Tesla revs up its bor­row­ing

Com­pany is rais­ing $1.5 bil­lion as it works to get its elec­tric sedan to the masses.

Los Angeles Times - - BUSINESS BEAT - as­so­ci­ated press Times staff writer Rachel Spacek con­trib­uted to this re­port.

Tesla Inc. is rais­ing $1.5 bil­lion as it ramps up pro­duc­tion of the Model 3 sedan, its first mass-mar­ket elec­tric car.

The com­pany said Monday that it plans to of­fer se­nior notes due in 2025 and would use the of­fer­ing’s pro­ceeds to fur­ther strengthen its bal­ance sheet dur­ing rapid scal­ing of the Model 3.

Tesla de­liv­ered the first 30 Model 3s to em­ploy­ees at the end of July. At the time, Chief Ex­ec­u­tive Elon Musk wor­ried some in­vestors when he warned that Tesla was about to em­bark on “at least six months of man­u­fac­tur­ing hell” as it tries to get Model 3 pro­duc­tion to 5,000 cars a week by De­cem­ber.

But last week, Musk clar­i­fied his com­ments, and said Tesla should be able to over­come any sup­plier is­sues and other po­ten­tial ob­sta­cles. Musk said in­vestors should have “zero con­cern” about whether Tesla will be able to meet its goal of mak­ing 10,000 Model 3s a week by next year.

That will cost money, though, and Tesla is burn­ing through cash at a rapid rate. The Palo Alto, Calif., com­pany spent $1.2 bil­lion in the sec­ond quar­ter pre­par­ing for the Model 3’s ar­rival.

Tesla had $3 bil­lion in cash on hand at the end of the sec­ond quar­ter, but said it ex­pects to spend $2 bil­lion in the sec­ond half of this year. Telsa has al­luded to us­ing the debt mar­kets for fund­ing, but Jef­frey Os­borne, man­ag­ing di­rec­tor and se­nior an­a­lyst at Cowen & Co., said few peo­ple thought it would hap­pen so soon.

“The chal­lenge with doing it now is that the com­pany is at a trans­for­ma­tional phase,” Os­borne said. “Debt hold­ers want to see sta­ble cash flow, and they do not have a lot to hang their hats on in terms of pre­dictabil­ity.” He also rec­om­mended that Tesla dis­close more in­for­ma­tion about the costs of projects such as build­ing fac­to­ries.

The Model 3’s $35,000 start­ing price — half the cost of Tesla’s pre­vi­ous ve­hi­cles — and range of up to 310 miles could bring hun­dreds of thou­sands of cus­tomers into the au­tomaker’s fold, tak­ing it from a niche luxury brand to the main­stream.

The com­pany said this month that 518,000 cus­tomers had put down $1,000 re­fund­able de­posits for the car since March 2016. Musk later told stock an­a­lysts, though, that the fig­ure “was just a guess.” The to­tal is ac­tu­ally 455,000 when can­cel­la­tions are sub­tracted, he said.

Tesla shares fell 0.5% on Monday to $355.17.

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