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Tesla Debt Financing Challenge Raises Risk for Investors

Tesla debt financing poses a challenge early next year for the company’s investors. The recent actions of Chairman and CEO Elon Musk did not help matters any, as he appeared on a public podcast on Sept. 6 with comedian Joe Rogan while drinking whiskey and smoking marijuana.

Tesla Inc. (NASDAQ:TSLA) needs to return to the capital markets by the first half of 2019 to refinance at least a portion of its roughly $10 billion in debt amid pressure on the company to start turning a profit to help entice prospective financers. The importance of Tesla achieving its goal of becoming cash flow positive in the second half of 2018 is high due to the company’s net-debt position of $9.2 billion at the end of the second-quarter, rising from $8 billion at the end of the first quarter and $4.8 billion at the close of second-quarter 2017, according to investment firm Goldman Sachs.

Plus, Tesla has convertible debt maturing between this year and 2022 that includes $5.9 billion in recourse financing in which lenders may collect from the debtor, or the debtor’s assets in the case of a default. Tesla also has $1.6 billion in non-recourse financing due during the same period in which a lender is only entitled to repayment from the profits of a project that the borrowing is funding, not from the borrower’s other assets.

Convertible debt is a way to entice lenders to back a company such as Tesla that has strong potential in return for the financier to be able to exchange the debt for equity at a later date.

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