[karamazov]

The spirit of the loan was to help a promising company make progress on its technology. By repaying the loan early, the DOE will be able to make more loans out of that fund to other such companies. This might not minimize Tesla's cost of capital, but I'd say it's the right thing to do if it doesn't add undue risk to the company.

[intended]

No you would never do this.

Right or wrong as a matter of managing your finances this is just not something a competent CFO would allow on his watch.

You accepted a loan, the loan originator had some terms and you are both in compliance and acceptance of those terms.

There is no rational or financial reason to make that choice.

I understand doing good, but there is a consistency in the choices firms which do good make. This is inconsistent.

[saraid216]

Okay, you've called this action incompetent, irrational, and inconsistent, but you haven't actually explained why it is any of these things. Maybe it's obvious to someone with more working knowledge of accounting, but it's not clear to me. Could you explain?

[pyoung]

A extremely simple analogy here would be home loans. If your home loan costs you ~4%, but you can make 10% in the stock market, than it would make no sense to pay off your home loan early, because you could use that money and invest in the stock market (a net of 6%).

I am no accountant, but in Tesla's case, it sounds like they now have a pile of money that they are going to sit on for emergencies, and that it may make sense for them to pay down this loan early with some of this cash because it reduces their liabilities (by reducing the interest they owe), whereas sitting on it nets a 0% (or near 0%) interest rate. Also, I wouldn't be surprised if there was some political/strategic motivation for paying off the loan. Unfortunately, Solyndra has become synonymous with the loan program, and I wouldn't be surprised if there is some pressure from investors or the board to distance Tesla from the program because of that.

[intended]

In brief it comes down to cost of capital.

There is X cost to holding debt, and Y cost of holding cash.

The cost of debt is pretty clear - its the interest rate.

The cost of cash/equity is the opportunity cost of what you could be doing with it. (Either invest or spend it on growth or if none of the above are viable, then give it to the investors who can use it more effectively)

A CFO's job is to figure out the lowest possible cost of capital the firm can obtain, by having the right loans and investments and cash on hand as required.

Many companies may even find carrying debt to be cheaper than holding cash.

Doing moral good is a great thing, but its not part of the remit.

Now if you had a firm which does "good". You would usually do that through a different set of vehicles - you could support a foundation (which has tax breaks too! so makes even more sense).

There are lots of ways you can incorporate moral good into your daily activities and there are many incentives by the government to encourage such behavior.

Very few incentives though (if any) are centered around the concept of repaying loans to the govt faster so that they could * hypothetically* use the loans for something else equally or more worthy.

Especially since govt loans are usually part of a programme that has a corpus decided by legislation which matters more to disbursement than repayment.