Tesla (NASDAQ:TSLA) Need Lots More Cash, What is Going to Happen?

$TSLA, $MS

• Wall Street experts say, “Tesla will need to raise more cash”, it has some notions about how and when that may happen.
• Morgan Stanley (NYSE:MS) said that in addition to a capital raise in Y 2018, Elon Musk may also need an outside partner for more financing.

Wall Street is doubtful that Tesla (NASDAQ:TSLA) will go through the rest of this year without raising fresh capital.

And while CEO Elon Musk is adamant that the EV maker can become sustainably cash-flow positive in Y 2018, sell-side analysts  are theorizing when and how Tesla might raise cash, and if it can.

“Valuing Tesla shares is a volatile, unpredictable dynamic,” Adam Jonas, an analyst at Morgan Stanley, said in a note to clients Tuesday. “But we believe it is ultimately dictated by a few Key vectors: demand, cash consumption, access to outside capital, management actions/governance, and strategic price discovery.”

Mr. Jonas sees the next stages of Tesla’s evolution coming in 5 parts. He predicts Tesla will raise $2.5-B in equity in Q-4, even if it does not need the money, because it will be easier to do than when it has a dire necessity.

Then, when M3 volume eventually hits a plateau (if it does), it is a perfect time for a strategic partner to step in.

“Step 5: Tesla potentially crystallizes strategic value with a partner that can fund the ongoing capital requirements of the auto business or can monetize the value of Tesla’s edge compute/machine learning ecosystem,” Mr. Jonas said. This could be similar to the potential investment from Saudi Arabia’s PIF that sparked Mr. Musk’s ‘420’ go-private bid that did not happen..

Tesla could pledge its IP to take on more debt. But, the company already has $11.5-B of current outstanding debt.

In order to get around what is known as a liens covenant, there would need to be a non-US subsidiary at play.

“The liens covenant by its terms applies only to domestic restrict subsidiaries,” said Covenant Review. “That is, non-US subsidiaries are not subject to the liens covenant, and therefore non-US subsidiaries, even if they are Restricted Subsidiaries, can pledge their assets to secure debt … because there is now restricted payments covenant, there is no meaningful restriction on [Tesla] transferring value from domestic to foreign subsidiaries.”

In other words, Tesla would have to contribute its IP assets to a foreign-owned subsidiary that could then pledge that IP to secure more debt. That could “provide Tesla meaningful liquidity in a crunch,” Covenant Review said.

Of course, any new debt will add to Tesla’s current debt outstanding, which stands $11.5 billion. That includes $920-M in convertible bonds that becomes due if the stock price does not hit 395.95 by 1 March 2019

Friday’s fall to 283, following news of a reported criminal investigation by US regulators that Tesla has denied, leaves the stock 27% below that threshold.

HeffX-LTN is Bearish to Very Bearish Tesla stock as of 22 September 2018

Stay tuned…

  bearish, cash, debt, IP, Jonas, liens, Morgan, MS, Musk, pledge, Stanley, stock, Tesla, TSLA

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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