The electric car company has announced that it intends to raise $1.5bn of debt to finance the production of its Model 3 cars.
Editor’s Remarks: Elon Musk said last week that Tesla may issue debt, but would not raise new equity, as its second quarter results showed a very high cash burn. The company is currently rolling out its new Model 3 mass market electric cars. Tesla has approximately $3bn of cash on hand but will need more in order to hit its target of manufacturing 20,000 Model 3s per month by year end and 40,000 by the end of 2018. The debt issue will be used to strengthen the company’s balance sheet and finance the rapid scaling of car production, and the senior unsecured notes will mature in 2025 although an interest rate has not been fixed yet. Investors have been showing concern over Tesla’s burn rate in recent weeks but the car company’s shares rose close to 10% following last week’s results announcement, and the market seems to favour higher debt over share dilution to pay for Model 3 production ramp up.