As Tesla keeps getting closer to the end of the third quarter, the electric car maker’s cash position has become one of the most discussed topic in media and short circles. Wall Street strongly believes that Tesla needs to raise cash sooner than later. Tesla vehemently denies that’s the case.
But, there is one more route Tesla can take to improve its liquidity. Pledge its assets. For Example, the Tesla logo.
Collateral to increase liquidity : Auto companies around the world have used their factory, manufacturing equipment and several other assets as collateral to secure loans. In 2006, when Ford restructured its debt to raise money, banks demanded the rights to the blue oval logo as collateral. As per this Bloomberg report, the Ford insignia was worth $8 billion at that time. The report estimates the Tesla logo to be worth around a cool $4 billion.
Tesla has done this before: Few months ago, Tesla modified its borrowing agreement with banks to allow it to pledge the company’s Fremont factory as collateral.
Tesla’s current situation in a nutshell:
Tesla exited 2018 second quarter with $2.2 billion cash on hand. The company burned nearly a billion dollars in cash during the first quarter, but brought the cash burn under $500 million during the second quarter.
The market remains concerned about Tesla’s cash position because the company has two tranches of debt coming due.
$230 million due in November and $920 million in March 2019.
If Tesla burns another billion cash over the next couple of quarters, it will be difficult for the company to repay its debt without raising additional funds.
Tesla believes its can generate cash flow internally, by selling more cars, cutting costs and improving margins, thereby clearing its debt.
Market remains skeptical.