Soros’ Investment In Tesla Is Timely & Clever

May 22nd, 2018 by Carolyn Fortuna

The investment firm of billionaire George Soros, Soros Fund Management, bought $35 million worth of Tesla bonds in the first quarter of 2018. The bond investment came at a time in which Tesla faced production problems with its Model 3 and underwent a bit of a management reshuffle.

George Soros, who some accuse of controlling the world’s wealth and pushing a global order, is a prominent billionaire hedge fund manager who uses his power and money to influence politics, including support for progressive causes, democratization, and climate change organizations. Oh, yeah — and he tries to make good investments when he sees them.

The Soros investment in Tesla was in convertible senior notes, which are bonds that can be converted into a specified number of common stock shares, according to a Securities and Exchange Commission (SEC) filing. Because they’re convertible, the bonds can be converted to shares of Tesla Inc. at a ratio of 2.7788-to-one. That implies a $359 per share conversion price for the bonds. Reuters notes that “convertible notes give investors the right to trade their debt for equity at a conversion rate and are more appealing to the risk-averse.” In this case, it allows them to benefit from Tesla’s stock price rising while guarding against the risk that it might not.

Tesla’s current stock price is still around 26% shy of reaching that conversion mark (and another 30% shy of the point where bondholders would be able to convert them into shares). Convertible debt pays a fixed coupon for a set period of time, and upon maturity can be converted into an equity at a predetermined price. In essence, it gives the buyer the safety of a bond’s fixed cash flows but the potential upside of the shares.

The quarterly SEC filing does not give commentary as to why Soros’ firm bought the Tesla bonds, but it gives a public insight into what the fund is buying and selling. Bloomberg suggests the position is small, and it’s unclear whether this is a bet on the security or a hedge.

Tesla’s stock price hit a high of $386 last year but has since slipped to $275 at the time of this article publishing. The Soros investment is fascinating, as it comes at a time in which Tesla is facing difficulty in its attempt to ramp up Model 3 production. The company is also posting its highest losses to date, which means that, if Tesla turns things around (as many expect) and stock soars before maturity, the Soros group can exercise the built-in call option to convert the bond to shares in the company. That could potentially give a much higher return.

Essentially, Soros is a billionaire who has taken a very small, somewhat short-term, and very risk-mitigated position in Tesla.

The Progressive History of Soros Investments

Soros has a long history with Tesla and previously held shares of Tesla but sold them last year. His firm also played a role in facilitating the deal for Tesla to acquire SolarCity in 2016. Tesla’s innovative leadership among carmakers, opportunities to expand into a robust China market, and the prospect that its Autopilot system can guide a new industry of self-driving taxis also play into the more optimistic scenarios about the company’s future, which the Soros investment fuels.

Soros Fund Management invests in a wide array of investment vehicles globally, and the US stock market investments average only around 20% of the total portfolio size.

George Soros’ philanthropic organization, the Open Society Foundations, supports a robust civil society and human rights in more than 100 countries. A frequent target of conspiracy theories from the conservative right, Soros has been accused of “undermining democracy” even while he seeks to support vibrant and tolerant democracies whose governments are accountable to their citizens. He has given away more than $32 billion of his personal fortune to fund the Open Society Foundations’ work around the world.

Right-leaning sites like Breitbart and The Washington Times have often claimed that Soros paid protesters at the Women’s March and the March for Science. In reality, Soros has been giving money to progressive groups since long before the Trump’s election, but not to simply pretend to push for progressive ideals.

Photo by boellstiftung on Foter.com / CC BY-SA











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