After announcing yet another debt raise, shares of up and coming EV automaker Tesla Inc. (NASDAQ:TSLA) took a tumble this past week, ending the week down nearly 3%. The junk bond (high-yield bond) offering attracted higher-than expected demand, leading Goldman Sachs Group Inc. (NYSE:GS), the lead underwriter on the debt raise, to increase the amount offered on the market to $1.8 billion from the initial offering size of $1.5 billion. These bonds ended the week trading approximately 3% lower as well, indicating the broader market may have reservations as to how both the company’s equity as well as its debt is currently priced.
On a fundamental basis, many analysts are now beginning to question the growth premium ascribed to Tesla’s business model. While the company has been very vocal in its efforts to grow (at seemingly very high debt-related costs), what is becoming clearer as the EV automaker continues to invest vast sums of money into a business model many investors believe will work, is just how long will it take an investor to get their money out of Tesla, given the fact the company is burning through cash at an incredible rate.
With additional debt raises seemingly on the horizon, the market may eventually determine that the $58 billion market capitalization ascribed to Tesla (compared to $42 billion for Ford Motor Company and $51 billion for General Motors Company) may be just a bit too much. Given the fact both of these companies are moving forward with EV options of their own, I believe an investment in Ford or GM and a short position in Tesla may be one of the best plays of the year for investors looking for a long-short play.
Invest wisely, my friends.
