Heading into electric-car company Tesla‘s (NASDAQ:TSLA) fourth-quarter update next week, investors will be watching the company’s cash balance. Not only has Tesla’s cash balance decreased from $3.4 billion at the end of the company’s fourth quarter of 2017 to $3 billion by the third quarter of 2018, but Tesla has a massive debt payment due in March of this year.

This debt combined with Tesla’s recent update saying it will take significant efforts and “some luck” to achieve “a tiny profit” in its first quarter show why the company’s cash is such a hot topic. But Fox Business News, citing company insiders, is reporting on Thursday that Tesla thinks it will have the cash required to make this payment without needing to raise any capital.

A red Tesla Model 3

Model 3. Image source: Tesla.

Making big debt payments

“What I’m hearing from inside Tesla is that … company officials believe that they do have enough cash to make that payment — that they don’t have to go out and do a capital raise if they don’t want to,” said Fox Business reporter Charlie Gasparino on Thursday. The payment Gasparino is referring to is a $920 million bond payment due on March 1.

While the senior unsecured notes could be converted to stock, shares would have to trade close to $360 to be eligible for a swap. With the stock closing the trading day on Thursday at $291.51, the stock would need to rise about 23% in order for bondholders to be able to convert the debt to shares. Suffice it to say, Tesla shareholders aren’t counting on a conversion.

Adding fuel to the fire, Tesla also had a $230 million debt payment due in November of last year, which management said in its third-quarter shareholder letter that it planned to repay in cash during the quarter. 

Importantly, Gasparino admitted that his sources could be wrong and said he’s not sure if the company has totally ruled out the idea of a capital raise.

Cash is crucial

Due to the capital-intensive nature of Tesla’s business, cash flow and cash on hand is especially important to the company now. The automaker is ramping up production of its highest-volume vehicle yet — the Model 3 — while expanding deliveries of the vehicle to Europe and Asia. In addition, Tesla is aiming to bring to market a lower-cost version of the Model 3, which will put pressure on the company’s profit margin later this year.

Tesla’s cash position saw a boost recently when the company swung to positive cash flow in its third quarter. This helped bump the company’s cash and cash equivalents $731 million higher compared to the second quarter of 2018. While the company said it expects to remain cash flow positive in Q4, it’s less certain what to expect from Q1. Tesla recently announced plans to lay off 7% of its workforce in an effort to cut costs, suggesting the company is facing a cash crunch.

Investors will get more insight into Tesla’s current cash level and its plans for debt payments when the company reports its fourth-quarter results on Wednesday, Jan. 30.





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