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September 2, 2016

Cash Squeeze at Tesla and SolarCity

Elon Musk, CEO and founder of Tesla Motors Inc and Chairman of SolarCity Corp, is facing "financial crunches" at both entities.

The Wall Street Journal noted that Tesla said in a regulatory filing on Wednesday it will raise additional capital by the end of the year. In the meantime, Tesla will need to pay $422 million to bondholders in the third quarter.

Perhaps more alarming is the fact that Tesla also said the regulatory filing that 15 separate institutional investors passed on the opportunity of either acquiring SolarCity or injecting equity into the company. Similar to Tesla, SolarCity is facing its own financial hurdles but in this case it's a liquidity squeeze.

SolarCity was forced to tap the bond market for financing yet Musk, along with his cousins -- SolarCity's CEO Lyndon Rive and its technology chief Peter Rive -- bought between them more than 80 percent of the $124 million bond issue.

"SolarCity needs emergency funds to keep operating, and without the debt they issued to insiders they wouldn't be able to cover their working capital," Gordon Johnson, a managing director at Axiom Capital told WSJ.

Yet Musk insists that combined, the two cash strapped entities into one company is the best move heading forward.

A Tesla spokeswoman told WSJ that a merger between the two happens to be "the best way for Tesla to bring an integrated clean energy product to market."
This story was originally published by Benzinga (EconMatters Benzinga archive Here)
© 2016 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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Item Reviewed: Cash Squeeze at Tesla and SolarCity Rating: 5 Reviewed By: EconMatters