Why Tesla Stock Keeps Driving Higher

What happened

Tesla ( TSLA 1.74% ) stock moved higher on Thursday afternoon, rising 3.6% through 2:25 p.m. ET — the stock’s third straight day of price gains.

That’s kind of strange, given that the big news on Tesla today isn’t exactly “good” news.

Image source: Getty Images.

So what

As Bloomberg reports, rising interest rates on debt offerings — which make it more expensive for companies to raise capital — caused Tesla to suspend a planned $1 billion sale of bonds secured by revenue from Tesla car leases as collateral.  

“A significant portion of the bonds” had already been placed through fund managers since the bond offering began on March 7, notes Bloomberg. But the sales were suddenly interrupted when “short-term interest rate benchmarks [moved] sharply higher.” This raises the prospect that Tesla won’t be able to get access to all $1 billion of the expected fund-raise, potentially disrupting its near-term financial plans.

Now what

That’s the bad news. Now here’s the good: Suspending the offering might also mean that Tesla doesn’t get surprised by high interest rates it must pay on the bonds.

What’s more, Tesla doesn’t necessarily need cash from these bonds right away. According to the latest data from S&P Global Market Intelligence, Tesla’s balance sheet boasts $17.7 billion in cash against only $8.9 billion in debt. And with strong free cash flows of $3.5 billion generated over the past year, the company really isn’t hurting for cash at all. Tesla’s entirely capable of self-financing.

Maybe the real story here really isn’t the obvious headline: “Tesla had to suspend its bond offering.” Maybe the real story is that Tesla’s balance sheet is so rock solid that it didn’t need to issue bonds in the first place — and that’s the good news that is driving Tesla stock higher.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Leave a Reply

Your email address will not be published. Required fields are marked *