Tesla Has 143 Days to Start Figuring out its $11.5 Billion Debt Situation

The debt maturity countdown is officially on for Elon Musk and Tesla. The company has 143 days until material amounts of debt start coming due, according to regulatory filings and a new report by Bloomberg. While that may seem like a lot of time for the company to figure out a solution, Tesla must certainly be noting that the rising rate environment will be ratcheting up the pressure even more.

Over the course of the next 13 months, Tesla has more than $1.5 billion in debt coming due. This represents a little more than 10% of Tesla's total outstanding debt of $11.5 billion. Although Tesla has a smaller maturity due in November of this year, March of next year is where it has to deal with a $920 million convertible bond that it won’t be able to convert to equity unless the stock is back over $360 per share. As of right now, it looks like a debt to equity conversion is unlikely, which would make the company obligated to pay it back in cash.

 

However, it doesn’t seem as though anybody participating in either the bond market or the equity market is too concerned with Tesla being able to meet its obligations. The equity still trades with a valuation north of $40 billion and Tesla's 2025 bonds have been yielding between 8% and 9% – an aggressive coupon, but not one that suggests that a default is imminent.

Chris Hartman, a senior portfolio manager at Aegon Asset Management, told Bloomberg: “The market isn’t indicating there’s any imminent danger, they have time. It’s only five months, but as long as there isn’t some global liquidity crisis, they should be able to access the capital markets, albeit at a much higher rate, to keep the story alive.”

And so, the question looms: is Musk going to be able to, over the course of 143 days, finalize his lawsuit settlement, make peace with the Securities and Exchange Commission, implement the settlement's required changes and continue to sell vehicles at a rate that would indicate to financiers that there is no extraordinary risk in rolling out these maturities? While third-quarter production and delivery numbers met the companies' expectations, we still don’t have any indication as to how the company fared financially during the quarter.

Despite the bond market not showing any severe alarm bells, the cost to insure Tesla's bonds has risen. Now, it costs nearly $2 million to insure $10 million worth of Tesla bonds from default over five years. Two months ago, that cost was less than $1.3 million.

Of course, you may recall that Elon Musk has famously stated that Tesla would not need to raise money this year and that the company would generate positive free cash flow while ensuring the market it can be sustainably profitable. In terms of what type of method the company could use to refinance some of its debt, actions could be limited, given the fact that the company is reportedly still under investigation by the SEC regarding certain Model 3 production targets it has made. CEO Musk's erratic behavior likely hasn’t instilled confidence in Tesla's lenders, either.

Just yesterday, we reported that Tesla's second largest outside investor, Baillie Gifford & Co, reported in a regulatory filing that it had built an 11% stake in NIO Inc., a company trying to position itself as Tesla's main competitor in China.