Investors are paying more than ever to protect against a Tesla bond crisis

Getty Images/Joshua LottEngineer and tech entrepreneur Elon Musk of The Boring Company listens as Chicago Mayor Rahm Emanuel talks about constructing a high speed transit tunnel at Block 37 during a news conference on June 14, 2018 in Chicago, Illinois.


The cost of insuring Tesla bonds against default via credit default swaps hit an all-time high on Tuesday.

The cost of insuring $US100 of Tesla debt hit $US6.58 around 10:30 am Tuesday, according to data from Bloomberg, amid fresh fears over Tesla’s cash position. The car company has $US10.68 billion of outstanding debt.

“The CDS is saying that there are a lot of people betting this company is going out of business,” Thomas Graff, head of fixed income at Brown Advisory, told Reuters.

Concerns about Tesla’s cash situation became top of mind once again on Monday when it was reported that the company had requested retroactive refunds from a handful of suppliers to improve its financial situation. A spokesperson later told Business Insider that the requests went out to “fewer than 10 suppliers” and were part of routine negotiations in the procurement process.

“Any changes with these suppliers would improve our future cash flows, but not impact our ability to achieve profitability in Q3,” the representative said.

Despite CEO Elon Musk’s public promises that the company will achieve profitability by the third quarter, many analysts on Wall Street say the company will likely need to raise cash, either through stock or debt offerings. Tesla’s cash burn, which was reduced to $US1.1 billion on its most recent earnings report in May, will be top of mind when the company reports second quarter earnings on August 1.

A company spokesperson declined to comment on the CDS spike on Tuesday.

Tesla hit its goal of producing 5,000 Model 3 sedans, the car widely seen as its path to profitability, on July 1. Musk marked the occasion by saying the milestone finally made Tesla “a real company.”

Meanwhile, doubt runs rampant on Wall Street, with Tesla remaining one of the most shorted stocks in the United States. Short interest – or bets that the company’s stock price will decline – sit at over $US11.5 billion, according to data from financial analysts from S3 partners.

Shares of Tesla declined 3% in trading Tuesday and were down 8% since the beginning of 2018.

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