Tesla Inc. (TSLA - Get Report) has $854 million in customer deposits for its products, ranging from cars to solar panels to stuff it hasn't even built yet, and customers could lose every penny if the company lands in bankruptcy as CEO Elon Musk has joked about on Twitter.
In a detailed April 30 report, Bloomberg News said Tesla may not have enough cash to make it through the calendar year, making a Chapter 11 filing a possibility even though Musk has shown more ability than most to raise money without delivering much in the way of revenue and cash flow.
The company burns through more than $6,500 every minute and ended 2017 with $3.4 billion in cash on hand, according to data compiled by Bloomberg. Free cash flow, or the amount of cash a company generates after accounting for capital expenditures, has been negative for five consecutive quarters, Bloomberg reported.
And yet, on little more than Musk's hopes and dreams, the company has raised more than $9.4 billion worth of debt.
Perhaps more troubling than the debt markets' willingness to lend Tesla money, though, is its customers' faith in the company, to the extent that some will put deposits down on vehicles not even in production, containing features Tesla can't yet deliver.
Tesla does not break out deposit numbers by vehicle, but a resounding majority comes from $1,000 reservations for its newest, most affordable car, the Model 3 sedan, according to Bloomberg. Tesla has been soliciting deposits for its vehicles at least since the company began selling its Model S in 2012.
Tesla also has $20,000 deposits on the books for an electric 18-wheel truck, the Tesla Semi, which the company has said it may deliver in 2019. Wal-Mart Inc. (WMT - Get Report) in November announced it had pre-ordered 15 trucks to test in the U.S. and Canada. More than a dozen other companies, including J.B. Hunt Transport Services Inc. (JBHT - Get Report) , United Parcel Service Inc. (UPS - Get Report) , PepsiCo Inc. (PEP - Get Report) , Anheuser-Busch InBev NV (BUD and FedEx Corp. (FDX - Get Report) , have all placed large orders for the truck, as well, according to Business Insider. Assuming UPS, the maker of the largest pre-order to date, according to BI, put a $20,000 deposit on all 125 of the trucks it has purchased, Tesla has $2.5 million of UPS' money.
The company also accepts a $50,000 deposit for a next-generation Roadster, or the $250,000 retail price paid up front to reserve a limited edition, Bloomberg reported. The Roadster might be ready for sale in 2020, the company has said.
And people have paid for vehicle features that Tesla has either not fully developed or released to anyone, such as a $3,000 deposit for "Full Self Driving" capability, according to Bloomberg.
In accounting for all those deposits, the company likely treats them as interest-free loans, according to Bloomberg. Tesla sells its products directly to customers, rather than through dealer networks like other carmakers.
In that case, Bloomberg asserted those Tesla customers, who are in effect lenders to the company, could see their loans wiped out in favor of paying back more senior debt if the company does wind up in bankruptcy.
Chapter 11 proceedings often post the greatest emphasis on paying back post-petition lenders, tax claims, secured creditors, unsecured creditors and then shareholders, with the latter two classes often getting just a small portion of their money if anything.
Tesla didn't immediately respond to a request for comment on their policy regarding customer deposits in the face of a potential bankruptcy.
If a buyer puts a deposit down for a car that is not yet built and the seller of the car files for bankruptcy, the seller can decide to assume or reject the contract, according to a bankruptcy lawyer who didn't want to be identified in case of potential of conflicts of interests with Tesla.
If the seller rejects that contract, the seller doesn't have to deliver the car and the buyer has a general unsecured claim, the lawyer said. To be sure, there may be laws in place in any given state to protect consumers, which would contradict that general rule.
Still, in case of bankruptcy, Tesla, and possibly its secured lenders if they have a lien on the customer's cash, might be inclined to agree on a Chapter 11 restructuring package that repays deposits or ensures delivery of the product to save the face of the brand assuming the company seeks to continue doing business, the lawyer said.
In other words, stiffing deposit holders may prove penny wise and pound foolish.