Tesla's Elon Musk Can't Cash Out Quite Yet

Don't expect Elon Musk to cash out after Tesla Motors goes public. The Department of Energy has him chained to his desk until well after the Model S rolls off the assembly line.

The feds have loaned Tesla $465 million to build the Model S sedan, and they want to ensure Musk sticks around long enough to get the job done. That's just one of several interesting nuggets we've found digging into the Form S-1 the Silicon Valley firm filed with the Securities and Exchange Commission ahead of an initial public offering it hopes will raise $100 million.

This is what the paperwork says about when Musk can take the money and run:

Our DOE Loan Facility provides that we will be in default under the facility in the event Mr. Musk and certain of his affiliates fail to own, at any time prior to one year after we complete the project relating to the Model S, at least 65% of the capital stock held by Mr. Musk and such affiliates as of the date of the DOE Loan Facility.

According to the S-1, Musk (shown above at the unveiling of the Model S) owns 81 million shares. That will almost certainly change as his pre-IPO holdings are converted to public shares. It's not as if Musk is hurting for cash, and even if he were he'll still be able to unload a lot of shares of stock that surely will be worth some serious coin.

This amounts to a performance contract. The feds are telling Musk he's gotta deliver if he wants to see a big payday. Tesla says the Model S will hit the road in 2012, but it has a lot of work to do if it is to hit that goal. The company hasn't even picked a site for the factory that will build the car.

Tesla spokesman Ricardo Reyes could not be reached for comment, but that's not surprising -- the company in the past has declined to discuss its finances or the pending IPO.

Clearly there's a lot of work to be done if the S is to hit the road, and the feds aren't the only ones who want Musk to keep his hand on the tiller.

Daimler, which invested $50 million in Tesla, stipulated "certain covenants relating to Mr. Musk's employment as our Chief Executive Officer," Tesla said in its SEC filing. In a nutshell, the Germans told Musk he has to stay until Dec. 31, 2012 or until the Model S is built, whichever comes later. If Musk bails out, Dr. Herbert Kohler, Damiler's VP of electric drive systems, must sign off on Musk's replacement.

The Daimler deal also makes it difficult for anyone besides Daimler to buy Tesla. According to the SEC filing:

Our financing agreements with Blackstar, an affiliate of Daimler, include certain restrictions that decrease the likelihood that potential acquirers would make a bid to acquire us, including giving Blackstar a right of notice on any acquisition proposal we receive for which we determine to engage in further discussions with a potential acquiror or otherwise pursue. Blackstar then has a right, within a specified time period, to submit a competing acquisition proposal.

In other words, Tesla all but sold its soul to the Germans, making it unlikely anyone else will try to acquire them. That could lower Tesla's potential market value.

And then there's the matter of the name "Tesla Motors." It seems Tesla doesn't actually own the rights to the Tesla name in Europe. Although it has two trademark applications pending in the European Union, they "are subject to outstanding opposition proceedings brought by two prior owners of trademarks consisting of the word Tesla." According to the filing:

In addition, there is a risk that these prior rights owners could in the future take action to challenge our use of the Tesla mark in the European Union. This would have a severe impact on our position in the European Union and may inhibit our ability to use the Tesla mark in the European Union. If we were prevented from using the Tesla trademark in the European Union, we would need to expend significant additional financial and marketing resources on establishing an alternative brand identity in these markets.

Rebranding the company, if it comes to that, will take a lot of time and a lot of money, neither of which Tesla has. Even if it reaches the goal of raising $100 million with the IPO, it's going to need all that money, plus the money it's getting from the feds, to build the Model S.

Further complicating things, Tesla is going to have little, if any revenue beginning next year. It is ending production of the Roadster next year because Lotus, which builds much of the car at its factory in Hethel, England, is retooling the assembly line to build another model. Tesla won't have anyone to build the car, and it's focusing all of its efforts on the Model S. The next-generation Roadster isn't planned until at least one year after the S rolls into showrooms.

Photo: Jim Merithew / Wired.com