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Will Tesla Celebrate the Giga-Age With Texas Toast?


From the Buzz & Banter: The car maker sets the stage for future growth.

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MV PRO+.

Yesterday after the close, Tesla Motors (NASDAQ:TSLA) announced it was raising $1.6 billion through a convertible note sale with underwriter options that could bring the sale's total to $1.84 billion.

$800 million will be due in 2019, with $800 due in 2021.

Tesla will use the proceeds to accelerate the growth of its existing business, develop a "Gen III" mass-market electric car, and most importantly, develop the highly anticipated Gigafactory.

According to Tesla, the Gigafactory is designed to drive down battery costs, and by 2020 it will put out more lithium-ion batteries than were made worldwide in 2013. That means enough batteries for 500,000 vehicles in 2020. Tesla will directly invest about $2 billion, with partners (Panasonic has been rumored as one) pitching in an additional $2 to $3 billion.

Tesla is likely to flex some political muscle as the result of the Gigafactory plan because it's going to bring 6,500 jobs to one of four states identified as finalists for the facility: Arizona, Nevada, New Mexico, and Texas.

As many people are pointing out, Texas is quite an interesting possibility, as there are significant restrictions on manufacturer-direct car sales there, courtesy of the state's strong auto dealer lobby. Tesla has galleries (which are distinct from Tesla stores) in Houston and Austin where employees are not allowed to discuss pricing options or the reservation process and can't refer customers to stores in other states.

The lure of quality manufacturing jobs from such a prestigious company may help Tesla win over some Texas politicians. And Tesla has a very good reason to want to get into Texas: Only California has more licensed drivers.

Overall, this is great news for the company. Battery supply remains its biggest manufacturing bottleneck, and the Gigafactory will help ensure steady production growth.

That means investors will have more confidence in their long-term earnings expectations for Tesla.

Now there are a lot of Tesla bears out there whining and crying about the stock's crazy upward momentum, floating around innuendos about improper accounting, the stock's valuation, and improprieties on the research side.

As someone who's been regularly tempted to hop on board for a while, I'll just say this: By any conventional measure, Tesla was expensive at $200. And it was expensive at $100.

So obviously it's expensive over $250.

Think twice before stepping in front of this runaway freight train.

Twitter: @MichaelComeau

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