Tesla (TSLA) is the midst of its worst week, for both its stock price, and reputation, yet founder Elon Musk seems to think it’s a laughing matter, as he sent a series of April Fools’ tweets joking about the company filing for bankruptcy. Needless to say, investors concerned about the health of Tesla stock are unlikely to have been reassured by this.
The tweets culminated with an image of him passed out against a Model 3.
The callousness of Musk’s tweets is likely to exacerbate his company’s problems. I doubt the shareholders that have watched Tesla stock drop over $100 or some 28% in the three weeks are happy. And I also doubt owners who have experienced repeated mechanical problems from bad software to leaking sunroofs are laughing.
Nor are those 123,000 owners of the Model S which were recalled for faulty steering. Maybe Musk also thought it was funny to issue the recall on Friday, when the market was closed for a three-day weekend.
I know the family of the man who died in from an accident while his Tesla was engaged in autopilot isn’t in a joking mood.
Still, through all this, Tesla stock is still up some 500 percent from its 2013 levels, and sports a market cap near $50 billion. That’s larger than two of the Big 3 U.S. automakers, despite Tesla’s paltry production numbers.
Bonds Are Getting Hit
While there will probably always be true believers among stock holders, those who own and track the bonds are taking a more critical look.
The debt markets are now signaling a lack of confidence in Tesla’s ability to avoid bankruptcy down the line, while the equity markets are trying to figure out where Tesla will settle for the inevitable capital raise.
Bondholders are asking hard questions about whether Musk can deliver on his bold promise to bring electric cars to the masses before the company runs out of cash. Last Wednesday Tesla’s credit rating was downgraded and notes plunged to a low of 86 cents on the dollar, the clearest sign yet that creditors aren’t totally sure the company will be remain in good health.
The consequences are significant. Tesla’s woes have played out most visibly in the stock market, with its shares suffering a two-day, 15 percent drop that’s the biggest since 2016. But surging borrowing costs, which are now near 8 percent, could hamper the carmaker’s ability to finance itself at a critical time.
Tesla is burning through money so fast that, without additional financing, it will run out of cash before year-end. To put that into perspective, that amounts to more than $6,500 every minute of every day.
That puts the company in “crunch time” now to improve margins and generate cash flow. Tesla will report first-quarter production figures for the Model 3 this week. The company has been promising to ramp up to 2,500 cars per week, which might have been achieved, but probably hasn’t.
Another production miss wouldn’t make it any easier for Tesla to persuade bond investors to hand over more money. The lack of fresh capital could drive the company towards bankruptcy. And that would be no laughing matter.
