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Jon LeSage

Jon LeSage

Jon LeSage is a California-based journalist covering clean vehicles, alternative energy, and economic and regulatory trends shaping the automotive, transportation, and mobility sectors.

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Tesla Successfully Raises Funds As Cash Bleed Continues

CEO Elon Musk and other Tesla executives have gone on a road trip this week to raise $1.5 billion in high-yield junk-rated bonds.

As of Monday, Musk was able to raise $600 million in just a few hours meeting with bond buyers in Manhattan, according to parties briefed on the matter. The company has likely reached its $1.5 billion target, having done other successful investor road trips several times before.

More capital is needed to hit the ambitious target of building 500,000 vehicles next year, led by the affordable Model 3. By 2020, the production target will be 1 million new vehicles produced each year, with the upcoming Model Y crossover expected to be in high production numbers along with the Model 3 small sedan.

The company should hit 100,000 luxury vehicles sold this year through the Model S sedan and Model X SUV. Leaping to a 10-fold production output in just three years will require a new, transformed company to emerge.

So far, bond buyers and shareholders are buying into the business model.

Lead underwriters on the junk-bond rally include some of the largest Wall Street financial institutions — Goldman Sachs, Morgan Stanley, Barclays, Bank of America Merrill Lynch, Citigroup, Deutsche Bank, and RBC.

Stock prices have fluctuated in recent weeks, but at about $360 per share, that’s an enormous leap from the $230 price just a year ago.

Standard & Poor’s has given the high-yield junk-rated bonds a B-, and Moody’s has given it a B3. There is risk involved in the deal.

Tesla is expected to pay between 5 percent and 5.5 percent per annum for the debt. That remains to be seen, with investor demand setting the rate.

Other funding channels used by Tesla have been equity offerings and convertible bonds, which will eventually convert over to Tesla shares. Going that route raised $1.4 billion for Tesla in March, through a convertible debt offering. Debt load had already gone up last year when the company acquired solar panel maker SolarCity.

The electric carmaker is investing heavily in both its California assembly plant and its Gigafactory in Nevada. The company burned through a record $1.16 billion in cash during the second quarter.

Some of the automotive media enjoy depicting Tesla’s financial backers as being members of a cult susceptible to Musk’s charisma.

There have also been comparisons of Muck to Travis Kalanick, the ousted CEO founder of global ride-hailing giant Uber.

Along with claims of creating a workplace susceptible to sexual harassment and cutthroat competition, Kalanick was accused of participating in intellectual property theft from Google’s self-driving car unit, Waymo. Related: Dear Millennials, Big Oil Is Not Your Enemy

That may force Uber out of the self-driving semi-truck it had planned to develop when acquiring the Otto startup. But Otto is likely disappearing as the Uber/Waymo lengthy lawsuit drags out.

That seems to be presenting an opportunity for Tesla, which has just filed for permits in California and Nevada to test out its self-driving, heavy duty, electric semi-trucks.

There will be much interest in how it pans out for Tesla. Investors are also watching to see how labor relations go with workers at the Fremont assembly plant. So far, United Auto Workers has failed to find enough support from Tesla workers.

Tesla investors and shareholders like what they see. They’ve been impressed with the number of car buyers who’ve already placed down payments on the Model 3. They expect positive long-term outcomes from the SolarCity merger, and from the energy storage market where Tesla is earning sizable contracts around the world.

By Jon Lesage for Oilprice.com

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