Tesla Takes The Bond Route To Meet Financing Needs Of Model 3 Ramp Up

The announcement was not a bolt out of the blue but was a long time coming.

Tesla Inc TSLA announced Monday ahead of the market open that it intends to offer $1.5 billion in aggregate amount of its senior note due 2025.

The company said it would use the net proceeds from the offering to strengthen its balance sheet, as its ramps up production of its new mass market vehicle, the Model 3, and also for general corporate purpose.

Tesla rolled out its first Model 3 vehicle July 28. The company expects to ramp up production of this car (pricing starts at $35,000), to 1,500 units in the third quarter. At some point in the fourth quarter, the company hopes to produce about 5,000 units per week, increasing it to 10,000 per week by late 2017.

See also: 10 Questions (And Answers) About Tesla's Model 3

The release was light on details on the terms of the notes, although it said these would be senior unsecured debt obligations. The other parameter known about the note is its time to maturity, which is eight years.

Earlier in mid-March, the company announced a secondary offering to raise $1.15 billion through the concurrent offering of common stock and convertible senior notes.

The company is operating in a capital-intensive industry. In the recent second quarter, the company burnt $1 billion cash.

Only recently, Goldman said it expects the company to raise capital in the first quarter 2018, premised on its view that Tesla has to cash burn intensely in the second half of 2017. The firm forecast Tesla's margins to dip to 16 percent.

_________

Image Credit: By Smnt - Own work, CC BY-SA 4.0, via Wikimedia Commons