It looks like Tesla is having no difficulty selling billions in new debt to fund its ongoing operations, launch a new car, and bolster its balance sheet, which is confronting a face-melting $2-billion cash burn for the rest of 2017.
“[CEO Elon] Musk brought his charm offensive to the debt market at a meeting for bond buyers in Manhattan on Monday and came away with orders for $600 million after just a few hours, according to investors briefed on the matter,” Bloomberg reported.
“The session was part of a four-day debt-marketing extravaganza aimed at raising $1.5 billion to support the electric carmaker’s new mass-market Model 3.”
Tesla’s debt is junk-rated: B- by S&P and B3 by Moody’s. But with investors craving yield in a historically low-rate environment, the Tesla story is evidently as irresistible to bond buyers as it has been to equity customers, who have snapped up the billions in new shares Tesla has issued over the past two years is previous capital raises.
But make no mistake, Tesla is definitely going down a different route this time around, one that’s fraught with risk. With shares up almost 70% year-to-date, it would have made sense for Musk to go back to that well — except that selling more stock would further dilute the stake of existing shareholders, including Musk, who controls 20% of the company.
Tesla has issued debt before, but it was convertible (the most recent capital raise, in fact, was a mix of equity and debt of this type). Selling bonds at this juncture, with a reported yield of around 5% (according to Bloomberg), means that Tesla’s balance sheet is loading up even more on that liability: an extra $4.5 billion since the company’s merger with SolarCity in late 2016.
The markets don’t seem worried, however. Tesla shares were up over 3%, to $367, in trading on Tuesday.