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

By Allen Cone  |  Updated Aug. 7, 2017 at 2:49 PM
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Aug. 7 (UPI) -- Tesla said Monday it plans to raise $1.5 billion in corporate bonds -- debt -- to help fund its new Model 3 electric car and other needs.

The electric automaker is entering the bond market for the first time with the issuance of the senior unsecured notes, due in 2025, the company said Monday. The interest rates and redemption prices were not announced.

"Tesla intends to use the net proceeds from this offering to further strengthen its balance sheet during this period of rapid scaling with the launch of Model 3 and for general corporate purposes," Tesla added.

Last week, Tesla announced plans to spend about $2 billion in capital expenditures during the second half of the year to increase production of Model 3.

The $35,000 price of the new model is half the cost of its base Model S -- and is considered to be Tesla's first electric vehicle marketable to the middle class.

The company has received almost 500,000 reservations for the Model 3, with $1,000 deposits, although the first 30 cars weren't delivered until July 29 to employees from its manufacturing plant in Fremont, Calif.,

"The Nirvana is that we can make the car and get paid for the car before we have to pay our suppliers, which then the faster you grow, the faster your cash position grows," CEO Elon Musk said on a conference call last week. "Obviously, that's like the promised land right there."

Tesla produced almost 84,000 cars and sport utility vehicles last year but wants to boost its production to 500,000 by the end of next year, and 1 million in 2020.

Tesla had a cash position of $3 billion at the end of last quarter and Musk said that he would like to keep it over $1 billion.

In March, the company raised about $1.4 billion through a stock and debt offering.

Despite spending a record record $1.16 billion in cash in the second quarter, Tesla's market value has surged past those of General Motors and Ford Motor Co.

"There is a well-developed track record of successful investments and generating returns on those investments," said James Albertine, a senior analyst at Consumer Edge Research, told Bloomberg. "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."

But Jack Flaherty, a money manager at GAM Holding AG who's bought Tesla convertible debt, said the yield might not be enough to compensate for the risk.

"It's not like we're getting 10 percent to fund a negative-cash-flow company," he told Bloomberg.

"As a straight bond investor, it's hard for me to think I really want to do this."

Moody's Inverstors Service assigned Tesla a B2 corporate family rating and a B3 rating on the company's offering of senior unsecured notes. They are speculative-grade, or "junk".

Tesla also is involved in installing solar-paneled roofs and producing batteries that can store the energy and power homes. Also, Musk owns SpaceX -- which designs, manufactures and launches advanced rockets and spacecraft -- and plans to work with NASA to transport astronauts into space.

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