. It’s achieving something that just doesn’t happen for a new car company nowadays: not only is it surviving, but it’s thriving.

tesla-motor-model-sLast week, Tesla reported its first quarterly profit as a company; now, just one week later, it is making plans to repay its $465 million loan from the Department of Energy.

The loan is part of the Advanced Technology Vehicles Manufacturing program set forth by President Barack Obama in 2009.

This move proves that a company can use the government’s assistance and get off the ground to become a success.

And it’s doing more with less. Under the same program, Ford Motor Co. (NYSE: F) was given $5.9 billion and Nissan (OTC: NSANY) $1.4 billion in loans to be repaid in 10 years, according to Bloomberg. Fisker Automotive, which was also granted assistance and which is often compaired with Tesla, missed its first payment last month and is dangerously close to bankruptcy.

Winning Attitude

Tesla has other ideas. Wednesday, the car company revealed how it will repay its government loan. The proceeds will go directly to the Department of Energy, and any leftover will feed aspects of the business.

As much as $830 million in shares and debt are to be sold, including 2.7 million shares valued at $229 million and convertible senior notes that total $450 million.

And it all falls on Tesla’s Chief Executive Officer, who is also its biggest shareholder – Elon Musk. The man apparently has no fear when it comes to his car company.

He is putting $100 million down into Tesla stock, and since he doesn’t just have that kind of loot sitting around, he’s going to borrow it from Goldman Sachs (NYSE: GS), of which $45 million will be from public sale and the other $55 million will come from private placement.

In total, the new loan will be $150 million. This will kindle Musk’s already existing tab with Goldman Sachs that is at $125 million, so now he’ll be in debt to them for a grand total of $275 million.

But it’s no skin off Musk’s back. He’s secure and confident in his other assets that include SpaceX, the company that is helping NASA build its next rocket into space.

In all, Goldman Sachs will manage Tesla’s stock offering, while Morgan Stanley (NYSE: MS) and JPMorgan Chase & Co. (NYSE: JPM) will partner up to oversee the notes offering.

But that’s just the beginning.

In the meantime, Tesla stock is skyrocketing – up nearly 160 percent so far this year. The company flew past economists’ expectations for the first-quarter of this year, and it appears that its all-electric luxury car, the Model S, can’t be beat – not in 2013.

Elon Musk

I really can’t stress this enough – Elon Musk can do no wrong, point blank. His vision and determination to see Tesla succeed is unmatched by any other entrepreneur, at least in the auto industry.

He’s had success in the past with other companies that include PayPal, but when Tesla was just getting off the ground, it nearly took a dive.

But Mr. Musk refused to let that happen, and in 2008, when Tesla was on the brink of collapse and behind the eight ball in the midst of the U.S. economic meltdown, he took his last $35 million in cash and bet it all on Tesla.

His confidence brought Tesla through the trenches, and five years later, his stake in the company is worth roughly $2.5 billion.

And now, with this week’s announcement, Tesla is planning to repay its government debt, not in the ten years stated in the original agreement, and not in the five years it agreed to in March, but now. All of it.

Tesla made a payment of $13 million already in its first quarter.

Try, Try Again

Sadly – and I know this may come as a shock to some of you – the government’s manufacturing program hasn’t always panned out.

Solyndra, the solar-panel maker, filed for bankruptcy in 2011 after it received $527 million guaranteed from the government. And Tesla’s closest competitor, Fisker, was unable to make its first payment of $192 million. It’s also likely headed to the tank.

And the President has taken heat for it. During the 2012 elections, GOP presidential hopeful Mitt Romney lumped Tesla and Fisker together and called them “losers” as he was on his campaign trail. Sarah Palin went to Facebook just last month and called the loan program an “atrocious waste of taxpayer money.”


But Tesla doesn’t seem to hear any of it and is proving all the naysayers wrong, not only by showing stocks that have risen 150 percent already this year, but by producing a damn fine automobile.

Consumer Report said last week that the Model S, which starts right under $70,000, was among the best cars it has ever tested.

I don’t know about you, but that kind of blows my mind.


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