Wall Street’s Red Lights Flashing on Tesla’s (NASDAQ:TSLA) Ability to Pay Debt
Tesla’s (NASDAQ:TSLA) stock price and CEO, Elon Musk are getting the headlines, but the real story looks to be the steep decline in the value of the EV maker’s bonds.
$1.8-B of Tesla bonds due in August 2025 marked a record low Friday. The bonds traded for just 84c on the dollar, down from 98c a year ago. The yield, which moves opposite price, almost 2X’d over that frame to 8.6%.
The action in the bond market signals mounting worry about the act at Tesla. CEO Elon Musk is scrambling to ramp up M3 production fast enough to turn a profit, and use that money for looming debt payments.
“Tesla is in a cash pinch,” Cowen & Co. analyst Jeffrey Osborne said in an interview. “The primary concern, above and beyond doing drugs and whatnot on podcasts continues to be the ability of the company to generate cash.”
Tesla loaded up on debt to speed the company’s rapid rise in the automotive world. That strategy paid off as Tesla built a huge lead in the EV race, although that position is under assault from intense competition by rival manufacturers such as Mercedes-Benz and Ford (NYSE:F).
More than $9-B of Tesla’s debt is scheduled to mature before Y 2025, including a total of $2.7-B this year and next, according to a Goldman Sachs research report that called the company’s balance sheet “concerning.”
“Tesla is extremely leveraged. They have a gun to their heads dictated by the timing of the debt payments,” said Cowen’s analyst, who has an “under-perform” rating on the stock.
Tesla says is rapidly ramping up M3 production, which could take financial pressure off the company. Optimism about Tesla’s M3 progress led analysts at research firm Baird to publish a note Monday urging investors to “buy even with the drama.”
Other analysts are skeptical that Tesla can accelerate or even maintain this production pace long enough to be profitable.
Despite rebounding 6% Monday, Tesla’s share price has plunged 29% from the peak of 389.61 on the day Mr. Musk Tweeted the go-private plan.
Tesla’s decline has been driven by accelerating “management credibility issues,” a Needham & Co. analyst wrote in a report on Monday put an “under-perform” rating on Tesla.
Tesla stock tumbled again last week after the company’s chief accounting officer suddenly resigned after less than a month on the job.
People are “concerned” about the rapid turnover of senior executives at Tesla, which he estimates has lost 23 executives over the past 2 years.
A Tesla spokesperson referred to previous comments in which Musk said Tesla expects to turn a profit in Q’s 3 and 4.
On 1 August, Mr. Musk told analysts that Tesla plans to pay off its debt instead of refinancing it. He has also dampened speculation that Tesla will need to raise cash by selling more stock.
“We could raise money, but I think we don’t need to, and I think it’s better to just not,” Mr. Musk said.
It may no longer be up to Mr. Musk. Analysts say Tesla may struggle to raise cash until the dark cloud of an SEC investigation is lifted.
| HeffX-LTN Analysis for TSLA: | Overall | Short | Intermediate | Long |
| Neutral (-0.22) | Neutral (-0.14) | Bearish (-0.29) | Neutral (-0.22) |
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