Tesla shares surged to $363.06 by Thursday’s close, higher than $359.87, the price at which Tesla’s $920 million convertible bonds due in March become eligible for equity conversion.

  • Tesla’s $920 million convertible bond is due on March 1, 2019

  • The bond conversion price is $359.87 per share.

  • If Tesla shares stay below $359.87 on March 1, 2019, the company will have to pay cash to its bondholders

  • If the stock price closes above $359.87, Tesla can covert its debt into equity to pay off bondholders.

Bloomberg News reported earlier today that Tesla informed bondholders on November 30th, “if they elect to convert the debt, they’ll be paid with a 50-50 mix of cash and stock.”

I think we can actually be positive cash flow and profitable for all quarters going forward, leaving aside quarters where we may need to do a significant repayment, for example in Q1 next year. But I think even in Q1, I think we can be approximately flat in cash flow by end of quarter, Elon Musk said on Oct. 24 earnings call.

Between the second and third quarter of 2018, Tesla’s cash holding increased by nearly $731 million. Though Tesla exited the third quarter with $2.967 billion cash on hand, the company will have to carefully balance its expenses and investments to remain cash flow positive.

Tesla may have decided to use a 50-50 mix of cash and stock to pay off bondholders to make sure that the company remains cash flow positive in the first quarter of 2019. It’s a statement of confidence by Tesla that they can pay off debt using internally generated cash flow instead of raising capital to pay them off.

It’s still way too early to conclude that things will go Tesla’s way because we still have nearly three months before the bond is due. Tesla is one of the most shorted stocks in the United States and moves sharply on news.

If you look at a Tesla chart, you can see that the highs are very high and the lows are quite low, relative to those highs. The company sheds billions in market cap without batting an eye, writes Businessinsider author Matthew Debord.

If the share price falls below $359.87 by the due date, Tesla will have to pay the full $920 million debt in cash. But Tesla has already sent a message to the market that they have at least half of that amount covered.

List of Tesla’s Convertible Debt, Due Dates and Conversion Price

  • $920 million due March 2019, Conversion price $359.87

  • $566 million due November 2019, Conversion price $759.36 per share

  • $103 million due December 2020,  Conversion price $300.00 per share

  • $1,380 million due March 2021,  Conversion price $359.87

  • $977.5 million due March 2022 Conversion price $327.50 per share,