Tesla might make $920M in big debt go away
A big pile of debt comes due at Tesla March 1 — $920 million worth. But starting in two weeks, the company has a chance to make it disappear.
The debt is in the form of convertible bonds, a special kind of instrument that can be converted into shares of Tesla stock under certain conditions. If conditions are met, and all bondholders convert, Tesla would suddenly gain $920 million worth of muchneeded financial flexibility.
To spark a conversion, Tesla needs to boost its stock price to $359.87 or higher at some point from Dec. 1 Feb. 28. The higher the price goes, the more likely holders will convert.
A successful conversion would go a long way toward helping Tesla meet CEO Elon Musk’s financial goals. He’s told stock analysts to expect profit and positive free cash flow in the upcoming quarter ending in December, with “aspirations” for profits in “all quarters going forward.”
If the overall stock market’s recent swoon continues, the $359.87 strike price might be hard to reach. Tesla shares now trade at around $345.
Still, Tesla’s volatile stock has bucked general market trends before, and could do so again.
Tesla “trades like a hyper growth company,” said Scott Lummer, who heads Savant Investment Group in Oakland. “It could be one good news event away from selling at $400 or above, or take a dive on bad news, like the company not meeting its production goals.”
What might raise Tesla’s stock price higher enough to encourage conversion? Elaborate introductions of proposed future products the company has staged in the past — such as a solar-tile roof in 2016 or a semi truck last year — didn’t move the stock price much. (Neither the roof nor the truck is close to commercial deployment.)
Anticipation of the Model 3 is what drove Tesla stock to a near-record closing price of $383.45 on June 26, 2017. Musk spotlighted 50 new “production” cars in a crowded livestreamed event that July at the company’s Fremont, Calif., factory, where he promised a base price of $35,000. Around that time, he told analysts to expect production of 10,000 a week sometime in 2018.
The base price today is $46,000 and Tesla has not yet reached a consistent weekly rate of 5,000.
Tesla’s stock price hit $387.46 in intraday trading Aug. 7 — its high so far this year — when Musk said on Twitter that he had “funding secured” for a deal to take the company private at $420 a share. That was untrue, which got Musk into trouble with the Securities and Exchange Commission. The stock price plunged.