Tesla Inc. (TSLA) could be under threat if its share price doesn’t rise considerably over the next few weeks.
The embattled car manufacturer is facing a $920 million bill March 1 from convertible bonds issued back in 2014. Tesla wants to fund this payout by exchanging the note for a mix of cash and stock but, according to Bloomberg, won’t be able to so unless its share prices climbs about 22% by Feb. 26 to $359.87.
Achieving this goal means a lot is hinging on the automaker’s fourth-quarter earnings, scheduled Wednesday, impressing. Tesla stock is known to be volatile. Over the past few months, the company’s share price has swung wildly, from $376 in December to $295.39 when markets closed on Tuesday. Previous trading patterns offer hope that just a glimmer of good news can lead the valuation high enough to avert a potential debt crisis.
“There’s always a glimmer of hope,” Chris Hartman, a senior portfolio manager who specializes in convertible arbitrage at Aegon Asset Management, told Bloomberg. “With the volatility that can happen inside this stock, the market is clearly saying it’s possible for that stock to be at, near, or above $360.”
Bloomberg reckons that investors might give Tesla the lift it needs if they are given assurances that the automaker can deliver on its goal of ramping up production enough to make a Model 3 priced at $35,000 profitable. Understandably, a lot of focus will also be placed on how much cash Tesla is generating.
Analysts are hopeful that the company can build on its $3 billion of cash and equivalents registered at the end of September. Hitin Anand, an analyst at debt-research firm CreditSights Inc., told Bloomberg that Tesla will likely end 2018 with cash somewhere in the region of $3.5 billion to $4 billion.
That would be sufficient enough to cover the $920 million in principal, plus $1.15 million in interest on the convertible notes. However, shareholders, mindful of the high levels of cash that Tesla burns through, are believed to be against financing all of the company’s debt burdens this way.
Come Feb 27, shareholders are expected to vote to settle the maturity with a 50-50 mix of cash and stock. If the shares don’t rise fast enough over the next few weeks, that might no longer be an option.