Wall Street investors are growing weary of Tesla as the electric vehicle maker’s bond prices have tumbled since the company issued a massive bond sale in July to finance production on the Model 3.
Tesla’s bond prices fell 2 percent Monday as investors start having second thoughts about the health of the Silicon Valley company’s finances. The automaker debut in the junk-bond market in early August, which is typically relegated for companies with poor credit.
The price stumble suggests the bond buy might have further tarnished Tesla’s already battered financial image. Tesla hopes the Model 3, which debuted at the end of July, becomes a trendsetting and profitable vehicle capable of justifying the debt sell.
But some investors are not impressed – many Wall Street insiders questioned the wisdom of dumping more money into a company that has yet to churn out a profit.
“God love them, they took advantage of a super strong market to get super low financing,” Jack Flaherty, a bond portfolio manager at GAM Holdings AG, told reporters Monday, referring to the up-and-coming electric vehicle market. His group did not buy the deal.
Tesla’s competitors have had ample time to ratchet up their campaign against the Elon Musk-led automaker. Audi argues that its 2018 A8, for instance, will include Level 3 autonomy, allowing drivers to safely move down the highway without paying attention to the road conditions.
There are also serious questions as to whether the Model 3’s base model will have the same range as the similarly priced Chevy Bolt, which has the capacity to run more than 238 miles before needing a charge. Tesla claimed last year that the Model 3 would run more than 215 miles per charge.
Tesla’s bond has dropped to 97.75 cents on the dollar in recent trading, forcing the yield up to 5.65 percent, according to data from MarketAxess. Bond yields rise when prices fall and fall when prices increase. Investors have taken advantage of the rock-bottom yields, but the continued price fall does not portend good things for a company that has not earned a profit.
“It’s more attractive now, but it’s not a level I’m willing to step into yet,” Flaherty said.
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