Tesla TSLA -2.5% raised $1.8 billion in August 2017 with a debt offering paying 5.3% due in August 2025. At the time the company was hemorrhaging cash as it ramped up its operations. Its operating cash flow in 2017 was a negative $61 million and including capital expenditures its free cash flow was a negative $3.4 billion.
Tesla had started 2017 with $3.4 billion in cash but had $10.2 billion in debt. This was a negative cash position of $6.8 billion.
Fast forward four years and Tesla is in a much better financial position. In 2020 it generated $5.94 billion in operating cash flow and $2.78 billion in free cash flow after subtracting $3.16 billion in capital expenditures.
And in the first six months of this year it generated $3.77 billion in operating cash flow vs. $524 million in the first six months of 2020. While the company spent $2.85 billion for capital expenditures in the first half of 2021 compared to $1 billion a year ago, its positive free cash flow of $920 million eclipses the negative $477 million when you compare the first half of the two years.
At the end of June this year Tesla had $16.2 billion in cash and $8 billion in debt for a net cash position of $8.2 billion. Over the course of four years its net cash position changed by $15 billion.
It is also worthwhile to note that Tesla’s market cap was under $60 billion when it raised the debt vs. the current $700 billion.
Saves almost $100 million per year
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The $1.8 billion of debt was costing Tesla $95.4 million in interest payments every year. The company did have to pay a premium of 102.65% of the face value to call the bonds or $47.7 million. However, it will save the full $95.4 million for four years or $381.6 million for a net positive of $333.9 million.
Another benefit of paying off the debt is that if it decides to raise debt again, it should be able to pay a lower rate than the 5.3%. This is also helped by Moody’s upgrading its rating on Tesla’s debt back in March this year.
No press release or SEC EDGAR filing
Paying off this debt didn’t get much notice. There wasn’t a press release from the company or an SEC EDGAR filing. The company’s June quarter 10-Q report had the following line item on the 23rd page, “On July 16, 2021, we issued a notice of redemption to the holders of the 2025 Notes informing the holders that we will redeem the notes in full in August 2021 at a redemption price equal to 102.65% of outstanding principal amount, plus accrued and unpaid interest, if any.”
Struggling to break out of its recent downtrend
Tesla’s shares soared in 2020 and early 2021 when it peaked at $900. While it isn’t surprising to see the stock pull back after such a strong run, it has gyrated around. From a technical perspective it has found support on its 200 daily moving average, or green line in the chart below. It is very close to moving above its recent highs in the mid-$720’s, but will need to close above it to get past that resistance level.