Tesla Bonds Crash After Moodys Downgrade Due To "Liquidity Pressures"

With perfectly ironic timing, we pointed out that investors had built a record short position in Tesla bonds, and had been adding to it as the price had plunged.

Tonight, after hours, yield have smashed above 7% (and price plunged) as Moody's downgrades the carmaker.

As Bloomberg reports, the rating agency says the company also faces liquidity pressures due to its large negative free cash flow and the pending maturities of convertible bonds.


Full Moody's Statement:  

Moody's Investors Service downgraded Tesla, Inc.'s (Tesla) Corporate Family Rating (CFR) to B3 from B2, unsecured note rating to Caa1 from B3, and Speculative Grade Liquidity rating to SGL-4 from SGL-3. The outlook is negative.


Tesla's ratings reflect the significant shortfall in the production rate of the company's Model 3 electric vehicle. The company also faces liquidity pressures due to its large negative free cash flow and the pending maturities of convertible bonds ($230 million in November 2018 and $920 million in March 2019). Tesla produced only 2,425 Model 3s during the fourth quarter of 2017; it is currently targeting a weekly production rate of 2,500 by the end of March, and 5,000 per week by the end of June. This compares with the company's year-earlier production expectations of 5,000 per week by the end of 2017 and 10,000 by the end of 2018.
The Caa1 rating of the unsecured notes reflects the junior position of the notes relative to the company's $1.9 billion secured credit facility.

Tesla continues to benefit from solid market acceptance of Models S and X, which collectively hold over a third of the US luxury market. In addition, third-party evaluations of the Model 3 remain favorable, consumer response to the vehicle is sound, and advance purchase reservations and deposits remain high. Finally, regulatory support for battery electric and zero-emission vehicles continues to grow.

The negative outlook reflects the likelihood that Tesla will have to undertake a large, near-term capital raise in order to refund maturing obligations and avoid a liquidity short-fall. Prospects for addressing its liquidity requirements (whether equity, convertible notes or debt) will be supported if the company can establish credibility for reaching Model 3 production levels -- 2,500 per week by the end of March, and 5,000 per week by the end of June.

Tesla's liquidity consists principally of $3.4 billion in cash and securities at December 31, 2017. The company also has moderate availability under the $1.9 billion ABL facility. This liquidity position is not adequate to cover: 1) the approximately $500 million in minimum cash that we estimate Tesla must maintain for normal operations; 2) a 2018 operating cash burn that will approximate $2 billion if Tesla maintains high discretionary capital expenditures to increase capacity; and 3) convertible debt maturities of approximately $1.2 billion through early 2019. These cash needs will likely require Tesla to undertake a near-term capital raise exceeding $2 billion. Moreover, if the company maintains its expected pace of expansion, it will likely need to raise additional capital during the second half of 2019.

Tesla's rating could be lowered further if there are shortfalls from its updated Model 3 production targets. The rating will also be pressured if the company is unable to raise sufficient new capital to cover its late-2018 and early-2019 convertible maturities, and to cover the operating cash consumption that will likely continue into 2019.

The rating could be raised if production rates of the Model 3 meet Tesla's current expectations and if the company maintains good liquidity.

*  *  *

Penny for your thoughts Elon?


FireBrander Tue, 03/27/2018 - 17:21 Permalink

Another opportunity to do something good crushed by the ego of the psychopath in charge.

The world is not crying out for a ~$40k electric Festiva; as Chevy has found.

The world also doesn't really need a ~$100k electric Tesla...

The world does need, would buy, and be much easier to manufacture, a $15k electric commuter car.

Electric tech isn't there to replace gas; but electric can beat gas in certain niche areas...the biggest being city driving where, everyday, for millions of engine hours, cars are burning gas SITTING STILL IN TRAFFIC JAMS to/from work...that is where electric cars shine.

directaction FireBrander Tue, 03/27/2018 - 17:26 Permalink

This Musk rat has sullied the good name of the most brilliant scientist of the modern era. 

Then he went around stealing from every taxpayer in the USA. 

What an evil person, which, of course, is why he's financially thriving in the United Satans. 

In reply to by FireBrander

GUS100CORRINA directaction Tue, 03/27/2018 - 17:42 Permalink

Tesla Bonds Crash After Moodys Downgrade Due To "Liquidity Pressures"

My response: I will bet there is a LOT folks with soiled underwear in the front office at TESLA.

But if TESLA is a FRONT COMPANY for "IC" MONEY LAUNDERING activities, then the "IC" will find the money and bail out TESLA. If not, then will the last person to leave please turn out the lights.

In reply to by directaction

3-fingered_chemist Tue, 03/27/2018 - 17:24 Permalink

Writing was on the wall when top execs started leaving to "spend more time with family". Seen it before with a few companies (not as big as Tesla obviously). End result was always liquidation. 

OutOfThinAir Tue, 03/27/2018 - 17:27 Permalink

Talking about the future is cheap.


Building it is another matter.


As an unrelated note, investors flocking to Tesla despite positive cash flows and a proven scalable manufacturing model is huge evidence that the market works- for the interests of the Chosen.

beenlauding Tue, 03/27/2018 - 17:37 Permalink

Hmmm, 'liquidity pressures'...is that fancy speak for what happens to a person when their 'autonomous' car crashes into a semi or the median of a highway that it thinks is pokeman?

bytebank Yen Cross Tue, 03/27/2018 - 19:58 Permalink

Autopilot killed the company. Never a good idea to kill your customers. Wives do not approve of family cars that pose danger to their husbands or their families, let alone themselves. 

If he had ditched that maybe there would no stigma that the cars are unsafe. The Model X makes no sense with gull wing doors.  SUVs should be able to have a roof rack. Not with those doors. How about towing something?

Electric cars are as someone stated earlier should be second cars, city cars. They are not, at least not yet, long distance haulers. 100k is too much. What will happened in the second hand market when battery banks need to be swapped out?

I would love to drive one. They look cool but I would never buy them.

In reply to by Yen Cross

Grandad Grumps Tue, 03/27/2018 - 18:55 Permalink

If Tesla dies, there will be more electronic car companies that learned from Tesla's mistakes. Personally I believe it was the height of arrogance to name the company Tesla ... and then not use his technology.

not dead yet Winston Churchill Wed, 03/28/2018 - 03:48 Permalink

Musk was an investor in Tesla but he did not found it. Musk did not invent PayPal either. The founders of PayPal brought Elon and a startup he created on board but eventually shut down Elon's crappy startup and fired his ass. Elon walked away filthy rich with the PayPal stock he got. Solar City was founded by Musk's cousins. Don't know for sure who founded Space X but Space X and all those rocket companies out there wouldn't exist without the government creating the technology and supplier base for the space business. There were SCI FI stories about hyperloops many decades before Elon was even born but he gets the credit for "inventing it."  Most of what genius Musk gets credit for was invented by someone else.

In reply to by Winston Churchill

not dead yet Grandad Grumps Wed, 03/28/2018 - 04:02 Permalink

The only thing other car companies can learn from Tesla is putting a bunch of morons in charge does not make for success. The other guys know how to build cars and make a profit whether they be gas, electric, or run on corn flakes and it's Tesla that should have learned from their mistakes instead of arrogantly thinking they were going to change the world with their ignorance. The only thing that's kept Tesla in business, other than suckers running up their stock or buying their bonds, is that they were selling a flawed POS totally lacking in quality that well heeled suckers were willing to buy because it was a new age status symbol. The only reason that their aren't more electric car companies out there is that the market for them is super tiny. Thanks to governments around the world mandating electrics that we now see large numbers of them about to come on line.

In reply to by Grandad Grumps

IDESofMARCH Tue, 03/27/2018 - 20:04 Permalink

Musk believes in Pay Yourself First.  That's why he doesn't give a hoot That Tesla has NEVER made a profit and never will. He writes his check first. He's liquid Tesla's not. 2500 cars are you kidding, you can't pay any bills with that. There's a lot of fools with too much money and they're going to drive their Tesla to mars.

ElTerco Tue, 03/27/2018 - 23:43 Permalink

Bottom line -- there are not more than one million people in the USA that want a battery electric car (aka no combustion engine). Hell, there may only be twice that number worldwide.