With the decrease in liquidity, Tesla seeks to raise $ 2 billion in debt and equity

For the past year, Elon Musk has emphasized that Tesla can achieve sustainable profitability without generating additional money from investors. But the company now tacitly admits that it was mistaken, filing documents allowing it to raise an additional $ 2 billion by selling a mix of loans and shares.

Tesla is looking to raise funds just days after announcing an unexpected loss in the first quarter of 2019. This publication showed that Tesla had less cash in the bank, rising from $ 3.7 billion at the beginning of the year. year to $ 2.2 billion on March 31.

The decrease in the cash balance is mainly due to one-off events – repayment of a loan of $ 920 million and transportation of a batch of cars in transit to customers at the end of the quarter. Nevertheless, to have only $ 2.2 billion in the bank is a precarious situation for a company known to lose more than $ 700 million in a single quarter.

To have an additional $ 2 billion in the bank would give Tesla a much needed respite. And the company has many uses to earn extra money, with several new vehicles, including the Model Y SUV, Tesla Semi and the new Tesla Roadster, which are expected to go into production before the end of 2020.

Shareholders generally do not like to see companies dilute the value of their stock by issuing new shares, but the markets reacted positively to Tesla's announcement. The company's share price rose three percent from Wednesday's closing price.

Lenders may be wary of Tesla's heavy debt

Tesla's goal is to sell shares worth $ 642 million at the current price of its shares. Tesla will also offer convertible senior notes worth $ 1.35 billion – a debt that gives the lender an option to take Tesla shares (at a fixed price) rather than in any other way. cash at the end of the loan.

In concrete terms, this means that Tesla will have to repay the loan in May 2024 if its share price behaves badly over the next five years. On the other hand, if the shares behave well, the lenders will instead choose to take the shares. This stock conversion option softens the pot for lenders, helping Tesla to get a lower interest rate than the company could get with a more conventional loan. Tesla has issued several convertible notes.

Tesla paid $ 920 million in March and is expected to repay about $ 2 billion in loans over the next two years. Therefore, the last debt problem does not necessarily mean that the debt burden of society will be on the rise.

In the past, Tesla has emerged as a fast-growing company, which had to run into heavy debt to finance rapid growth. But investing in growth only makes sense if it eventually leads to healthy benefits. Model 3 allowed Tesla to deliver two strong earnings in the second half of 2018 before falling back into the red of last quarter. During the last earnings call, executives indicated that they did not expect to return to profitability before the third quarter.

Bond markets reflected growing concerns over Tesla's outlook in recent months. The value of previously issued Tesla bonds fell earlier this month when the company announced lower-than-expected first quarter car deliveries. Tesla may need to offer a higher interest rate than in the past to encourage investors to take a risk for a company whose long-term viability is far from assured.