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Sub-200bp: TSLA

02 September 2020 by jbchevrel

Tesla Inc (finally) tapped the equity market, locking high valuation levels, and (finally) benefiting credit. Bond prices for TSLA 4.67% 2025s reached a record 104.4% yesterday, after TSLA said it would sell up to $5B in stock, right after a 5-for-1 stock split Monday aiming at attracting some more retail interest. TSLA 4.67% 2025s rebounded from lows around 79 during the worst of the COVID turmoil. 5y CDS is now below 200BP, a level that had been resisting this market, post COVID. The TSLA share price boom finally benefits the CDS. TSLA has added more than $366B in market value this year, despite posting just $120M in net income during Q1 and Q2 (notably, those were helped by selling regulatory credits and improving profitability in China). That move took the company to a market capitalisation of around $450B (today back closer to $410B fwiw), bigger than Fiat Chrysler Automobiles, Ford Motor Co. and General Motors Co. all combined. That leaves TSLA’s management with a lot of optionnality, whose paths could have very different meanings for CDS, thus why we see wide bid-offers on the name, generally higher than 10% of the value of the spread. Business-wise, TSLA in July reported a fourth-consecutive profitable quarter for the first time in the company’s history and is on track to sell c430K cars in 2020, which sounds very low compared to US competitors. The company had about $8.5B in debt, excluding vehicle and energy-product financing, at the end of Q2. Finally, environment-wise, there was an interesting piece in the FT yesterday, highlighting how TSLA’s need for nickel for its batteries translates into Indonesian mining companies dumping millions of tons of waste into the sea, including areas renowned for unique coral reefs and turtles.