Elon Musk may be certain that Tesla will not need to raise capital again, but this morning Goldman disagreed violently, and in a note by bank analyst David Tamberrino, it sees “Tesla coming back to the debt/equity markets to fund growth”, and forecasts that between Tesla’s current operations, anticipated new product spend, and incremental capacity additions, the electric car company would need over $10bn in external capital raises and debt re-financing by 2020 (and that assumes the NHTSA, which is now probing three separate Tesla incidents, does not enforce a recall).
The good news: according to the Goldman analyst Tesla still has full access to capital markets, and has several options available to fund its growth targets and refinance maturing debt and raise incremental funds, meaning that Musk may fund the massive capital shortfall through multiple avenues, “including new bond issuance (secured and/or unsecured), convertible notes, and equity.”
The not so good news: issuing incremental debt (including priming current creditors with secured debt) may weigh on the credit profile of the company while issuing additional equity or convertibles at lower premiums would dilute current shareholders.
Jumping to Goldman’s candid assessment, which will hardly please Musk, meaning that Tamberrino will find himself in the penalty box on the next few Tesla conference calls, the analysts recemmends that Goldman clients “express long views via the front-end convertible credit” while they “continue to express a bearish view on the equity.”
Now back for some additional details.
First, looking at Tesla’s current capital structure, Goldman notes that TSLA currently has a total of $10.5bn in debt, $3.1bn of which is issued by subsidiaries and classified as non-recourse beyond the specific issuers’ assets, and $7.4bn of which is recourse debt, which primarily consists of the company’s revolving credit facility, convertible bonds and straight bonds.
This is where things get complicated, because according to Tesla’s debt maturity schedule, between 2018 and 2022, the company has $1.5bn in non-recourse debt maturing, on top of $5.5bn in recourse debt.
As the company’s new 5.3% 2025 indenture generally does not limit TSLA from placing liens on Asset Financing Transactions (i.e., accounts receivables, residuals, and vehicle lease agreements) and allows for the refinancing of existing Subsidiary Debt without requiring the 2025 notes to be similarly guaranteed, TSLA should be able to refinance the majority of its non-recourse debt on similar terms as the existing. Therefore Goldman focuses primarily on the company’s …read more