Investors will have a very long weekend to think about the implications of Tesla's decision (TSLA) to reduce to 7% of its full-time workforce.
While Wall Street applauded Tesla's results in the third quarter, which were far ahead of the consensus estimates, investors were not thrilled that the fourth quarter is below the last quarter's mark, according to the company's email .
While there is much worse news that Tesla could have delivered than a fall in earnings, for example, without profits, Wall Street still was not impressed. The movement is attracting many questions at this point. Is Tesla reducing the workforce to help pay for its Shanghai factory? What does this mean for your Model 3 of $ 35,000?
Of course, it is useful to have a context and, in this case, we do not have much. For example, as Tesla prepares to deliver Model 3 in Europe and China, are there any explainable costs or reasons for a possible slowdown? Do those explanations point to a return in the next quarter?
Those are the types of answers that investors will want when Tesla receives his quarterly phone conference and publishes his fourth quarter results.
The impact on the bonds
Despite the avalanche of questions and the onslaught of selling on Friday, a note is worthwhile to cover its Tesla convertible 2019 bonds. On March 1, $ 920 million of convertible debt will expire. If Tesla shares are traded at $ 359.88 or more, the company may choose to pay that debt with shares instead of cash.
Tesla has already said that if the shares close above the conversion price, they will pay with a 50/50 combination of cash and shares. However, with Tesla's recent pullback and Friday's 13% drop, that jeopardizes Tesla's strategy.
As of the last quarter, Tesla had around $ 2.9 billion in cash and equivalents. Tesla's cash and liquidity situation is more complicated than a simple look at the balance sheet, but it gives us a rough idea of where the automaker is located. In the third quarter, Tesla was positive and profitable in the cash flow, and while that is the case in the fourth quarter, Tesla should be able to make the payment in March, even if everything is effective. However, it will come at an unfortunate time for Tesla, as it tries to open its Shanghai factory before the end of the year, continues to expand its supercharging network and has several new models in the pipeline.
Of course, it is always possible that Tesla shares may rise above that conversion price in time to pay part of the debt with shares. After all, more than a month is missing and we have seen more crazy things than a 20% increase in the price of Tesla shares in a short period of time. The gains will probably also be a great catalyst between now and then.
Either way, keep in mind the debt.