Tesla's $2.3 Billion February Raise Helps Give It a Cushion During a Bleak Time

Elon Musk's company appears to have more than $8 billion in cash as it enters a period where meaningful cash burn is quite likely.
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As Tesla  (TSLA) - Get Report copes with plunging consumer spending, nosediving oil prices and potential factory shutdowns, it can take some solace in what it did just before things went bad.

In February, as Tesla’s stock continued basking in the glow of a strong Q4 report, Elon Musk & Co. raised $2.3 billion through a stock offering priced at $767 per share. With Tesla’s stock trading at $354 at the time of this article, the offering would look smart today simply on the merits of where it was priced.

However, what makes it look especially smart at this juncture is that Tesla, which generated $1.01 billion in free cash flow (FCF) in Q4 2019, is now likely staring at a period of meaningful cash burn as the COVID-19 outbreak wreaks havoc in both the U.S. and Europe.

Between the economic damage and disruptions to retail activity caused by the outbreak, it’s safe to assume that discretionary purchases of $35,000-plus vehicles will be down sharply in the near-term. Although just maybe, demand will be propped up a bit by the inclusion of electric vehicle tax credits and/or subsidies contained within U.S. and European stimulus packages.

In addition, though fuel expense savings are by no means the only reason that consumers choose to buy Tesla cars, the fact that oil has plunged below $30 per barrel -- WTI crude is at $22 per barrel at the time of this article -- won’t help Tesla sales, either.

Furthermore, on Tuesday, following the issuing of “shelter in place” orders by six Bay Area counties, the Alameda County Sheriff's Office revoked Tesla’s status as an “essential business,” a move that implies its massive Fremont, Calif. plant will have to cease manufacturing operations. The plant is still operating at the moment, but that might not last for long -- particularly at a time when Ford  (F) - Get Report is shutting down U.S. production., with General Motors  (GM) - Get Report and Fiat Chrysler  (FCAU) - Get Report reportedly to follow. 

Fortunately for Tesla, the company appears to have over $8 billion in cash to help it weather this storm. Prior to its $2.3 billion offering, Tesla reported having $6.3 billion in cash at the end of 2019.

Tesla did also have $13.4 billion worth of debt and finance leases at the end of 2019. But very little of its debt is due this year; the first billion dollar-plus issuance to come due involves $1.38 billion of convertible senior debt due in March 2021. Moreover, thanks in part to a heavy reliance on convertible offerings, much of Tesla’s debt carries low interest rates.

As a result, if the sweeping measures that have been taken to slow the spread of COVID-19 in the U.S. and Europe begin easing within about two months’ time, as so many are currently hoping, Tesla’s balance sheet should allow the company to absorb the blow.