Tesla’s biggest ‘red flag’: Ballooning debt and nobody knows why

Elon Musk’s newfound political clout in the Trump White House was expected to send Tesla (TSLA) stock soaring, but since Inauguration Day, the EV maker is in its steepest slide in at least five years.

Since peaking near $490 a share in December, Tesla stock has crashed nearly 50%. Its once eye-popping $1.7 trillion market cap has shriveled to around $830 billion.

The headlines haven’t helped. Insiders are dumping shares, Tesla dealerships are getting vandalized, and 46,000 faulty Cybertrucks have been recalled.

As bad as it sounds, Tesla’s next crisis might come not from Washington but from its own books.

Analysts are now questioning why the company raised $6 billion in debt last year, despite sitting on a reported $37 billion in cash.

That scrutiny follows media reports showing $1.4 billion seemingly “missing” from Tesla’s books. Some blamed sloppy accounting. Others called it a math error.

But the real issue isn’t a rounding mistake — it’s that Tesla keeps piling on debt while claiming a fortress-like cash position.

“The question of why a cash-rich company raised new debt in both of the last two years still stands — as does the trajectory of that cash balance if car sales continue to crater,” wrote Dan McCrum of the Financial Times.

Analyst Khac Phu Nguyen of GuruFocus asked whether Tesla was “managing its finances as aggressively as its marketing.”

“Red flags like these have historically signaled deeper issues,” he added. “And investors are rightfully asking: where’s the money going?”

The real canary in the coal mine

Although analysts continue to question Tesla’s need to borrow so much, taking the company’s financial statements at face value suggests things aren’t really that bad (for now).

The company’s total liabilities peaked at roughly $28.8 billion in 2024, while its cash and investments exceeded $36 billion.

However, the real canary in the coal mine could be Tesla’s falling earnings, which will make it harder to manage its debt in the long run, especially if it keeps borrowing to fund its operations.

Tesla’s earnings before interest and taxes, also known as EBIT, have been in decline since 2022. This included a 23.3% year-over-year drop in the fourth quarter of 2024, according to Macro Trends data.

“Falling earnings [...] could eventually make even modest debt quite risky,” wrote analysts at Simply Wall St. in reference to Tesla.

A combination of rising debt and falling earnings could eventually compromise Tesla’s ability to repay its debt. Things could get even worse if TSLA stock continues to nosedive.

For Tesla, a potentially painful scenario is “that it has to raise new equity capital at a low price, thus permanently diluting shareholders,” the analysts said.