Tesla production ignited by bond sale
DEBT investors proved no more immune to Elon Musk’s charms than their swooning counterparts in the stock market.
Musk’s electric-car maker Tesla raised $1.8 billion (R24.21bn) in its debut bond sale on Friday, boosting the amount by $300 million to meet demand. The eight-year bonds were priced at a record low yield of 5.3 percent – a touch higher than initial talk of 5.25 percent. They’ll help fund the ambitious rollout of the Model 3, the linchpin of Musk’s plans to turn Tesla into a mass-market vehicle maker.
Demand is no problem for Tesla, with almost half a million current reservations, according to Musk. The real hurdle for Tesla’s chief executive officer will be to produce the vehicle on a scale that the carmaker has never come close to achieving before. Musk himself told employees last month, “we’re going to be in production hell”, trying to ramp up output in the second half.
Production hell just got a little more manageable after Friday’s bond sale.
“Take it when you can,” said CreditSights analyst Hitin Anand. “It made sense for Tesla – what they really need is a lot of cash.”
The 5.3 percent coupon is a record low for a bond of its rating and maturity, according to data.
The sale was managed by Goldman Sachs Group, Morgan Stanley, Barclays, Bank of America, Citigroup, Deutsche Bank and Royal Bank of Canada.
$600m in orders Musk, 46, brought his charm offensive to the debt market at a meeting for prospective bond buyers at a Manhattan hotel earlier this week. He dialled in, rather than attending in person, and came away with orders for $600m.
The session, which featured a gleaming blue Model 3 on display, was part of a four-day sales campaign that included an invitation from Musk for investors to tour the company’s assembly plant.
The tactics worked, as bond buyers overlooked the company’s negative cash flow and its repeated trips to capital markets to bolster its balance sheet.
The debt offering, Tesla’s first of non-convertible bonds, represents the latest sign of froth in the high-yield market.
People at the meeting had estimated that the company could wind up paying no more than 5 percent on the junkrated bonds. – Bloomberg