Investors are trying to decide whether the final step of Tesla (NASDAQ 🙂 to strengthen its balance sheet by getting more than $ 2 billion from the capital markets is good or bad news for the shares. The stock has had a tough ride so far this year, in which it has fallen almost 15% in the last month alone
On the one hand, the issuance of debt certificates and convertible shares show that the electric car manufacturer is in trouble, because the words of CEO Elon Musk that he was cash-sufficient this year by selling more cars, a large miscalculation. But if you are an optimist and see the glass half full, then Musk goes back to the public market and getting a rescue plan is an indication that the markets are still open for the cash-tied Tesla, even after the car supply has fallen and the environment became a bigger challenge.
Tesla's stock fell 4.3% higher at $ 244.10 in the final phase of yesterday, following the news that it had submitted to sell $ 1.35 billion in convertible bonds and about $ 650 million in shares. The majority of the offer will come in the form of convertible bonds from 2024. The securities are marketed with a coupon between 1.5% and 2%, with the conversion premium rising to 32.5%, according to Bloomberg News.
But this positive response to Musk's new financing round is not logical for us. Here is a CEO who has consistently proven that investors should not believe what he tells them. From the exaggerated numbers of Model 3 production to his tweet that he is no longer going back to capital markets – everything indicates that Musk is not someone to trust, and for us this does not seem to be the time to start gambling on the company's stock.
Musk & # 39; s Misplaced Priorities
In fact, the company demonstrated that Tesla's cash position is rapidly deteriorating. For the quarter ending in March, Tesla recorded a net loss of $ 702 million, while vehicle deliveries were 31% down on the fourth quarter. Tesla closed the period with only $ 2.2 billion in cash, while the bills to be paid exceeded $ 3 billion.
Musk hopes that attracting additional funding is not a bad idea, especially when he is busy adding the list of major projects that will make the company rich in money one day. The latest is to develop a fleet of autonomous robot axis.
This may all look good in Musk's storybook, but investors should not forget that he still has to figure out how to make his electric car business profitable for the mass market. The outlook for this to happen this year had initially fueled investors and driven Tesla shares to $ 378 in December.
But as the year progresses, we do not see that turnaround coming soon, nor for Musk. After issuing the first quarter earnings report last month, he now expects Tesla & # 39; to be approximately cash-flow neutral & # 39; will be against his earlier projection to offer Tesla a positive cash flow after the first quarter. This change of heart is because he is saving money to boost production for the robotaxi fleet, his new spin on winning investors.
Bottom Line
We do not see Tesla's problems coming to an end, even though the company gets the funding it is seeking from the market. The best thing it will do is help the company pay its bills, including the $ 566 million in convertible bonds that mature in November. With the company's small cash reserves, the misplaced priorities of the CEO and the demand for his flagship electric car to fall, this is not the time to get excited about Tesla's stock. In fact, it's time to make his CEO responsible for his promises.
