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Comment by canada_dry | Hacker News Reader

Yikes, desperate times require desperate measures I guess!

Considering that a) these suppliers already gave Tesla a deal based on promised volume, and b) these suppliers also have stock holders to account to... this seems like a Hail Mary pass.

Perhaps an indication that Tesla is in much worse shape than Elon would like us believe.

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If people have been following Tesla financials it's been clear that they're running out of money. Normally it's ok, everyone knows that Tesla is losing money and is not yet profitable. In 2018 running a money losing business for decades is totally expected and excusable if it's something as cool and fancy as electric cars. Tesla just needs to raise money from investors or the debt markets and there are plenty of people willing to toss more in the pit. However Elon kind of boxed himself in with some egoistical bs about promising not to raise any more money this year??? But why? Just freaking raise more money holy shit. As it is he's actually doing harm to the company and seeming actually desperate.

There's a lot of speculation as to why Elon claimed to not want or need additional capital raises. Some people claim there is an ongoing, undisclosed SEC investigation which prohibits them from issuing more shares. Others claim that parts suppliers will cut off credit unless they can show a sustained profit. Others claim that Moody's and S&P will cut Tesla's credit rating to "effectively in default" if they can't show a sustained profit this year, which will trigger institutional investors to dump their holdings. I have a feeling we will find out the real reason before too long.

Credit rating agencies don't operate that way. They won't label a company as "effectively in default" unless a default is imminent and unavoidable. Credit ratings are based on ability to pay, not profitability. Tesla is in a precarious situation but far from actual default.

Tesla is within 9 months of default, if things don't change dramatically. That's because in 9 month $900 million worth of bonds will have matured, which Tesla seems unable to refinance unless they raise capital, which Tesla seems unable to do for an unknown reason.

Ratings agencies have highlighted this for a while now and have said explicitely that Tesla will have to show sustained, profitable production or their rating will be reduced to "practically junk". The situation is not quite at that stage yet, but it's not as far off as you make it seem, either.

Sure that's all correct and I expect Tesla will have to raise more funds to survive. But from a credit rating standpoint there's a huge difference between "effectively in default" and "practically junk". Many companies issue junk bonds and are able to continue operating.

Tesla is currently in Junk status (that is, below BBB- rating). But within Junk status, there are degrees. Tesla's current rating is Caa1, well below Baa3, according to a rating in March 2018 earlier this year.

FYI: That puts Tesla's bonds as 6-steps BELOW "junk" status. Tesla is well into junk status and is considered a highly speculative bond.

If Tesla's financials continue to degenerate (and remember: this is a company that was losing 300-million per quarter BEFORE the Model3 ramp-up. Who knows how much "the tent" and all of those extra workers cost??), then Moody's will be forced to lower Tesla's bond rating even lower.

"Default Imminent" is a rating of Caa3. Tesla is literally 2-steps away from "Default imminent". Below Caa3 are the ratings of Ca, and C, when the company is finally entering default officially.

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Remember that Tesla has bonds coming due at the end of 2018 and the beginning of 2019. Tesla needs to pay off those bonds somehow, and so far... it seems unlikely that they can pay it off using profits.

Maybe Tesla will reach profitability in the next few months, but their runway is definitely running out.

And Tesla's 2025 bonds trade at 88 cents on the dollar right now.

The answer might seriously be D) All of the above.

It is a public company, everyone knows what shape it is in.

Not necessarily... remember Enron?

Well, assuming everyone is following the law (and while Musk is eccentric... I don't see any reason to think that he's a criminal), we know what is going on inside of Tesla.

Everyone knows the dates when Tesla's bonds are due. We all know Tesla has lost $300 million / quarter per quarter for the last few years. Etc. etc. etc. Its all public information and there doesn't seem to be any "cooking of the books" going on right now.

In the case of Enron, it looked like a normal company but the executives were lying to the public. A few investors published articles noting that the numbers looked "off", which eventually prompted an investigation. Basically: if people lie, there's usually evidence in the numbers. Some numbers look wrong, certain things don't add up right, etc. etc. I've never heard of Tesla cooking the books.

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