Tesla Posted Strong Q1 Results (thanks to China)/Elon Is Looking For Other People's Money
Tesla should thank its China ops for another record quarter as strong pricing and lag in hits from cost inflation made profits soar. Next quarter will be tougher. /Elon hunts for cash to buy Twitter
Tesla (TSLA) reported strong revenue and profit for the first quarter as price increases offset rising costs more than expected.
Management admitted that the company also benefited from lags in supply contract terms which helped ease intense spikes in prices for key components and commodities.
That relief won’t last since those contracts tend to be comparatively short term so are being reset at higher prices. We also now know how dramatically less profitable US operations are versus China, which generated all Tesla's operating profit, cash flow, and cash the past 2 years—see my report Forget Elon's Twitter Spatter. Tesla's Got Trouble In China.
It's also concerning, as I have warned for months, that China's profit margins seem unsustainably inflated. This still seemed apparent in inordinately high margins seen in first quarter results reported today. With China business conditions under increasing strain, this implies potentially much higher and faster drain on profits, cash, and cash flow on weaker than expected China results going forward.
It doesn't help, as I recently discussed again, that Tesla’s sales continue to lose ground versus robust China competitors like BYD Co Ltd.
I'll have more discussion in an upcoming report.
More Twitter Flutter
It's 4/20 and funding is not secured for Elon's hostile bid for Twitter (TWTR) at $54.20, as I expected.
He’s looking around for other people to fund it, but many of the usual suspects seem understandably wary of joining forces with him.Â
Let's review what I speculated in Elon Buying Twitter? Probably Not:
The Richest Man on Earth doesn't have the cash to fund the transaction, but
He wouldn't use own money anyway;
And if it does look like he will go through with the bid, "he'll just do an LBO."
Today, Bloomberg reported "Elon Musk Goes Looking for Financing for His $43 Billion Twitter Bid:"
Wall Street’s biggest banks and buyout shops are divided on whether they’d step in to help Musk.Â
Among the parties that would almost certainly help back a bid is Morgan Stanley, the bank that’s advising Musk on his unsolicited offer. Apollo Global Management Inc. is also interested in helping finance the potential takeover, a separate person familiar with the matter said this week. Meanwhile, private equity firms including Blackstone Inc., Brookfield Asset Management and Vista Equity Partners have ruled out getting involved, people familiar with their thinking said.Â
The New York Post and the New York Times previously reported some aspects of the financing plans.
Aside from assembling the financing, to succeed with a bid Musk still has to win over the company’s board. Though Twitter hasn’t yet rejected his offer, the company has launched a poison pill defense to thwart Musk’s bid to take it private at $54.20 a share.Â
Of course it's still unlikely Twitter's board will be persuaded to accept his low bid, and he' probably won't—or can't—boost it meaningfully higher.
It's not just the price. Selling to Elon Musk will mean letting Twitter turn into a completely different animal altogether. Just ask ex-Tesla executives and investigating regulators and plaintiffs suing him in courts everywhere.
Either way, Twitter is in play so it still could face other, higher bids that will be harder to reject.Â
Stay tuned.
Tesla repurchased its 5.3% senior notes in the third quarter of 2021 as I projected, though I doubt we’ve seen the last of Tesla as a bond issuer.
Now stay tuned for the second step I described: a quickly shopped, likely $2-4 billion inordinately low coupon bond deal, rated now at low investment grade as I expected (see Tesla's Car Business Finally Turned A Profit. Really. Time For A Big Bond Deal).
It could even be appealing... if it’s priced at T+100 bps or better. Until then, I have Tesla: Not Rated.
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