An under-the-radar crisis is brewing at Tesla — and it signals a tough road ahead

Elon Musk

Tesla's stock has come under serious pressure, falling 25% in just over two weeks as multiple negative headwinds have culminated at once.
But another Tesla-related sell-off is occurring under the radar that should also have investors in the company worried.

If you've followed the stock market over the past week or so, you've probably noticed that it's been a supremely rough patch for Tesla.

The Elon Musk-led maker of electric vehicles has seen its stock plunge 12% in just two trading days — and 25% over the past 12 — as multiple headwinds have converged at once.

Among other things, the company has been grappling with a new investigation from the National Transportation Safety Board, a downgrade from Moody's, increased competitive pressure from Waymo and Jaguar, and a situation Musk himself has called "production hell."

But amid all the stock chaos, something is occurring in the bond market that should have Tesla investors perhaps the most worried of all.

You may recall Tesla's wildly successful bond offering in August. Well, as you've been watching the stock, those bonds have seen their price plummet since the company's woes started escalating last week, closing Wednesday at an all-time low of 88 cents on the dollar.

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The drop marks a sharp shift in sentiment for Tesla's fixed-income offering, which got done at a record-low coupon for a bond of its maturity and low quality — and was actually upsized to $1.8 billion from $1.5 billion because demand was so great.

That investor interest was so high suggests bondholders had few reservations about Tesla's ability to keep its torrid cash burn in check. But as the price of the bonds slides, that can only be interpreted as investors losing faith in the company's ability to meet debt obligations.

The firm's increasingly perilous situation caught the eye of the Moody's analyst Bruce Clark earlier this week, as he downgraded the company's credit rating one notch to B3. By his calculation, the company will need to raise more than $2 billion to cover both its cash burn and the roughly $1.2 billion of debt coming due by 2019.

That means the company will probably have to test the market again at some point. But with both Tesla's bonds and stock plummeting, to which market should it turn, credit or equity? And what impact will next week's quarterly production update have?

Those are all questions for Musk. And tough ones to boot.

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