Tesla plans to raise $1.5B in bonds to fund Model 3

Lena Tucker
August 8, 2017

Many critics seem to believe so - with an MSRP of $35,000, the Model 3 is certainly more cost-effective than previous Tesla cars. Tesla says the proceeds will be used to strengthen the balance sheet as it ramps Model 3 production.

"We could lower our ratings on Tesla if execution issues related to the Model 3 launch later this year or the ongoing expansion of its Models S and X production lead to significant cost overruns", S&P said in a statement on the bonds. Meanwhile Tesla's stock continued to surge on...faith (?) and no one seemed to give a solitary shit that Tesla's fundamentals were nonsense.

The notes announced Monday would mature in 2025, though Tesla did not disclose interest rates or other terms of the securities.

The move comes a week after hedge fund manager David Einhorn warned that the Model 3 could cause cash problems for Tesla, as the company was "currently only capitalized for the next three quarters", and the model will naturally require more scale than earlier Tesla vehicles. That's still a good place to be from a cash perspective, and it nearly guarantees that Tesla will sell all of the vehicles it can produce not only this year, but also for all of 2018.

Tesla is expected to remain free-cash-flow-negative until 2019, and it may also need quite a bit of cash in 2018 to cover existing convertible debt maturities.

Investor enthusiasm has catapulted Tesla's market value past General Motors Co. and Ford Motor Co., but bringing out the Model 3 has been costly.

But last week, Musk clarified his comments, and said Tesla should be able to overcome any supplier issues and other potential obstacles. "Obviously, that's like the promised land right there". The electric auto marker's cash burn, or negative free cash flow, came to $1.2 billion in the second quarter - almost double the $622 million spent in the previous quarter.

A report published by Bloomberg Intelligence in June said that factories planned by Chinese companies could have the capacity to produce more than 120 gigawatts an hour by 2021 - enough to supply 1.5 million Tesla Model S vehicles.

But Tesla has yet to make an annual profit and its stock is a favorite among short-sellers, who continue to bet Tesla will fall short of its shareholders' high hopes. Over the last quarter, insiders sold 115,980 shares of company stock valued at $36,010,269. "Tesla's a company that's always on to the next big innovation or the next big advancement and they raise money well in advance of when the public finds out about that".

Tesla, which also makes batteries and solar panels, has been burning through its cash at a rapid rate.

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