After drawing down the last of a $465 million loan allotment from the Department of Energy in 2012, Tesla has now arranged a financing deal with the government that would see them pay off those loans five years early.
In a SEC filing on Thursday, Tesla says that the DoE agreed to adjust the terms of the arrangement, that would now see the electric car maker pay off their government loans in full by December of 2017. Five years ahead of the 2022 deadline.
According to Tesla’s CFO Deepak Ahuja, as part of the deal, and beginning in 2015, Tesla will accelerate their current payment structure with proceeds from the company’s ”excess free cash flow.”
It is unclear how Tesla will have “excess cash flow” in 2015, as the company also has plans to start production of an all-electric, entry level Tesla (think $30,000) for the masses at that time, but the auto maker remains confident nonetheless.
Similar projects at major automakers from General Motors with the Volt, and Nissan with the LEAF have cost upwards of a billion dollars to fully fund. Tesla must therefore be making other arrangements to find this investment capital.
As a point of interest, “excessive free cash flow” is defined in the new agreement as amounts greater than $200 million plus any reservation deposits on account.
Additionally, part of the reason Tesla may be anxious to pay off the DoE loans is that as part of the deal, the government holds warrants to purchase 3 million shares at a discount to today’s stock price. If the company is indeed successful at being a profitable automaker, it is conceivable those warrants could be extremely valuable when, and if, they are exercised.
In Tesla’s press release on the new early payment structure, they take a moment to reflect on the history of how the Department of Energy ATVM load was granted, and their gratitude for the existence of the program:
“ATVM loans were intended by the President and Congress to accelerate the market introduction of promising automotive technologies. This is an important point. Tesla at the time was a viable stand-alone entity. We had plans to fund the introduction of the Model S via commercial sources of capital and the proceeds of the Roadster program. However, given the economic climate at the time (recall the “Great Recession”), accessing those sources of capital would have taken time and significantly delayed the launch of the Model S.”
“Following more than a year of thorough due diligence by commercial auditors, automotive consultants and lawyers, on January 20, 2010, Tesla became the recipient of one of three initial DOE loans announced by Secretary Chu, along with Ford and Nissan – good company for a start-up automaker. Tesla’s loan of $465 million was to be paid back over ten years following the start of production of the Model S”
“…the ATVM loan has been a perfect match for our business strategy, as its charter was that loans would accelerate the market advent of EVs and other promising technologies. We expect to generate sufficient cash and profitability in our business over the next five years that it gives us confidence to proceed with this early repayment of the loan. Moreover, it is also consistent with Tesla’s mantra of speed that we would, as Elon announced last week, accelerate the repayment of our loan, a full five years earlier than required under the original loan terms, making our last payment in 2017.”
“In closing, let me (Tesla) say that we are grateful for the support of both the Bush Administration and the Obama Administration in recognizing the potential of EVs in general and Tesla in particular. We are especially grateful for the bipartisan support we have received from Congress, both before the inception of the ATVM program and since. But most of all we are grateful for the hard working employees at the Department of Energy who are the administrators of the ATVM program which, I’m confident, will be regarded by history as a model for public/private partnerships which inspire American entrepreneurship, competitiveness and innovation.”
Earlier today, Tesla also netted a netted a favorable decision decision from the state Senate that would have prohibited them from opening corporate automotive boutiques in Minnesota.