GOLDMAN SACHS: Tesla may need $10 billion in fresh cash in the next 18 months

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Mike Blake/Reuters

Add Goldman Sachs to the list of Tesla skeptics.

The bank told clients Thursday that the electric automaker may need $10 billion over the next 18 months in order to stay afloat and meet production demands.

“Between its current operations, anticipated new product spend, and incremental capacity additions, we see Tesla potentially requiring over $10 billion in external capital raises and debt re-financing by 2020,” analyst David Tamberrino said in a note to clients Thursday.

“We believe this level of capital transactions may be funded through multiple avenues, including new bond issuance (secured and/or unsecured), convertible notes, and equity. We see several options available to the company to refinance maturing debt and raise incremental funds, which should allow Tesla to fund its growth targets.”

His estimate contradicts CEO Elon Musk’s claims that the company won’t need a cash infusion and should be profitable by the end of 2018.

If Tesla does raise more cash, it could weigh on the company’s credit rating, which already took a hit back in March when ratings agency Moody’s downgraded the company’s corporate rating to B3, citing a significant shortfall in its Model 3 “production hell.”

Tesla’s 2025 bonds are now trading with a yield of 7.61%, up from a low of 5.45% when they were issued in September 2017.

“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,” Goldman said.

Shares of Tesla have declined 11% since the start of 2018 as the need for cash weighs on investors minds alongside several high-profile Autopilot crashes and the loss of several key executives. Goldman says it could go as low as $195 – 32% below Wednesday’s closing price.

The bank has also uncovered a Tesla trade designed to make money no matter how the company’s battered stock performs.

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Markets Insider