I’ve maintained for a long time that there are really two sides to electric-vehicle maker Tesla (NASDAQ:TSLA). One side of Tesla and Tesla stock continues to be the company’s products and the tech and hype surrounding them.

The other is the actual company . For some time, the problem has been that the two sides aren’t often in sync with each other. Tesla’s products are amazing. However, the company leaves a lot to be desired.

And its latest moves are a prime example of that.

While the bulls cheered the firm’s ability to raise debt and boost its cash balance, digging deeper into its offering of Tesla stock puts the company in a less flattering light. That can spell disaster for Tesla stock price,  if history is any guide. For Tesla investors, at some point company fundamentals will start to matter. I hope that the owners of TSLA stock  won’t be the last ones holding the bag.

Tesla Launches a Big Convertible Offering

It takes a lot of cash in order to realize a vision as big as Elon Musk’s. That cash has become more critical for Tesla in recent weeks after the firm reported one of the worst quarters in its history. Tesla has continued to grapple with the various manufacturing and production challenges of bringing its Model 3 sedan to the public. Because of these issues, its vehicle deliveries fell 31% in the first quarter. The company reported a $702 million loss, negatively affecting Tesla stock price.

Start-ups and young tech firms often report losses, so the loss may not phase the owners of Tesla stock. The real scary figure in the Q1 report was that the  company’s cash on hand fell roughly 40% from just three months earlier. That’s a big drop, even for a start-up.

In response to that, Tesla has begun closing its direct retailing locations, commencing layoffs and cutting prices on its vehicles to spur demand. It also decided to shore up its balance sheet. On that front, Tesla was able to raise $2.35 billion through offerings of Tesla stock and bonds.

The terms of the deal included launching a $1.6 billion convertible bond offering and selling $750 million worth of Tesla stock. Both amounts were more than originally expected, and underwriters have the ability to upsize the deal to $2.7 billion.

Naturally, investors cheered Tesla’s ability to plug the glaring the hole in its balance sheet and provide some wiggle room. TSLA stock price popped more than 4% on the news of the deal.

Digging Deeper Into the Tesla Bond Deal

However, the owners of Tesla stock may not want to cheer just yet. There are a lot of things about the deal that should potentially frighten them and make them start to question their ownership of Tesla stock.

For one thing, the amount raised doesn’t really allow the firm to make any new investments, and after underwriting fees, the $2 billion it’ll score barely covers its working capital needs. Secondly, Tesla is already heavily indebted. At the end of the first quarter, TSLA had about $10 billion in total debt on its balance sheet. That includes roughly $566 million worth of convertible bonds that mature in November as well as about $1 billion worth of converts maturing in March of 2022.

And those convertible bonds could prove to be a big problem.

The thing about convertible bonds is that they are basically a bond with an option contract tucked inside. If Tesla stock price hits a certain point, the bond can be converted into shares. The issue- and one of the reasons why Tesla’s cash balance has shrunk- is that it was forced back in March to pay off a series of convertible bonds after TSLA stock price failed to hit price targets.

As a result,  a cool $920 million went out the door. The option component of TSLA’s latest convertible bonds won’t  be activated unless Tesla stock price rises nearly 35%, while TSLA stock price must jump at least 25% before the option components of its other bonds kick in.

Investors like convertible bonds because they’re sort of a hedge, since they  get both a bond that’s a relatively safe investment and the ability to benefit if the stock gains. But really, it’s a way for investors to say they are unsure about a company’s chances. Historically,  investors are right to be nervous, since serial convertible bond issuers have a long history of filing for bankruptcy.

Lehman Brothers, Enron, Six Flags, SunEdison and Tyco all had a history of selling convertible bonds at low rates. The reason for that was simple: no one would lend them cash at the interest rate levels of typical junk bonds.

And we can’t forget the weird call option that Tesla was forced by the underwriters to take out on the deal to prevent Tesla stock from being diluted. Whitney Tilson illustrated the absurdity of the transaction in a letter to the investors in his fund.

Stay Away From TSLA Stock

In the end, Tesla’s deal and its need for cash highlight just how poorly the company is being run.  It products are game-changing, but the underlying producer of those products isn’t so impressive. The serial issuing of convertible debt at a time when Tesla stock price continues to fall amid the company’s structural issues is very troubling indeed. That is especially true now that other luxury automakers have seriously stepped up their EV games in recent quarters.

Sadly, TSLA may end up just like its namesake, Nikola Tesla: innovative, yet broke. Tesla stock remains firmly in the “don’t buy” camp for me.

 At the time of writing, Aaron Levitt did not hold a position in any of the stocks mentioned.