By Brett Arends, MarketWatch
It looks like the last people to cut Elon Musk a check are probably already ruing the day.
It’s been just a few weeks since investors lent Tesla /zigman2/quotes/203558040/composite TSLA +0.91% another $2.35 billion to meet the electric-car company’s current cash crunch. And so far they’re down $370 million on the deal.
The stock and convertible bonds have slumped in the latest panic. The “conversion” feature on the bonds, which is supposed to give them extra value if Tesla stock ever gets near $310 again, already looks a little quaint.
Tesla’s latest stock price: $193. Oops.
In the months ahead, these sorts of losses could start looking like peanuts. It seems like the long-awaited showdown between Musk and Wall Street has finally arrived.
This could be Mardi Gras for traders. There is a lot of money to be won — and lost.
Few companies have so many fans as Tesla. Or as many skeptics. And few valuable companies face such a binary outcome.
With tens of billions of dollars at stake, and Musk in the spotlight, expect plenty of fireworks.
Even at the latest stock price, Tesla’s equity is still being valued on Wall Street at a whopping $35 billion. That’s nearly $10 billion more than the value of Ferrari /zigman2/quotes/208128355/composite RACE +1.26% , a luxury car company that actually makes money. It’s nearly twice the value of Fiat Chrysler /zigman2/quotes/204248628/composite FCAU +1.87% , and almost as much as the value of 116-year-old Ford /zigman2/quotes/208911460/composite F +2.89% .
For a company supposedly at risk of implosion, that’s a lot of equity value. (Needed footnote: If Tesla actually defaults, the equity would almost certainly be worth zero.)
Meanwhile, the bond market is now putting about a 30% probability on Tesla defaulting on its debts at some point during the next six years.
Creditors are now demanding an astonishing 9% a year interest to compensate for the risks of lending to the company till 2025. That’s nearly four times the so-called “risk-free” interest rate on equivalent Treasury bonds.
It’s about as bad as it sounds.