Tesla pro­duc­tion ig­nited by bond sale

The Star Early Edition - - BUSINESS REPORT - Molly Smith

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.

PHOTO: REUTERS

Elon Musk, founder, chief ex­ec­u­tive and lead de­signer at SpaceX and the co-founder of Tesla, has just raised $1.8bn in de­but bond sales.

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