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