Last month, Tesla began production on its most affordable vehicle to date, the Model 3. But as we found out in its quarterly report, despite revenue being up, the electric car startup burned through an incredible amount of cash last quarter. To continue paying its bills and fund production of the Model 3, Tesla now has to raise a whopping $1.5 billion.
Reuters reports that Tesla plans to issue junk bonds, a relatively high-risk investment that companies typically issue when they’re trying to raise cash quickly. This will be a first for the startup, as it’s previously raised cash by selling equity and convertible bonds, which, as the name suggests, can be converted into shares of the company.
But while Tesla stock is up 67 percent for the year, and the company is currently valued at $60 billion, the fact that it’s never turned a profit could still be an issue. Standard & Poor’s gave the bonds a B- rating, while Moody’s gave them a B3. Neither rating is anywhere close to investment grade.
For investors, though, those junk ratings might not matter. “Bond investors, who typically don’t love companies that don’t make money, will be far more forgiving when it comes to Tesla,” Robbie Goffin, a bond expert and managing director of FTI Consulting, told Reuters.
According to Efraim Levy, an equity analyst for research firm CFRA, the $1.5 billion Tesla plans to raise should be enough to float it until at least mid-2018. “There is a risk they could still run out of money,” he told Reuters. “Then you’d go back to the equity markets and hope it’s not too late.”
Source: Reuters
The post Tesla Seeks Another $1.5 Billion to Fund Model 3 Production appeared first on Motor Trend.
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