KEY POINTS: TESLA STOCK HIGHER
- Tesla stock just had its third straight day of price gains.
What’s going on with Tesla stock
On Thursday afternoon, Tesla’s (NASDAQ:TSLA) stock rose 3.6%, continuing a three-day streak of price increases. That surprised some people, given that Tesla’s most important news today isn’t exactly “great” news. Beyond the recent EV stock surge, why is Tesla stock up?
Why we care
Interest rates on debt offerings are rising, making it more expensive for companies to raise capital. As a result, Tesla suspended a planned $1 billion bond sale secured by revenue from Tesla car leases as collateral, amid worries about declining cash balances and rising loan costs.
According to a report from Bloomberg, “a significant portion of the bonds” have been placed through fund managers since the bond offering began on March 7. However, the sales suddenly paused when “short-term interest rate benchmarks [moved] sharply higher.”
The crux of the issue is that Tesla requires significant investment capital to operate. The company will have to raise an additional $1 billion to continue growing at current levels. The situation puts Tesla’s near-term financial prospects at risk. It may not be able to access all $1 billion of the anticipated fund-raise, potentially disrupting its short- and mid-term plans.
That’s the bad news. But, there’s good news. Tesla may not be shaken by the change.
Why? Because Tesla doesn’t need immediate cash from bonds. Tesla’s balance sheet has $17.7 billion in cash against just $8.9 billion in debt, according to S&P Global Market Intelligence‘s most recent data. Furthermore, with free cash flows of $3.5 billion achieved throughout the previous year, the firm shouldn’t be lacking for money at all. Tesla is capable of financing itself entirely on its own.
The real news here may not be the obvious headline, “Tesla has to postpone its bond offering.” On the other hand, the story might be that Tesla’s financial position is strong enough that it doesn’t need to offer bonds in the first place. Which is excellent news for Tesla investors.
And that explains why investors are sending Tesla stock higher.