What Tesla Can Teach Us About The High-Yield Bond Market

Tesla may be a great company that builds exciting cars, but we wonder if investors are being compensated enough to lend Tesla money. Given its current state of production, Tesla burns mountains of cash and has routinely undershot guidance on delivering cars to eager customers. As a result, free cash flowhas been negative since the inception of the business.

When companies eventually run out of cash due to persistent negative free cash flow, they have only a limited set of options to avoid distress: sell something (new equity, assets or presale of vehicles) or borrow more money (via loans, term debt, revolvers).