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Tesla lost ~$2B last year, owes ~$10B in debt, and owes >$400M in interest payments per year alone. Moody’s downgraded Tesla’s bond rating because Tesla will n

Tesla lost ~$2B last year, owes ~$10B in debt, and owes >$400M in interest payments per year alone. Moody’s downgraded Tesla’s bond rating because Tesla will need to raise more money this year, at least $2B (which is an extremely conservative figure), to avoid Chapter 11 bankruptcy. Elon Musk also owes >$600M in personal debt that he financed using Tesla stock as collateral. This means that if Tesla stock dips below around $233/share, Musk would face a margin call (sell Tesla stock, driving stock prices lower), or put down more Tesla stock as collateral to fund his debt. By the way, 90% of the Boring company’s funds come from Elon Musk himself, possibly funded by this personal debt. Other red flags are that shareholders sued Tesla board members for breaching their fiduciary duties by allowing Tesla to acquire Solar City, assuming an extra ~$3B in debt; and Tesla’s CFO Jason Wheeler left Tesla in 2017 with over half of his stock left to vest. The reason people are shorting Tesla is that beyond Elon Musk’s cult of personality, the numbers don’t add up. Tesla will need to raise more money this year to survive. Feel free to fact check all of this.

jillesvangurp 8y ago
So, that's about 1 year of revenue at 5K cars per week or roughly equivalent to their revenue last year. Or half of that if they manage to double that to 10K per week, as they seem to have promised. That doesn't sound like an impossible situation to me. Unless I'm missing something, a default on these debts is unlikely and given the numbers, access to more capital should be feasible. I agree that these are high risk investments though. High risk and high reward go hand in hand of course. Elon Musk may owe a little money indeed but he's also a shareholder in SpaceX. I'm not up to speed on how much he owns of that exactly but I believe it is a fairly large chunk of that company. And given the amount of rockets going up lately, his shares are probably worth quite a bit at this point. Magnitudes more than the 600M you mention, I imagine. So, I don't think a personal bankruptcy is that likely for him any time soon. Tesla 'lost' money investing in production capacity, R&D, opening up a huge battery production facility, etc. That's not wasted money unless demand for utilizing these to full capacity disappears. As it is, the opposite seems to be the case. Tesla is talking about opening additional Giga factories even. That will cost more money of course but I think they can make a case for that being a good investment given demand in their products. That's perhaps why it's stock valuation is so high: shareholders are expecting these investments to translate into revenue and growth. People that shorted Tesla seem to be getting a bit nervous about maybe ending up on the wrong end of that bet, which could end up being an expensive mistake for some. Boring and Solar City are interesting wild cards. I think owning Solar City is not necessarily a bad thing for Tesla. Solar panels are in demand and Tesla seems to consider charging infrastructure as part of their strategy. Also up-selling batteries that they produce to people that install solar panels seems like a smart move. Unless there's something wrong with their product, I see no reason for that to fail. They do seem to have acquired a bit of a cost overhead problem, which they have been fixing through layoffs. But other than that, this could very well turn out to be a pretty good bargain. Boring seems like a weird project at first glance. But it wouldn't be the first side project that Elon Musk is involved in that turned into a real business.
deleted 8y ago
[deleted]
windexh8er 8y ago
All the major players operate under a debt and profit cycle. It's just that nobody else is also building a new car company and one that is a paradigm shift. https://simplywall.st/stocks/us/automobiles/nyse-gm/general-motors/news/is-general-motors-companys-nysegm-balance-sheet-strong-enough-to-weather-a-storm/ https://simplywall.st/stocks/us/automobiles/nyse-gm/general-... On top of the fact they were bailed out.
- meddlepal 8y ago
  Calling Tesla a paradigm shift is laughable. It's an electric car company and they put a fancy touch screen HUD in the dashboard. Revolutionary!
  - leesec 8y ago
    You underplaying the importance of Tesla is laughable. 5 years ago electric/autonomous cars-as-computers were not on the road map (or were an afterthought) for major OEM's, now you go to auto shows and every manufacturers is featuring an upcoming electric vehicle. It absolutely changed the industry.
    - andromeduck 8y ago
      Nissan, BMW and GM would like to have a word.
    - Jasper_ 8y ago
      > 5 years ago electric/autonomous cars-as-computers were not on the road map (or were an afterthought) for major OEM's Five years ago was 2013. The Nissan Leaf and Chevy Volt were first released in 2010. Tesla Autopilot was announced in 2014 (four years ago!), which used technology by MobilEye, which was already supplying BMW, GM and Volvo with the same technology. I don't know where this revisionist history comes from. Large automotive manufacturers did say that it would take time for the technology to mature, and it took roughly as long as what they said it would, around the same time Tesla launched theirs as well. If that's not a roadmap, I don't know what is.
  - 8y ago
prostoalex 8y ago
> shareholders sued Tesla board members for breaching their fiduciary duties Starting a lawsuit is easy. What’s under-reported is how many of such lawsuits are won.
sdhgaiojfsa 8y ago
OK, all of this is true, and concerning to me, despite that I would never buy a Tesla (when there are perfectly good used Nissan Leafs out there!). This is part of the reason I never invest in individual stocks: I have no tolerance for the risk, and no confidence that I can interpret all these facts to come up with a coherent estimate of whether the price will go up or down. I guess my question right now is: if the situation is so dire, and the facts are all out there, why is TSLA not priced lower? Is it that there's enough dumb money holding/buying it propping up the price? Or are investors confident in Musk's ability to raise money and eventually turn the corner? Or something else entirely?
- spectrum1234 8y ago
  If perfectly good means ugly :). Not that non EVs are much better though. Model 3 is honestly the best looking car I have ever seen.
  - mrguyorama 8y ago
    Remember that car attractiveness is an opinion. Plenty of people (including me) feel the exact opposite, ie that the Model 3 is really derpy and dumb looking
- catherinezng 8y ago
  It takes a while for the public to react, just like it took a while for Enron and Theranos to be exposed. The market is irrational and the cult of Elon is strong - there’s too much hype, and it clouds people’s judgement. Also fewer people know these facts than you might expect. I dug through Tesla’s SEC filings to find out, which are hundreds of pages of documents. It took me at least 10 hours of reading. Doing the due dilligence is time-consuming, and it’s really easy to just roll with a speculative opinion, as you’ve seen from many comments in this thread. Based on my recent experiences seeing friends fundraise in YC, there is a lot of easy money going around, possibly because the low interest rate has pushed investors to look for more profitable investments through Silicon Valley, and money from Asia is pouring in. Corporate debts is also at an all-time high - there is $6.3T in corporate debt and a cash-to-debt ratio of 12%, a record low. This means that companies are taking an unprecedented amount of risk, so maybe Tesla numbers are relatively less shocking in comparison, but I'm not optimistic it will end well. See junk bond defaults from the 80s. By the way, Tesla bonds are considered junk bonds. They're officially labeled as B3, or "Highly speculative", and only one rating above "Substantial risks".
_ph_ 8y ago
And that is the reason why Elon reduced the speed for aggressive growth for the next few months and is pushing for actual profits in Q3 and Q4. With 5000 Model 3/Week (and 2+k S/S), Tesla has plenty of cash flow, they just need to stop spending money on future projects faster than they earn it.

jillesvangurp 8y ago

So, that's about 1 year of revenue at 5K cars per week or roughly equivalent to their revenue last year. Or half of that if they manage to double that to 10K per week, as they seem to have promised. That doesn't sound like an impossible situation to me. Unless I'm missing something, a default on these debts is unlikely and given the numbers, access to more capital should be feasible. I agree that these are high risk investments though. High risk and high reward go hand in hand of course. Elon Musk may owe a little money indeed but he's also a shareholder in SpaceX. I'm not up to speed on how much he owns of that exactly but I believe it is a fairly large chunk of that company. And given the amount of rockets going up lately, his shares are probably worth quite a bit at this point. Magnitudes more than the 600M you mention, I imagine. So, I don't think a personal bankruptcy is that likely for him any time soon. Tesla 'lost' money investing in production capacity, R&D, opening up a huge battery production facility, etc. That's not wasted money unless demand for utilizing these to full capacity disappears. As it is, the opposite seems to be the case. Tesla is talking about opening additional Giga factories even. That will cost more money of course but I think they can make a case for that being a good investment given demand in their products. That's perhaps why it's stock valuation is so high: shareholders are expecting these investments to translate into revenue and growth. People that shorted Tesla seem to be getting a bit nervous about maybe ending up on the wrong end of that bet, which could end up being an expensive mistake for some. Boring and Solar City are interesting wild cards. I think owning Solar City is not necessarily a bad thing for Tesla. Solar panels are in demand and Tesla seems to consider charging infrastructure as part of their strategy. Also up-selling batteries that they produce to people that install solar panels seems like a smart move. Unless there's something wrong with their product, I see no reason for that to fail. They do seem to have acquired a bit of a cost overhead problem, which they have been fixing through layoffs. But other than that, this could very well turn out to be a pretty good bargain. Boring seems like a weird project at first glance. But it wouldn't be the first side project that Elon Musk is involved in that turned into a real business.

deleted 8y ago

[deleted]

windexh8er 8y ago

All the major players operate under a debt and profit cycle. It's just that nobody else is also building a new car company and one that is a paradigm shift. https://simplywall.st/stocks/us/automobiles/nyse-gm/general-motors/news/is-general-motors-companys-nysegm-balance-sheet-strong-enough-to-weather-a-storm/ https://simplywall.st/stocks/us/automobiles/nyse-gm/general-... On top of the fact they were bailed out.

meddlepal 8y ago
Calling Tesla a paradigm shift is laughable. It's an electric car company and they put a fancy touch screen HUD in the dashboard. Revolutionary!
- leesec 8y ago
  You underplaying the importance of Tesla is laughable. 5 years ago electric/autonomous cars-as-computers were not on the road map (or were an afterthought) for major OEM's, now you go to auto shows and every manufacturers is featuring an upcoming electric vehicle. It absolutely changed the industry.
  - andromeduck 8y ago
    Nissan, BMW and GM would like to have a word.
  - Jasper_ 8y ago
    > 5 years ago electric/autonomous cars-as-computers were not on the road map (or were an afterthought) for major OEM's Five years ago was 2013. The Nissan Leaf and Chevy Volt were first released in 2010. Tesla Autopilot was announced in 2014 (four years ago!), which used technology by MobilEye, which was already supplying BMW, GM and Volvo with the same technology. I don't know where this revisionist history comes from. Large automotive manufacturers did say that it would take time for the technology to mature, and it took roughly as long as what they said it would, around the same time Tesla launched theirs as well. If that's not a roadmap, I don't know what is.
- 8y ago

prostoalex 8y ago

> shareholders sued Tesla board members for breaching their fiduciary duties Starting a lawsuit is easy. What’s under-reported is how many of such lawsuits are won.

sdhgaiojfsa 8y ago

OK, all of this is true, and concerning to me, despite that I would never buy a Tesla (when there are perfectly good used Nissan Leafs out there!). This is part of the reason I never invest in individual stocks: I have no tolerance for the risk, and no confidence that I can interpret all these facts to come up with a coherent estimate of whether the price will go up or down. I guess my question right now is: if the situation is so dire, and the facts are all out there, why is TSLA not priced lower? Is it that there's enough dumb money holding/buying it propping up the price? Or are investors confident in Musk's ability to raise money and eventually turn the corner? Or something else entirely?

spectrum1234 8y ago
If perfectly good means ugly :). Not that non EVs are much better though. Model 3 is honestly the best looking car I have ever seen.
- mrguyorama 8y ago
  Remember that car attractiveness is an opinion. Plenty of people (including me) feel the exact opposite, ie that the Model 3 is really derpy and dumb looking
catherinezng 8y ago
It takes a while for the public to react, just like it took a while for Enron and Theranos to be exposed. The market is irrational and the cult of Elon is strong - there’s too much hype, and it clouds people’s judgement. Also fewer people know these facts than you might expect. I dug through Tesla’s SEC filings to find out, which are hundreds of pages of documents. It took me at least 10 hours of reading. Doing the due dilligence is time-consuming, and it’s really easy to just roll with a speculative opinion, as you’ve seen from many comments in this thread. Based on my recent experiences seeing friends fundraise in YC, there is a lot of easy money going around, possibly because the low interest rate has pushed investors to look for more profitable investments through Silicon Valley, and money from Asia is pouring in. Corporate debts is also at an all-time high - there is $6.3T in corporate debt and a cash-to-debt ratio of 12%, a record low. This means that companies are taking an unprecedented amount of risk, so maybe Tesla numbers are relatively less shocking in comparison, but I'm not optimistic it will end well. See junk bond defaults from the 80s. By the way, Tesla bonds are considered junk bonds. They're officially labeled as B3, or "Highly speculative", and only one rating above "Substantial risks".

_ph_ 8y ago

And that is the reason why Elon reduced the speed for aggressive growth for the next few months and is pushing for actual profits in Q3 and Q4. With 5000 Model 3/Week (and 2+k S/S), Tesla has plenty of cash flow, they just need to stop spending money on future projects faster than they earn it.