ibusinesslines.com
ibusinesslines.com August 20, 2017


Tesla said to boost bond sale to $1.8B for Model 3

13 August 2017, 04:08 | Kelvin Horton

3 must-read Elon Musk quotes from Tesla's earnings call

Tesla seeks $1.5 bn junk bond issue to fund Model 3 production

In addition to being the co-founder and CEO of electric auto company Tesla, Musk was co-founder of PayPal. As the company seeks funding through a $1.5 billion bond offering, investors are at odds over whether the risk associated with the investment. There are several reasons why this is the auto the early adopter community (and first followers) is most in love with. Forced to choose between issuing a bit more of Tesla's turbocharged stock or tapping the overheated junk-bond market to finance the Model 3 ramp-up, the founder opted for the latter. Tesla is said to be able to produce about 500,000 vehicles per year by the end of next year (and that's not with a second factory).

So far, Tesla has been raising money to pay its bills with a combination of equity offerings and convertible bonds, which eventually convert into shares. Battery cell production for Tesla's Powerwall and Powerpack started at the Gigafactory in January, while production of Model 3 battery cells began in June. He first rectified a mistake - e previously stated some half million units have been reserved - but they now also took into account 63,000 cancellations over the past year, with the net number being 455,000.

The rating agency said the overall company's "B2" rating was supported by the fact that if Tesla ends up in serious financial trouble, its brand name, products and physical assets would be of "considerable value" to other auto makers. Musk held on to the 621-mile goal and said Tesla EVs can achieve this mileage on good tires.


The bond sale will raise debt to a lofty 5.5 times forecast 2017 earnings before interest, taxes, depreciation and amortization. Tesla already has $4.5 billion in outstanding debt, which would rank ahead of these new notes in the event of a default. The lower base price of the Model 3, beginning at $35,000, is well shy of the usual Tesla cost of around $90,000.

The tactics worked, as bond buyers proved willing to overlook the company's negative cash flow and its repeated trips to capital markets to bolster its balance sheet. Sharing underpinnings with that vehicle means the Model Y is likely to have a similar range, which is officially pegged at 220 miles, or 320 miles with the long-range battery pack - although battery technology may have moved on by the time the Model Y launches, bringing with it commensurate increase in range.



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