Electric vehicle company, Tesla Inc. has once again found the company in hot water – and it’s not the Model 3, the self-driving crash or the company’s ratings.
16 months ago Chief Executive Officer Elon Musk, acquired a solar-panel installation company called SolarCity, founded by his two cousins, and with this is came a huge cash liability. The purchase resulted in a $2.9 billion debt and almost half of the payment is due by 2019. This comes with bad timing as the cost to run the business is rising, meaning a new capital raise may be imminent.
“SolarCity debt may not be the immediate cause of Tesla’s problems, but it certainly isn’t helping right now,” said Alexander Diaz-Matos, an analyst at credit research firm Covenant Review LLC.
Investors have been focused on the struggles to speed up the production of the Model 3, with the Sedan expected to be the first electric car to be available to the wider public. But there is also concerns over the Auto-pilot feature on the Model X, that resulted in a fatal crash, occurring when the driver assist was in use.
Company shares have changed dramatically over the last six weeks, with a drop of 22 percent at the end of March and a rise of 21 percent last Thursday.
There is light at the end of the tunnel for Tesla however, as The SolarCity debt is mostly non-recourse, meaning Tesla doesn’t guarantee repayment; SolarCity does. Before the deal was completed, Musk tweeted that while Tesla would absorb SolarCity’s debt, in the extremely unlike event, he would “pay it personally if need be.”