I don't see this article covering that particular article. In fact the word "debt" appears nowhere in it.
Edit: I'm actually asking someone to prove the debt issue wrong if they can. It is literally the only thing keeping me from buying.
First of all, with the Model 3 sails they now have a huge revenue stream.
Secondly, I think its pretty unquestionalble that they could easly raise more money. If they were willing to issue more stock.
Most of Elon's net worth is in illiquid SpaceX stock and Tesla shares.
I'm sure he could sell SpaceX stock on the secondary market quite easily. SpaceX has never lacked in interest from investors.
Pardon me, imprecise phrasing. SpaceX stock is illiquid. Tesla stock is liquid, but if Tesla is having financial difficulties its stock will go down. If Elon can sell Tesla shares, Tesla can sell Tesla shares.
> I'm sure he could sell SpaceX stock on the secondary market quite easily
Not "quite easily". One, he's a super material insider. That makes the process more complicated for everyone involved. (It would be difficult to avoid giving everyone else the right to participate on the same terms.)
Two, he's a super material insider. The fact that he's selling will scare away many buyers.
Three, he's a super material insider. His selling SpaceX stock to prop up Tesla screams that nobody is willing to finance Tesla in the open market. It would immediately lead to a rout.
But I hope some experts (e.g. stock analysts) would comment on this scenario, I think it's interesting.
Selling SpaceX stock is not difficult per se. The CEO selling his SpaceX stock for the purpose of purchasing shares in a public company, of which he is also the CEO, is. (Source: this is what I do for a living.)
> selling some of his Tesla stocks would cause a rout
Elon Musk selling his Tesla stock to buy new Tesla shares, thereby giving Tesla cash, wouldn't be a problem. (Though it's a roundabout way for Tesla to issue new shares.) Elon Musk selling his SpaceX stock to buy new Tesla shares would be. It shows Tesla was unable to raise capital in the stock markets.
It's not liquid as far as Musk is concerned. Ignore the aspect of "CEO dumps $COMPANY stock" for a moment. The kind of numbers Musk would need to dump would also affect the share price. 'cuz, you know, a bunch of supply just came online without corresponding demand.
Also, much of his liquid pocket money has come from loans backed by his Tesla Stock. This could be a problem if Tesla stock price drops too much, as the stock he has pledge is required to be no less than a multiple of the money he has borrowed. [3]
Disclosure: I am short Tesla.
[1] https://www.cnbc.com/2018/04/13/equidate-spacex-27-billion-v... [2] https://money.usnews.com/investing/stock-market-news/article... [3] https://www.forbes.com/sites/jimcollins/2018/05/18/musk-has-...
You state that he can't buy out Tesla, which is true. But why does he need to buy out Tesla to cover their debt? On the contrary he would need to sell some of his Tesla (and perhaps SpaceX) stock and give the cash to Tesla to cover their debt.
Honestly, on paper there isn't any reason why Tesla can't just sell additional shares to the market in general, not necessarily just to Elon, in order to get enough money to cover their upcoming debt payments. Elon has publicly said he won't sell shares because Tesla won't need the money because it will be profitable[1], but some people are skeptical [2]. Maybe he just doesn't want to walk back his statement?
Also as previously mentioned, he can't sell all of his Tesla stock without paying back some of his personal loans.
[1] https://www.cnbc.com/2018/08/01/musk-says-tesla-wont-be-sell...
[2] https://www.businessinsider.com/teslas-upcoming-debt-payment...
Producing 55k Model 3's per quarter [1] will definitely help with the cash flow situation. I think the biggest questions that determine if they can be self-sustaining are:
- Can they ramp up Model 3 production quickly enough to meet the debt obligations they have accumulated to date?
- What will the average Model 3 margin be, given the price distribution from 60k to 35k?
The bull case [2] aligns with your basic assumptions that the 3 will add significant cash flow that allows them to get over the "debt maturity hump". Note that their analysis does include other sources of cash flow (energy credits, remaining line of credit).
The bear case, basically, disagrees. They suppose that there will not be sufficient demand for the higher end Model 3, given increased competition from vehicles like 2019 Jaguar I-Pace (69.5k, 240mi); Chevy Bolt (37.5k, 235mi); and maybe Hyundai Kona EV (? $, 250 mi). This could then put Tesla into a negative spiral, where shrinking orders cause their accounts payable to not keep up with their lagged accounts receivable.
Also it's worth noting that they are probably on track to spend 2.5B in capital on PP&E this year based on 1.25B in first six months [3], and spent 3.6B, 1.3B, and 1.6B in the previous three years[4]. Adding in another 0.75 - 1.0 in selling/general/admin and R&D costs per quarter, on top of the cost of producing their cars and servicing their debt, makes even the 3B/yr in Model 3 gross profit case less of a slam dunk for Tesla success.
I think it really could go either way at this point, and the next six months will be telling. Elon does has a tendency to just make things work, but I am taking a risk here and siding more with the negative case.
[1] https://www.bloomberg.com/graphics/2018-tesla-tracker/
[2] https://www.cnbc.com/2018/10/09/tesla-on-path-to-profitabili...
The chevy bolt is a great little car, it's just not as a sexy as the m3 (will tesla take this over from bmw's namespace :-)). Of course it's half the price of the current selling model 3's. I think the bolt is a fine car, not too sexy, but sales in the us are anemic, yet people complain they are hard to find. Also gm isn't making many of them, perhaps for same reason as ipace. hyundai kona ev looks like a nice car too.
All those cars are inferior evs to even the model 3, but they aren't that far away. If only they could mass produce them, and the biggie, get auto dealers to try to sell them - that's the part that's really missing so far. It's literally against their own interest at least in the short term to sell evs.
I think you should look out more than 6 months. Tesla has enough customers world wide for the 3 to sell another 100-150k of them - remember they are hardly even selling them in Canada up to now, just recently ramped up. It's only after the pent up demand is handled that we'll know. I'd say look at what q3 and q4 next year do - Tesla sales are set through mid next year just be putting their cars in other countries. The optimistic case if they'll reduce manu. costs and be able to make the base short range model and survive making a 35k car. Meanwhile, and this is the exciting bit, the higher-midrange of bmw, mercedes, audi, maybe low end porsche will face significantly reduced sales because of model 3. Those companies aren't doomed, but the 3 is so awesome, there's so much pent up demand. Even in seattle the sales office was packed last weekend, and they put 100s and 100s of them on the road last month.
I think it's a brilliant way to harvet more money from people and maximize the benefit of the fed tax credit.
I should be honest that I want tesla to succeed because we need aggressive electric car companies to move the whole industry along. I don't want them to fail. I think their business strategy looks better than ever. IF there is a bunch of people, lets say 100k americans who want this car in this range and price, they'll be golden.
They're convertible notes with a fixed conversion rate, Tesla doesn't get to decide on what the noteholder wants. If the stock price isn't high enough whoever is holding the notes will demand cash (cash that Tesla doesn't have).
> “We’ll not be raising any equity at any point... I have no expectation of doing so; do not plan to do so.”
Issuing new shares would be a disaster. Far more likely is they come up with a way to roll the debt forward.
Not rooting for Tesla to go out of business, but the result of it could be a ton of cheap EV parts hitting the market.