Tesla’s suppliers continue the struggle of managing accounts receivable (a/r) credit risk. Under normal circumstances, a supplier with concerns could cut off supply. However, nothing about Tesla is normal. Growth projections and business opportunity are worthy of taking on the risk.
While many suppliers used trade credit insurance to transfer risk, nearly all Tesla trade credit insurance was cancelled in early 2018. This leaves limited options for the suppliers to manage the risk.
Risk Management Options
Tesla is unlikely to accept terms cash on delivery, as it impacts their cash position. Therefore, suppliers are forced to provide open credit.
There is a relatively new Credit Default Swap market for Tesla, but executing these contracts is complex and still leaves basis risk. We recommend considering a Receivable Put Option, which is a viable solution for many suppliers. There are currently several providers that will take your receivable risk if Tesla files bankruptcy. However, cost and the contract for protection vary significantly so shop around.
Getting through the “Ramp”
Despite whether you believe in Tesla’s business and vision, it’s impossible to miss headlines about supplier concerns. If you have any credit risk in the form of accounts receivable, investors and management are likely watching closely. What if Tesla goes bankrupt? How much risk do we have?
As a supplier, Tesla’s media will drag you into a never ending cycle of optimism and pessimism. One week shows extensive promise; tying your business to Tesla could secure the future of your company. The next week seems that the entire company is in disarray and the risk of default is significant.
A more systematic approach is ideal. Focus strictly on the financial fundamentals, market demand, and the bond spreads. Do not pay attention to the stock!
If you continue to be a supplier or if credit insurance was cancelled, but don’t want the financial risk of bankruptcy then contact us. Our tools will get you through Telsa’s ramp up and help you capitalize on long-term opportunity.
About Us: Swift Credit Risk is the market leader in Receivable Put Options designed to protect receivables or tenant rent flow from the bankruptcy as an alternative to trade credit insurance. We are your consultant to simplify the process and source the lowest cost in the market. Contact us if we can be of assistance as you evaluate a Receivable Put.