Good:
$1.3B cash from ops, $1B increase in receivables
Bad:
$2B current portion of debt coming due, $1.2B increase in payables
Still need stellar numbers (and cash) in Q4.
> $1.2B increase in payables
That's a yearly increase. $500M-ish increase between Q2 -> Q3. I think its reasonable to expect payables to go up as they ramp up from 2000 M3/week to 4000 M3/week, but the number still gives me worry.
I think you're right to worry about these numbers. But its important to worry about the CORRECT numbers.
Per http://ir.tesla.com/static-files/6db4f56e-1532-4cd6-b8dc-3ff... they have $230 million due in Nov 2018, $920 million due in March 2019, $560 million due in Nov 2019, $113 million due in Dec 2020, $1,380 million due March 2021, and $977.5 million due in March 2022. Plus coupons on all of these payable regularly between now and then.
By my count this totals $4.1805 billion. They claim to currently have $3 billion in cash and cash equivalents on hand. But there are various outstanding liabilities.
Given a GAAP profit in the $300 million+ range this quarter, and a projected European market twice the size of the American one, this may all be doable. But it is still a balancing act.
Elon will have to roll over the debt somehow: either into stock offerings or maybe into new bonds. The meager profits reported this quarter aren't anywhere near the amount they need to pay off those debts... even if the profits grow 2x or 3x larger in Q4 and Q1-2019.
But, paying off some of those debts will put the company into a stronger position.
Financial theory and reality tend to agree except in a crisis. Unfortunately crises do tend to come along periodically. How TSLA weathers the next one will be interesting to see.
From Wikipedia "The basic theorem states that in the absence of taxes, bankruptcy costs, agency costs, and asymmetric information, and in an efficient market, the value of a firm is unaffected by how that firm is financed". See anything wrong with this picture?
"These results might seem irrelevant (after all, none of the conditions are met in the real world), but the theorem is still taught and studied because it tells something very important. That is, capital structure matters precisely because one or more of these assumptions is violated."
The Tesla bonds in question have a coupon of 5.3% and were sold into one of the lowest interest rate environments in history. They currently have an 8.5% yield. Rolling debt over on those terms is not fun.
Yes, it is possible that in March Tesla could be trading around over 20% above what it was most of today, but it would be unwise to depend on it.
If its a mandatory convertible, then Tesla pays it off in shares proportional to the value assuming Tesla was $360ish in price. So you "can't lose", you'll get 33% more stocks if TSLA was only $270 to ensure the bond-holder doesn't lose money.
I haven't been able to verify the status of the March 2019 convertible however. But just note that mandatory convertible vs non-mandatory is a big detail.
First because articles like http://www.latimes.com/business/la-fi-musk-convertible-bonds... indicate that they are not. And also because the potential dilution indicated in the Tesla statement that I linked to shows zero dilution if the stock prices is not sufficient for them to convert.
But realizing the huge financial consequences for the company of having the stock price high does shed light on why Elon is so eager to push his stock price up. He would much rather pay in stock than cash.
Incidentally the LA Times article indicates that there is a lot more debt than just the issues I listed. That's a list of all of Tesla's convertible debt. But not all of it is convertible...
There must be some special case here.
Who would loan money to Tesla below the rate they could get in risk free t-bills?
This is the bond in question. https://markets.businessinsider.com/bonds/tesla_inc-bond-202...
Furthermore, it was sold below par value. There's 1.25% coupon, but the overall yield is closer to 5% IIRC.
There's a LOT of assets / liabilities to juggle. Tesla also has $1.5 Billion of incoming cash (Accounts receivable), which is basically people who are currently in the process of paying Tesla right now.
But in any case: Tesla's liquid liabilities are larger than their liquid assets. Its a bad spot to be in for sure. Its solvable though, but the question is what does Tesla lose by solving it.
Subtract the $3 billion in cash and they'll need to come up with $2.9 billion between now and March of 2022, which is $.2+ billion per quarter.
Edit - Double counted cash. It should be $.4+ billion per quarter.
> Their liabilities are greater than their assets to the tune of $1.7 billion. That plus the $4.2 billion in bonds is $5.9 billion in debt.
You're double-counting. Liabilities include debt. No need to double-count.
> Subtract the $3 billion in cash
You're double-counting, again. Assets include cash. Lets do this once, and correctly, shall we?
* Total current assets: $7,920,491 (thousands)
* Total current liabilities $9,775,324 (thousands)
That's a total shortfall of $1.85 Billion. Again, page 8 of the PDF provides these numbers.
> they'll need to come up with $2.9 billion between now and March of 2022, which is $.2+ billion per quarter.
Elon Musk has raised capital ever year, roughly to the tune of ~$1 Billion/ year. Either by convincing people to take on more debt for the company... OR by selling more shares out.
The only issue is if a recession hits between today and then, which would close capital markets.
In terms of capital raises, this SA article posits why Tesla may not need as much capital going forward.
https://seekingalpha.com/article/4100718-teslas-unusual-sour...
You mean Musk gained control through that, not lost it? How so? That's quite different an assumption from what I expected.
Yes, it's an interesting result of corporate mismanagement, that he gets to sign off (with board approval, but let's be honest about the control they have) on even more equity stake. However, he did have to give up the chairmanship, so overall he lost control of the company though in this dimension (portion of equity ownership) it is an interesting curiosity and contradiction.