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The U.S. Securities and Exchange Commission’s lawsuit againstElon Musk, Tesla’s (TSLA) chief executive, comes at a particularly challenging time for the auto maker: It was filed just over a month before $230 million of the company’s convertible notes come due on Nov. 1.

A 12% selloff in Tesla’s shares followed the news, because the company’s reputation is intertwined—though perhaps not inextricably—with Musk’s. Tesla is already under significant pressure to ramp up the production, sales and distribution of its mass-market Model 3 sedan. This lawsuit only increases that pressure.

“While the outcome of the case is uncertain, if the SEC prevails, Tesla may have to find a new CEO,” wrote UBS analyst Colin Langan in a Friday note. “A new CEO would have to deal with manufacturing issues, liquidity concerns, and a marginally profitable flagship product.”

The stock’s selloff moves its shares even farther away from the November notes’ conversion price—just over $560.60, which already seemed unreachable—and in doing so gives investors even more incentive to choose to redeem their notes in cash. That means the company could face a cash price tag of $230 million on Nov. 1.

If the company chooses instead to refinance those notes, this lawsuit will likely increase the cost of raising capital to pay them down.

In other words, investors will probably demand higher interest rates to lend to the car maker with a lawsuit looming over its CEO. To get a sense of the market’s response, yields on its 2025 bonds (which were trading at 84 cents on the dollar Friday morning) had climbed to 8.4% from 8.1% the day before. They started the year at 5.9%.

Tesla’s financing needs are significant: Not only does the company face the maturity date of its $566 million convertible note, Tesla has a $920 million convertible note maturing in March. That’s a lot of cash, and it doesn’t include money that could be required to further streamline the company’s Model 3 production and distribution processes.

“Historically, Tesla has had easy access to capital markets, largely due to the public’s perception of Musk as a visionary,” wrote Langan. “Without Musk, investors may no longer be willing to continue funding a company that has never reported an annual profit.”

Corrections & Amplifications

A previous version of this post incorrectly stated that Tesla had $566 million of convertible notes maturing in November 2018, with a conversion price of $759. Those notes mature in 2019, not 2018. There are $230 million of November 2018 notes outstanding, with a conversion price of $560.601.

Write to Alexandra Scaggs at alexandra.scaggs@barrons.com