Today’s 13% drop in shares of TSLA diminishes the probability that the $920M note, due on March 1st, will convert to equity. If the stock fails to reach a share price of $360, the company will have to service the debt with cash on hand. We believe Tesla can pay off both its March ($920M) and November ($566M) notes with cash on hand while still maintaining enough capital to fund operations. Here’s the rough idea:

• Tesla should exit Dec-18 with about $3.1B in cash and equivalents. After paying severance related to the just-announced layoffs (we estimate a maximum aggregate payout of $100M), Tesla will likely have about $3.2B in cash as of March 1st (maturity).
• Paying off the $920M March note will leave the company with about $2.3B in cash, which is enough cash on hand to fund operations. Tesla needs to have $1.5-$2B in the bank to sustain operations, of which the biggest component is buying raw materials.
• There is an additional $566M note due in November of 2019, but the conversion price is significantly out of the money at $759. For the purposes of this exercise, we assume Tesla will service the November note with cash on hand.
• By November, Tesla should have built its cash balance back up to $2.5B. Paying the November note off should leave Tesla with $1.9B, a cash balance that should sustain operations.

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