Project: Tesla, Inc. Credit Research
EMCR

EMCR

Experts trusted by
financial professionals

or
or
  
5.0

0 Reviews

Tesla, Inc. Credit Research

Rapid improvement in financial performance makes Tesla an attractive
vehicle for bond investors

View report
  • Project views 1339
  • Reviews 0

Reviews from project creator & expert

Dmitry Dudkin

22/12/2018

5.0

Rating from Dmitry

Rapid improvement in financial performance makes Tesla an attractive vehicle for bond investors

• The company made large investments during 2016–2017, mostly associated with ramping up production of Model 3.

• Now Tesla produces around 5,000 Model 3’s a week, which enables Tesla to compete in US unit sales with such automotive giants as BMW, Daimler, and Lexus.

• In Q3 2018, Tesla generated significant positive free cash flow, and is expected to continue doing so in the quarters to come.

• Due to the cash generation, Tesla will not only be able to service its debt in 2019, but will strengthen its financial position. We expect Tesla’s net debt/EBITDA ratio at 3x at the end of 2019.

• The company’s August 2025 bond has a modified duration of 5.3 years and currently trades at a yield of 7.8%.

• The net debt/EBITDA ratio of 3x will put the company in the B+/BB- rating bracket—compared to Tesla's current credit rating of B-.

• These considerations imply that Tesla's 2025 bond will significantly outperform the market in 2019; the spread compression potential is at least 150 bp.


Status

Published
Free

Started: 19/12/2018
Last update: 22/12/2018
Date of publication: 22/12/2018

Category


Participants

Team member Rating