
Tesla Bonds Are in Free Fall - adventured
https://www.bloomberg.com/news/articles/2018-03-28/tesla-bonds-down-to-86-cents-start-to-flash-warning-signals
======
fpgaminer
Welcome to the sausage factory.

Being a startup is like being a gladiator. Every day is another war. Every day
other startups die. Every day of survival doesn't fill you with relief; you
just think of tomorrow's doom.

The general public only sees the sausages that come out of the factory. They
only see the glory of massively successful companies like Dropbox. They would
be horrified if they saw inside. The blood dripping through the grated floor.
The graveyard of bones ground up and spit out as meal for the next "lucky"
founder.

This week the public has gotten a taste of how Tesla's sausage is made. Truth
is; every day for Tesla has been like this. The truth is, every day in Tesla's
life has been the closest it has ever come to death.

Those in HN who've built a company know this. But they also know _why_ they
suffer this pain.

A mere two months ago SpaceX launched humanity's dreams into the outer
reaches. Meanwhile Tesla is single-handedly altering the course of ground
transportation.

Last weekend we took a trip to San Diego in a Tesla. An all electric trip,
charged up using the solar panels at our home, with most of the travel time
driven by autopilot. The future drove us there and back again. That's why
Tesla does what it does.

I don't see the point in discussing Tesla's financials and their "impending"
doom. Instead, I think the only appropriate thing to say is...

Nos morituri te salutamus

~~~
Balgair
I mean, this attitude is alright for a dog-walker app. But when Uber (and
possibly Tesla) kills a person, it kinda changes the whole conversation, don't
you think?

~~~
jazzyk
It will sound terribly insensitive, but many, many more people die in
"regular" car accidents every single day.

The number of deaths in envelope-pushing, new tech, accidents, compared to
regular traffic deaths, is minuscule.

~~~
Balgair
I mean, yeah, that's really insensitive.

It's not about the number in this situation, it's about the stats. Uber's cars
kill at a higher rate than the average driver. Granted, that stat is based on
1 data point, so it's not really a stat at all. Still, like, a _ton_ more
testing is obviously needed before these should be allowed anywhere near a
school.

Like, you wanna test a jet-pack? Be my guest. I'll grab a fire extinguisher
when/if it fails.

You wanna test a jet-pack near with dog in your arms? Dude, no way.

------
Animats
Production is up a bit this week, according to Bloomberg.[1] 1076 units of the
Model 3 last week. The plant is supposed to produce 5,000 units a week. Costs
are at the level for 5,000 units, while revenue is a fifth of that. That's
what's killing Tesla financially.

When Musk first announced the proposed Model 3 production schedule, his two
top manufacturing executives quit. They knew that the shortcuts Musk wanted to
take, like skipping debugging of the assembly automation at the supplier's
factory, wouldn't work. They were right.

[1] [https://www.bloomberg.com/graphics/2018-tesla-
tracker/](https://www.bloomberg.com/graphics/2018-tesla-tracker/)

------
godzillabrennus
Somehow I foresee the billionaire class of technical experts will step in and
prevent the downfall of Tesla.

Too many people believe in the vision of Elon to let this fall apart because
of short term production issues.

If anything, this could be a good thing for Tesla as it might attract other
owner/operator expertise to the firm.

~~~
paulpauper
Except that Tesla is not failing. There is so much demand for their cars that
they cannot make enough of them. A Tesla car fatality is breaking news but a
Ford Focus crash is ignored. Any shred of bad news pertaining to Tesla is
amplified by the media.

~~~
dragontamer
> There is so much demand for their cars that they cannot make enough of them.

Tesla cannot make enough of them because Tesla cannot make enough of them.

Everyone knows Tesla can sell those cars instantly if their production lines
are up to snuff. But the production targets are laughably behind. 5000
cars/week by Dec2017 ?? Yeah right. Its March2018 and they haven't even hit
5000/week yet.

~~~
anilshanbhag
The bloomberg tracker predicts a rate of around 2000
[https://www.bloomberg.com/graphics/2018-tesla-
tracker/](https://www.bloomberg.com/graphics/2018-tesla-tracker/)

I wouldn't say they are laughably behind. Projects do get delayed. My own
projects got delayed by multiple months. The California high speed rail is 3
years delayed ! Its better to do it right than to just hurry things.

~~~
Bluestrike2
Their most recent estimates are around ~1,076 a week. Those numbers are
_horribly_ behind their production targets. And that's a tiny fraction of the
500,000 cars annually that was the initial target for 2018 as of two years
ago.[0]

Tesla bet the farm on revolutionizing auto manufacturing while seemingly
ignoring much of what other manufacturers have learned over the years.[1]
Long-term, elements of that bet could pay pay off. But right now? They're
still struggling to scale up Model 3 production. And that's for a car that was
_literally_ designed to be less complex to manufacturer, with fewer, simpler
parts relative to the Model S and X. It doesn't matter that their
manufacturing approach might be more efficient in the future when everything
is working perfectly if they can't meet their bills this year.

No other manufacturer has these kinds of prolonged production problems. They
meet significantly higher production targets and with fewer quality control
issues. If Tesla doesn't show significant progress this year (both on
production targets and lowering their burn rate), they're going to be in
serious trouble. Most likely, we'll end up seeing Tesla have to hire contract
manufacturers like Magna Steyr to build complete cars.

Personally, I'd be fine with that. It'd give Tesla its best chance to entrench
itself in the EV market before the traditional automakers step get involved.
They, for one, won't have similar problems. I genuinely want Tesla to succeed,
but it's become abundantly clear that they don't know how to find a way out of
"production hell."

0\. [https://www.reuters.com/article/us-tesla-results/tesla-
puts-...](https://www.reuters.com/article/us-tesla-results/tesla-puts-pedal-
to-the-metal-500000-cars-planned-in-2018-idUSKCN0XV2JL)

1\. [https://www.forbes.com/sites/joannmuller/2016/08/04/tesla-
mo...](https://www.forbes.com/sites/joannmuller/2016/08/04/tesla-
model-3-manufacturing/#5c5c357b751b)

------
SQL2219
John Thompson, Hedge Fund dude:

. . . As a reality check, Tesla is worth twice as much as Ford* yet Ford made
6 million cars last year at a $7.6 billion profit while Tesla made 100,000
cars at a $2 billion loss.

Further, Ford has $12 billion in cash held for “a rainy day” while Tesla will
likely run out of money in the next 3 months.

~~~
panarky
In 2004, Google was valued at $23 billion.

Other advertising companies made far more profit than Google, had more cash in
the bank than Google, yet had lower valuations than Google.

On that evidence, many "experts" and "analysts" said Google was grossly
overvalued.

Today it's easy to see that their analysis was dead wrong. If you can figure
out why the conventional wisdom then was wrong, you'll understand why Tesla
stock has value today.

~~~
Teeer
> Other advertising companies made far more profit than Google

Your argument fails at that. Considering Google strictly an "advertising"
company is a narrow view, even in 2004.

~~~
panarky
It's not my argument, it's an argument from analysts who said Google was
overvalued in 2004.

Apparently they couldn't imagine the future, so they measured Google against
its contemporaries.

Comparing Tesla to Ford is a similar failure of the imagination.

~~~
xkjkls
Really? Why? Is Tesla not a car company?

~~~
manicdee
Tesla is a battery company that also makes cars.

~~~
xkjkls
That seems like an even less bullish fact. Batteries are never going to
command the same margin or moat as cars, and hence would have even lower
market cap comps.

------
IBM
Jim Chanos: We think Tesla is worth zero [1]

I've never understood why Tesla raised debt. They should have been issuing
equity and nothing else, capitalizing on the insane valuation its had for the
past 3-4 years. Debt would have been fine if they executed well, but they
haven't.

[1] [https://www.cnbc.com/2017/12/14/jim-chanos-we-think-tesla-
is...](https://www.cnbc.com/2017/12/14/jim-chanos-we-think-tesla-is-worth-
zero.html)

~~~
toomuchtodo
Yeah, clearly that $1.5 billion in capex equipment is worthless /s

Jim has been trying to make a profit short selling TSLA _forever_. I can’t
take anything he says seriously, crying wolf and all that (although Tesla is
going to have liquidity issues at the end of the year if they can’t get their
debt refinanced).

TLDR Capital intensive business facing challenges in rising interest rate
environment.

~~~
xkjkls
I think it's a pretty giant euphemism to refer to the possibility of running
out of cash before the end of the year as "challenges".

~~~
lafar6502
Or, the situation that they run out of money no matter what they do with
production

------
gfo
I don't want Tesla to fail because I like what Elon Musk is doing for the
world.

However, the production timeline issues combined with the poor quality of
Model 3 cars which have already been released is a big concern of mine, to the
point where my confidence is lowered in the company. I really want to believe
he'll find a way out of this but it's not hard to see why investors are
worried.

------
avalys
I've never understood what long-term value people see in Tesla. There is no
major technical advantage in their motor or battery technology. Autopilot is
nowhere near full self-driving and Tesla is not any further ahead on that than
other players in the market (they're just more willing to hype it and ship
unfinished products). Their cars are nice, but not amazing compared to other
manufacturers in the same price range (in fact, build quality is notably worse
in many ways).

Yes, Tesla was a bit ahead of everyone else to market, but how are they going
to compete when they're not the only one in the "luxury electric car" space?

~~~
eugmill
Tesla wasn't just ahead of everyone else to market, they forced everybody else
to market. If tesla gets everybody else to make great electric cars, that's a
success to me, even if tesla itself implodes.

I think if not for tesla, other car companies would not be scrambling to make
better Evs.

~~~
dingaling
Toyota forced a change in the car industry, and buyers' willingness to
consider electric options, with the Prius in 1997.

Tesla was founded in 2003 to design hybrids. By 2008 the company had been
taken-over by Mr Musk and changed focus to all-electic drivetrains and
released the Roadster.

Nissan launched the Leaf in 2010 as the first mass-produced all-electric car.

EVs were coming regardless of Tesla. I'm sure they have helped promote the
option and accelerated adoption within their target demographic but to 90%+ of
the market they're irrelevant.

------
Avshalom
>because of short term production issues

I agree with ironjunkie that Tesla is too hype to fail; Tesla has had
production issues since the start of the Model S... 6 years is no longer
'short term'

------
abledon
How much money does spaceX have? And ___hypothetically___, would it be
possible to merge tesla into spaceX.

~~~
jacquesm
They already pulled that trick with Solar City for which there were at least
some plausible reasons. I see no such plausibility for any SpaceX / Tesla
merger.

If Tesla can't make it SpaceX will not come to the rescue.

~~~
perl4ever
I don't _want_ them to, even though I own a tiny amount of TSLA so it would
technically be in my interest. SpaceX is doing things nobody else can, and it
would be a shame if they were dragged down. Batteries and electric cars will
continue to be worked on by many regardless of whether Tesla were to vanish
tomorrow.

~~~
jacquesm
Totally agreed. I already think what Musk did with Solar City and Tesla was a
distraction he didn't need. Let's hope that Tesla survives, it would be a damn
shame to see them pave the way for everybody else. On the other hand, it's not
as if they invented electric cars at Tesla, that's how the industry started
out and after a 100 year detour of the ICE we're back to square one.

------
CatDevURandom
Tesla: A Disruptive Force with a Debt Problem?

[https://youtu.be/HxkbUrNYvmY](https://youtu.be/HxkbUrNYvmY)

------
adventured
They should have taken this market bubble opportunity, pre recent drop, to
pull the trigger on a $5 billion raise via equity dilution. Might have bought
them into 2021. They had a solid 10-11 months at the recent ~$320 level to do
it.

This market and their own situation combined, can easily be one of those cases
where you wake up in May or June with 1/2 the market cap you had in January or
February.

------
dragontamer
8% in this market? Wow. That's... that's pretty bad. Interest rates have been
rising steadily, but a spike to 8% can only mean that bond investors have
begun to lost faith in Tesla.

The market however, is reacting to Moody's credit rating. Moody's downgraded
Tesla to B3 and Caa1 earlier this week, which is well into junk-bond status.

The TL;DR about it is that Telsa's Model 3 production isn't ramping up fast
enough. Tesla's current debt deadlines are:

* $230 million due in November 2018

* $920 million due in March 2019

Tesla is running out of time, and the Model 3 isn't being made fast enough.
There's plenty of demand. Tesla is most likely going to be forced to borrow
money to pay off its last debts.

~~~
manicdee
$230M means about 45k Model 3 sales assuming no other income. Or about 25k
Model S/X sales assuming no other income. Or two dozen big battery
installations assuming no other income.

But since Tesla is manufacturing Model S, Model X, Model 3, Powerpack and
Powerwall, it’s a safe bet that $230M will be covered with expected sales even
if Model 3 production stalls at this week’s peak.

$920M next year means Tesla have to reach 50k Model 3 a month with no other
income.

If they start rolling out Solar Roof before then, and sell any Model S or X,
or raise the rate of big battery installations, they will make that payment
too.

Tesla doesn’t only sell cars.

~~~
dragontamer
You're quite the optimist. There's a reason Tesla's credit was just degraded
to Caa1.

[https://si.wsj.net/public/resources/images/OG-
AX813_TESLA1_F...](https://si.wsj.net/public/resources/images/OG-
AX813_TESLA1_FON_20171030180617.png)

Tesla lost $1.6 Billion dollars in 2017. Tesla is going to lose money in 2018
AND it has bills due.

~~~
manicdee
With all the money they are borrowing, some lender is eventually going to say
“no”. A reduced credit rating just means, “we don’t think they can service
more debt.” The credit rating doesn’t mean that there is significant risk to
current creditors.

Moody’s rating is also based on naive fresh faced belief in aspirational
targets as accurate forecasts.

We will see if Tesla meets their revised targets. My interest in the company
is as a reservation holder, and all I really care about is that they stay
afloat. I am not an investor looking for incredible returns on overvalued
stock.

------
paulpauper
If insolvency were a concern the stock would be much lower. Seems like more
fud by journalists who want to see Tesla fail.

~~~
Analemma_
> If insolvency were a concern the stock would be much lower.

TSLA is down 28% this month. How much lower would it have to go before you
were convinced that the market is "actually" worried about insolvency?

And frankly, even if it weren't down, your position would still make no sense.
People trade bonds on the expectation of whether or not they'll be paid back.
Are you trying to claim stock prices represent what the market _really_
thinks, but bond prices are just posturing?

~~~
paulpauper
Yeah but Tesla is very volatile though. A 30% one-day decline on capital
crisis would be a cause for concern, but that has not happened. Rather, Tesla
is mirroring the market but with a higher beta.

~~~
perl4ever
The way I look at things is, every numerical quantity in science has an
uncertainty +/\- applied to it, right? Well, the market price of something has
a significant amount of uncertainty because it's based on future expectations.
But we _don 't know what that uncertainty is_. So if something declines 15% or
30% or whatever, it could be fluctuating _entirely within the band of
uncertainty_ and not reflecting any _meaningful_ change in expectations, but
not reflecting any _error by the market_ either. Or it _could_ mean something
or be an error. Fundamentally we don't and can't know by looking at the price
chart.

------
viburnum
8% yield doesn't sound like free fall.

~~~
mynegation
Yields on bonds go up when when bond price goes down. You can think of it this
way: Tesla bond would have to pay 8% for investors just to be on par (break
even), given the current interest rate regime. Of course, bond pays the fixed
rate agreed at the issuance, so if you are bondholder, your bond is now worth
less, and - if you sell it now - you realize the loss. Put another way, if
Tesla to issue new bonds, they have to issue them _at least_ with 8% coupon,
because investors will demand premium for risk.

~~~
Stanleyc23
thanks for the intuitive explanation

------
transfire
Is it a purposeful tactic to undermine Tesla and slow the inevitsbile
domination of electric vehicles?

------
nairboon
so it's time to buy?

~~~
Analemma_
If you think Tesla is going to pull through, then sure: put your money where
your mouth is and buy them cheap.

------
duncan_bayne
Is Tesla still being propped by US taxpayers? If so looks like you folks are
up for another round of "private profits, social losses" again.

------
CharlesMerriam2
Truly, a financial news feed about financial news of the intraday trading of a
financial instrument will affect the technology I select this year.

~~~
Idontagree
Can you restate that? I'm not sure what you're saying tbh. You want intraday
news on bonds or some other security?

~~~
foota
I think they're saying it won't affect whether they want to buy a tesla or
not.

~~~
twblalock
It should affect buying decisions. What would a Tesla owner do if their car
broke down and the company did not exist anymore? It's not like you can just
go to an auto parts store or an ordinary mechanic.

~~~
manicdee
Ask any Daewoo owner.

~~~
perl4ever
It seems like used cars are significantly inflated in price these days - there
don't seem to be many Daewoos left any more, but I just checked and people are
selling 17 year old examples with 100K+ miles for $2-3K.

