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With just a day left in February, Tesla Inc is heading towards making a large debt repayment. Elon Musk's automotive startup that truly disrupted the industry in technological terms has had a bumpy ride since its inception. Musk likes to set ambitious targets - a facet of his personality that has allowed him and his companies to spearhead development in industries everyone thought were beyond the approach of startups. But, reality often sets in, and it might create a difficult situation for Tesla (NASDAQ:TSLA) in the near future. See below for more details.
Tesla Has Convertible Notes Worth $920 Million Heading For Maturity On The 1st Of March As Company Still Struggling With Costs
Just last week Tesla's CEO Elon Musk tested the SEC's patience once again. Given his entrepreneurial nature, Mr. Musk does not play by the rules. It's a characteristic which has led him to achieve great things, but it also results in a near consistent state of conflict with established institutions such as the SEC. The regulatory body responsible for the United States' financial markets has to be on strict guard against any public movements of share price, and as a result, often finds itself at odds with Musk.
Now, after another tweet got Musk into trouble, Tesla might have to look to raise funds yet again. The company's got senior convertible notes that are worth $920 million set to retire on the 1st of March 2019. These notes have a conversion price of $357.98/share. If you're paying close attention to the Tesla (NASDAQ:TSLA) tickers in this piece, you'll realize that the company's share price is nowhere close to this and as a result, Tesla might be in for a bumpy ride early this year.
Tesla's share price at the time of writing is $314. This means that the $920 million convertible notes will be taken as debt should this price remain below $357.98 on the 1st of March. Given Musk's recent spar with the SEC, this presents the company with a two-pronged problem. Being at odds with the regulatory body is unlikely to drive the share price up, which leads to the second of Tesla's problems. While Tesla (NASDAQ:TSLA) has sufficient cash to pay this debt off (since it won't convert into company stock), the company needs the money to drive up production. And raising this money while under SEC investigation will prove quite a challenge for the company's leadership.
Additionally, Tesla has more debt coming due, and while the company has publicly announced its intention to cut down capital expenditure, things might change in the future. Tesla's capital expenditures declined to $2.32 Billion last year, down by 43% from 2017. The company is also busy making promises to customers and these promises also hold the potential of further driving up costs.
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