It looks ugly for Tesla (TSLA) in the bond market, precisely at the wrong time.
While Tesla shares are defended day and night on Twitter by fanboys, the electric car company's bonuses tend to draw less attention. Hey, the bonuses are complicated, so it makes sense that the Tesla Twitter trolls do not discuss them regularly. But in the case of the automaker, the bonds should not be ignored by real investors.
Tesla issued $ 1,800 million in bonds maturing in 2025 on August 11, 2017. The figure was increased by $ 1,500 million and traded at par (100) with a return of 5.3%.
The value of the bonds has tended lower since then, around 10%. On the last call, they were trading at less than 90 cents on the dollar. While this is still above the June low close to 88 cents on the dollar and the historical low close to 86 in May, it does not inspire much confidence in Tesla's long-term outlook.
If the company can produce GAAP benefits in the third and fourth quarters, as CEO Elon Musk has promised, then perhaps this will be enough to alleviate some of the concerns of the bondholders. At least temporarily. With Tesla producing from 4,000 to 5,000 high-end model 3 units a week, in addition to its high-priced model S and model X, should generate a profit (consistently).
But what happens when you also start producing the short-range model 3 along with the more expensive long-range model 3? More money will be needed in cash. What happens when Musk wants to activate the production line switch in the new Tesla pick-up truck? More money will be needed in cash. What happens when Musk decides that today is the day to produce the Tesla Semi and the new Roadster, maybe the same day? More cash will be needed.
Model 3 and other Tesla models are unlikely to subsidize these ambitions on the part of Musk. Therefore, bondholders have good reason to express their concerns about Tesla's long-term viability.
If you need more clarity about Tesla in the middle of the Twitter trolls, just look at the bond market. When stocks and bonds do not agree, it is usually the last correct thing.
Read more about TheStreet's future Tesla here.
The business of Tesla at a glance