Tick Tock: Elon Musk Has Only 4 Weeks to Rally Tesla Stock or Pay $920 Million on Bonds

Tesla will be presenting its reports for the fourth quarter once the trading bell goes off today, January 30, 2019, in a make or break moment for a company that is already going through a lot.

After the company posted a blowout third quarter for last year, with profits exceeding Wall Street expectations and revenues reaching almost $7 billion in total, it is widely anticipated that the automobile giant will pull back a bit in Q4 2018 due to bond payments. Today's report will reveal the financial health of the company, and whether or not it will be able to avoid a $1 billion bill.

Tesla’s Debt Structure

Teals Inc. will owe $920 million in March for convertible bonds that were issued by the company back in 2014. The debt is due on March 1, but the company can also avoid a payout altogether by making an exchange of the note for a stock and cash mixture. This strategy, as brilliant as it is, will be predicated on whether the company’s shares will be able to increase by about 21 percent, based on a 20-day averaging period that has already started.

The equity conversion price for this debt payment is $359.88, but the problem for Tesla is that the last time it traded above that price was December 2018. The bond debt payment is set to be the largest in Tesla Inc.’s history, and a payout will likely take a very significant chunk of the company’s cash balance. The kind of swing that the automaker needs to pull off for this cash and stock mix to work seems like an impossible feat to achieve. Today's reports will provide a clearer picture of what the company intends to do.

In a nutshell, Tesla will be forced to make payments for the notes in cash to holders if its stock trades below the $359.8 mark by March 1. However, if the stock rises beyond that threshold in the next four weeks, Tesla will be able to convert the notes into equity shares. A report by Business Insider in October 2018 revealed that Tesla had $2.2 billion in cash balances. If the company ends up paying for the notes by cash, it would have to delete its cash at hand by almost 50%.

Tesla’s Cost-Cutting Efforts

So far, Tesla hasn’t had a particularly swimming year. In an attempt to cut costs and raise revenues, the company was forced to lay off about 7% off its workforce, relieving about 3,000 workers across various departments of their duties. The layoff affected both Tesla and Space X, which is also owned by Elon Musk, the automaker’s Chief Executive Officer.
The general consensus was that the layoffs were as a result of the looming debt deadline, as well as to provide additional financing for the company’s $2 billion Gigafactory, which is located in Shanghai, China.

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Jimmy Aki @adejimi

Jimmy has been following the development of blockchain for several years, and he is optimistic about its potential to democratize the financial system.

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