I am an all-in Tesla guy, but also a finance guy. This company needs capital, will go into default on its bonds in Jan if it doesn’t raise money and possibly chapter 11, the board seems passive, and Elon somewhat more erratic than usual andseems to need to face the reality that he must be willing to either be diluted or bring in a strategic Jv partner and their cash. The potential solutions are there, but this can easily go off the rails. If that happens, does anyone know what happens to our deposits and down payments? Are they simply unsecured debt, at the bottom of the stack? If we have cars already, can our warranties by voided in bankruptcy? Presumably someone comes along to buy this as a going concern and has an interest in not killing all the customer goodwill.
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What happens to my deposit and down payment if Tesla runs out of cash?
- Thread starter brooklynrab
- Start date
I doubt Tesla will go BK.
But FWIW even when Fisker went bankrupt it still provided approx $8K per vehicle in post BK warranty coverage for a period of time.
Since you're a finance guy, can you make your case for Tesla's bankruptcy in a little more detail? You're presumably making some assumptions about Q3 and Q4 numbers and Tesla's ability to renegotiate terms on their debt - I'd like to see them explicitly stated, if possible.
(I'm not asking this to be argumentative: Just asking to be informed by an expert).
Sorry, the only way this thread can be taken is if you are trying to troll the group.
What happens? You wouldn't have to buy a car.
Uncle Paul
Well-Known Member
Not sure how Tesla could go bankrupt with all it's assets. They own the Fremont plant, the Gigafactory in Nevada, a whole bunch of finished cars on the ground. They have cash in the bank, lines of credit, ability to sell bonds etc. They could easily go out of business, but I doubt bankruptcy where those with deposits don't get refunds.
Believe that with production ramping up Tesla is on the verge of becoming a cash making machine.
Believe that with production ramping up Tesla is on the verge of becoming a cash making machine.
notAnExpert
Member
Yes, it is unsecured debt, and almost bottom of the stack (just above shareholders).
Yes, warranty voiding is possible if the buyer purchases only the assets, but not take over the company. I have read that some states protect the consumer by making the retailers responsible for the warranty if the manufacturer disappears. But Tesla does not use retailers.
You have some interesting concerns, but my optimistic view is that Tesla will survive and thrive.
I wouldn't want to find out, so I pulled my reservations. At this point with all the quality concerns if I really want standard range I'd probably get a better car if I went to the back of the line and waited for my number to come up. Plus I wanted air-suspension and that probably won't show up with the first batch of SRs. So I really don't see a big incentive to hold onto a reservation anymore.
TT97
Active Member
The first part is correct, 2nd part is partially wrong.
Bankruptcy Code Section 507(a)(7) establishes a priority for unsecured claims of individuals arising from Customer Deposits towards the purchase of goods that were not delivered up to a maximum of $2,600. The remaining portion of the unrefunded deposit would become a general unsecured claim. Consumers owed deposits are only paid after all of the secured creditors and administrative expenses of the bankruptcy (such as bankruptcy lawyers’ fees) are paid. As priority creditors, holders of deposits would be paid up to $2,600 before any general unsecured obligations are satisfied.
@brooklynrab
I think you need to get your deposit back now while you still can.
GTFO and buy a Bolt. Hopefully GM doesn’t go bankrupt a SECOND time this century.
If you can’t afford your $1000 initial deposit you can’t afford the insurance on the Model 3 anyway.
I think you need to get your deposit back now while you still can.
GTFO and buy a Bolt. Hopefully GM doesn’t go bankrupt a SECOND time this century.
If you can’t afford your $1000 initial deposit you can’t afford the insurance on the Model 3 anyway.
OMG... is Friday amateur night?
Wanna know how Tesla handles financial crunch?
They sell P3+ to the rest of the world at ASP of $69,000+.
Not selling SR SAS cars to questionably intelligent and unappreciative Americans.
Tesla cuts future capex, and focuses on maximum margins for their existing cars.
Completely obvious +FCF strategy.
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You shouldn’t be buying a Tesla if the small possibility of losing $2500 would be a financial hardship. Plenty of used Leafs you can get a lot cheaper.
In the worst case scenerio, you might have to wait a long time to get your deposit back. You may also be able to do a dispute with your credit card company to assist gettting your money back.
Tesla is not DeLorean... it’s not going to just evaporate and disappear into the pages of history. It isn’t a Ponzi scheme. They have the highest selling EV cars in the market. Tesla has massive brand value and 300,000+ high net worth customers (soon to be 400,000+) along with the Gigafactory and Supercharging networks.
Worst case, a bankruptcy would be a reorganization. The company would continue and the debt holders become the equity holders (and current equity holders get screwed.) The risk to customers is that prior agreements with Tesla are voided and the new owners might not honor free lifetime Supercharging, free connectivity, or free upgrades. They might turn those into subscription services...but they also don’t want to destroy the brand loyalty so not certain how they would handle that.
Model 3 Delivery numbers are going to impress the Markets. I think their debt gets refinanced one way or another. The world is awash in capital looking for places to invest.
In the worst case scenerio, you might have to wait a long time to get your deposit back. You may also be able to do a dispute with your credit card company to assist gettting your money back.
Tesla is not DeLorean... it’s not going to just evaporate and disappear into the pages of history. It isn’t a Ponzi scheme. They have the highest selling EV cars in the market. Tesla has massive brand value and 300,000+ high net worth customers (soon to be 400,000+) along with the Gigafactory and Supercharging networks.
Worst case, a bankruptcy would be a reorganization. The company would continue and the debt holders become the equity holders (and current equity holders get screwed.) The risk to customers is that prior agreements with Tesla are voided and the new owners might not honor free lifetime Supercharging, free connectivity, or free upgrades. They might turn those into subscription services...but they also don’t want to destroy the brand loyalty so not certain how they would handle that.
Model 3 Delivery numbers are going to impress the Markets. I think their debt gets refinanced one way or another. The world is awash in capital looking for places to invest.
suwaneedad
Member
In my (limited) experience with corporate bankruptcies, the customers are not going to be screwed. Even if the law doesn't formally protect the customer, bankruptcy judges are famous for doing whatever the hell they want, to whomever they want to do it. Also bear in mind that a bankruptcy filing has nothing to do with solvency/insolvency. Bankruptcy merely wipes out the shareholders in favor of the lenders, and provides a glorious opportunity for management to void unfavorable contracts with suppliers/etc (it's no coincidence that US airlines are consistently profitable for the first time since deregulation, thanks to their bankruptcies and voiding of contracts).
Of all the things to lose sleep over re Tesla, this ain't one of them.
Refinancing those $1B of January converts can be done in the blink of an eye. Hell, even just doing a secondary straight common stock offering would only dilute the common by a few points. And history shows that anytime Tesla dilutes the common, the stock goes up in value due to reduced risk of insolvency. I have no idea why Elon and Deepak are being so shy about issuing more common. Just go get the money!
No need.. they're going to add 800 million in cash in Q3 alone at the rate they're going. They sold about $1.2 billion worth of 3s alone in August. And no they don't lose money on every car they sell.
I have been arguing friends on LinkedIn for weeks now, defending Tesla to those who really don't understand the value of the battery tech, the potential value to another car company as a strategic investor plugging into our incredible supercharger network, and of course how cool the cars are. The only thing I can't answer is (which you raise) is why they haven't sold some stock to raise money to put a blanket on all this fear. One of my friends said they don't even have a valid shelf registration statement up for quickly issuing shares (I didn't check, hard to believe). Are they just squeezing this out until they can give a giant upside surprise on q3 results, and then sell stock into the updraft?
I'd love to understand the issues from the finance guy's point of view. I'm definitely not a finance guy. To me it looks like Tesla will be strongly cash flow positive starting in q3 and beyond, because they make a good margin on each car, they are selling and producing huge numbers of their more expensive models. We know they are getting out there because of delivery discussions. We have no reason to believe they are thrashing around on infrastructure costs. Sales demand is still there. Their cash position should be much stronger.
And if all that is wrong because they are wasting billions digging a whole in the back yard on top of their normal operations, they can just sell a billion dollars of stock, 2% of their recent 50b market cap. So how can they go bad?
One more thing on going out of business. Only Ford and Tesla didn't go bankrupt in 2008. Both later got large loans from the feds to make electric cars. Only Tesla paid theirs off.
And if all that is wrong because they are wasting billions digging a whole in the back yard on top of their normal operations, they can just sell a billion dollars of stock, 2% of their recent 50b market cap. So how can they go bad?
One more thing on going out of business. Only Ford and Tesla didn't go bankrupt in 2008. Both later got large loans from the feds to make electric cars. Only Tesla paid theirs off.
suwaneedad
Member
I believe a shelf registration statement is called an S-8 (reaching DEEP into my memory bank now). It'd be a disappointing surprise if Deepak isn't keeping one of those fresh so he can pounce on the capital markets when he views the timing as right. Unfortunately, if he only now files an S-8, the mere act of doing so creates news!
suwaneedad
Member
I agree with you, that the Q3 numbers are going to be fantastic, financially. It's a reason that I added to my stock position this week when the head of HR quit and the value of Tesla fell by $5B. That had to be an impressive HR leader! ;-) Anyway, the Q3 financials announced in early November will hopefully (finally) provide evidence worthy of silencing the critics. "Short burn of the century," just a few months after Elon predicted it.
I do believe that Elon and Deepak have been cutting things too close this year, financially, although it has also been clear to me this year that Deepak has finally started to get some key things across to Elon, financially. I will 'forever' scratch my head as to why Deepak chose to run things this close to the razor's edge, but I'm perhaps just more conservative by nature than is Deepak. He certainly also has far better information to make his decisions than do I, and I have tremendous respect (and gratitude) for the work Deepak has done and is doing.
cpa
Active Member
If it becomes worthless, the IRC allows you to deduct this deposit as a non-business bad debt in the year it becomes totally worthless. It is considered a short-term capital loss for tax purposes.
See? It ain't so bad after all. Uncle Sam is standing by to ameliorate your loss of funds.
See? It ain't so bad after all. Uncle Sam is standing by to ameliorate your loss of funds.
Look at it this way: Tesla was paying all the capital costs and nearly all the operational expenses / fixed costs of production for the Model 3 program in the second quarter, *and not delivering very many cars*. For the third quarter, they have lower capital costs (since they mostly don't have to redo the stuff they already built), lower fixed costs of production (since they've fixed problems), and are delivering and booking the revenue from twice as many cars.
If a "finance guy" can actually do *basic business analysis*, he should be able to tell that Tesla's only financial problem, for their entire lifetime, has been that they haven't been making enough cars to cover their fixed costs. They are now or at least will be in the fourth quarter, so they'll have strong positive operating cash flow; enough to pay off the March bonds, by nearly all well-founded estimates. (The faster they pump out cars, the more cash, until the next really expensive production line construction.)
I am astounded at the inability of "finance guys" to distinguish between fixed and variable costs, which I really would have thought was basic to finance. But apparently it's not part of the curriculum in finance any more. How odd.
Anyway, Tesla has positive book value, so if there was a cash crunch, which there won't be, they'd be able to get a loan, which they won't need.
If a "finance guy" can actually do *basic business analysis*, he should be able to tell that Tesla's only financial problem, for their entire lifetime, has been that they haven't been making enough cars to cover their fixed costs. They are now or at least will be in the fourth quarter, so they'll have strong positive operating cash flow; enough to pay off the March bonds, by nearly all well-founded estimates. (The faster they pump out cars, the more cash, until the next really expensive production line construction.)
I am astounded at the inability of "finance guys" to distinguish between fixed and variable costs, which I really would have thought was basic to finance. But apparently it's not part of the curriculum in finance any more. How odd.
Anyway, Tesla has positive book value, so if there was a cash crunch, which there won't be, they'd be able to get a loan, which they won't need.
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