Tesla Turns to Bond Market to Fund Model 3 EV Production
Tesla on Monday said it plans to raise $1.5 billion in the bond market to help ramp up production of the new affordable Model 3 electric car. In its short history, the California automaker has been a darling in the market as shareholders pushed its value up 67% this year ($355.17)—above major Detroit automakers General Motors ($35.30) and Ford Motor Co. ($10.92).
Tesla’s first 8-year bond issue will price later this week after investors consider factors such as lack of profitability, burning through cash, and attractiveness as a “green” issuer. The new offering likely will pay 5% on the notes, Bloomberg News said. After Tesla’s announcement, Standard & Poor’s confirmed its “B-“negative outlook for the bond issue. Moody’s gave a “B3” rating to the bond issue. Tesla had $3 billion in cash at the end of the second quarter, down from $4 billion in the first quarter, Reuters reports.
Although financial rating agencies have mixed reviews of Tesla, positive considerations include the strength of the brand name, product portfolio, and physical assets that would be of value to many companies. However, debt for Tesla overall rose significantly in 2016 when Tesla bought solar panel maker SolarCity.
Currently, Tesla is counting on the 2018 Model 3 mass-market electric car, which competes with the new Chevrolet Bolt, to become profitable. It has 455,000 pre-orders for the Model 3. However, with cool options, including the longer-range battery, Tesla buyers may need to add on $14,000 to the base $35,000 sticker price, reports Automotive News. Tax rebates may offset some of the higher price.
Since launch in late July, Tesla continues to receive 1,800 reservations daily. Yet, start-up output is expected to be slow: 100 in August, 1,500 in September, ramping up to 20,000 by December.
Looking ahead, Tesla plans to add 100 service centers worldwide next year and hire 1,400 technicians to work on cars. Plans also include adding a truck to the lineup that will be unveiled in September. After that comes a Model Y smaller crossover set to debut in late 2019.