Tesla Seeks $1.5 Billion Junk Bonds Issue To Fund Model 3 Production (reuters.com)

As Tesla seeks fresh sources of cash to increase production of its new Model 3 sedan, the company announced on Monday that it would raise about $1.5 billion through its first-ever high-yield junk bond offering. "The debt offering marks Tesla's debut in the junk-bond market and the company will start road-shows on Monday, IFR reported, citing lead bankers on the deal," reports Reuters. From the report: Tesla has been riding high on investor expectations that its Model 3 will be a mass-market hit, with shareholders pushing its market value above that of General Motors Co and Ford Motor Co, the top two U.S. automakers that produce millions of cars each annually. 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. 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. In March, the company raised $1.4 billion through a convertible debt offering. Following the announcement, Standard & Poor's assigned a "B-1" rating for the bond issue -- deep into junk credit territory. S&P also maintained its "B-" long-term corporate credit rating on Tesla. "We could lower our ratings on Tesla is 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, Moody's assigned a junk "B3" rating to the bond issue and said the company's rating outlook was stable.

Comments

John DeLorean

[CrAlt]

To bad DeLorean isn't still alive. He could have helped Tesla with some creative funding ideas...

Re:John DeLorean

[Gravis Zero]

Edison didn't win the electricity game by producing a better product... he simply understood the way things worked better than Tesla.

No, Edison was an asshole who literally electrocuted neighborhood dogs and sued his competition of rudimentary patents because the only thing he cared about was money. Telsa cared about science and the advancement of society rather than profit and allowed companies infringing on his patents to continue, despite holding arguably the most valuable patents in history.

Telsa wasn't perfect but Edison was a total asshole.

Re: John DeLorean

[Anonymous Coward]

very little of the blame for the spread of the inferior Philips drive belongs to Ford. By far the blame is on the corrupt legal system in England for burning entrepeneurs with better drives and leading to an unwillingness to scale manufacture of these fasteners to levels necessary for Ford. Clearly Robertson refused to license the design of his drive, it was not that Ford was unwilling to pay, because serious offers were made.

Re:Gov handouts not enough?

[Smallpond]

https://www.tesla.com/blog/tes...

Re:Intelligent man loses his mind

[Gravis Zero]

With the Model 3 costing just under Eighty Thousand there aren't going to be many buyers.

First of all, you have the price all wrong because the base model is $35K. Secondly, Tesla already has more preorders to fill than they can keep up with which is why you don't see advertisements for Tesla's cars.

People with money, are not going to open their wallets for it.

That must explain why Tesla sells every single car they make. -_-

You're a dummy.

Re:Bad comments

[Rei]

The margin on S and X is 25%. Model 3's expected margin is also around 25%.

Furthermore - and please pay attention to this part - A company undergoing an exponential scaleup is not supposed to be returning profits. They're supposed to be investing every last penny they take in in order to minimize how much additional capital they have to raise to fund the scaleup.

Re:Intelligent man loses his mind

[green1]

Model S was a $50k car for $60k, the Model 3 is a $35k car for & 49k. This is not a surprise to anyone who's been watching tesla for any length of time.

I own a model S, I love it and think it's the best car ever made. It is also nowhere even close to what Elon promised it would be.

Tesla is the absolute slimiest company I've ever done business with. When they aren't flat out lying about what their product can do, they're wildly exaggerating it, or actively at war with their existing customers.
The Model S is still the best car on the market today. But if I have to replace mine, I could not in good conscience give another penny to such an unethical company. Which is a shame because no other company has yet decided to try to compete with Tesla. I really hope I can keep my Model S going until a competitor arrives, but Tesla isn't making it easy.

Re:So pre-orders aren't enough?

[thomst]

Rei observed:

Selling more convertible stock means more dilution. Selling bonds means that they want to hang onto their share in the company, and feel that paying interest after the plant is online is worth the benefit of not having to dilute.

Exactly so.

Junk bond status begins at BBB- rating. That doesn't mean they aren't a good investment. It merely means that they carriy greater risk than do "investment grade" bonds. What type of risk that consists of, and the degree of risk involved varies from bond issue to bond issue. Wikipedia's article on high-yield debt is fairly well-written, and it does a good job of explaining the basics. I recommend it to people who feel tempted to throw the term "junk bond" around without actually understanding what that actually means.

Elon haters are legion. Many of them are "car guys" who bet their reputations - and in some cases their shirts - that Tesla would fail before it ever sold a car. They resent Musk because he proved them wrong. Others are Washington beltway bandits who fear the disruptive effects of SpaceX's success on the defense industry gravy train, because it's their oxen that stand to be gored by it ...

Re:The shorts are loose

[Rei]

anti sell? that's a new.

Only to people who are not paying attention is that "a new".

so tell me again why did they repay their another loan in record time and then pursue this presumably more expensive loan?

For one, by repaying early they avoided letting the US government cash out on $300m worth of stock options. For two, it deprived people like you of a cudgel to say "See, they're dependent on the government". Not like it stopped you, or not like people like you ever bring that up about companies like Chrysler that never repaid part of their loans.

You know, by the way, you don't need to ask these things, you can just look them up for yourself.

the reason why this is sort of interesting is that they're seeking money this way and that is usually not a very good sign for a company like this in a situation like this.

So you think that stockholders should want to be diluted rather than pay interest, in a company undergoing a rapid expansion? Praytell why?

it just isn't. it's a sign that the usual lenders/investors have put on a squeeze on how much they are willing to dump money

Ah, yes, because you can just put $1,5 billion dollars on your credit card.

if you had been touting ford as an industrial genius in 1901,

Given that Ford Motor Company wasn't even founded until 1903, that's a stupid comparison.

In your analogy, 1901 is 2001 (Tesla was founded in 2003). Ford's prototype car Sweepstakes is AC Propulsion's tzero. The equivalent on Ford's timeline to the present is the middle of 1917. And ironically, in 1917 Ford was just starting on the River Rouge complex, the Gigafactory of its day.

And as for your long "bank" screed, I don't even know which bank you're talking about. Tesla Motors as received investments from numerous sources (including banks) over the years. Tesla's starting capital was provided by Elon Musk and Mark Tarpenning out of their personal assets (Musk's from the sale of Paypal); the Series B funding round added in Valor Equity Partners. Wait a minute, is it Paypal that you're trying to say is a "bank that is not a bank" in your screed?