Tesla Secures More Than $500 Million For Gigafactory 3

MAR 8 2019 BY MARK KANE 37

Banks in China are ready to help finance the Gigafactory 3

According to the latest news, Tesla just secured financing for the Gigafactory 3 in Shanghai from Chinese banks. The bank loans are reportedly for $521 million.

The loans come from four banks and will mature in March 2020.

  • China Construction Bank Corp.
  • Agricultural Bank of China Ltd.
  • Industrial & Commercial Bank of China Ltd.
  • Shanghai Pudong Development Bank Co.

According to Bloomberg, “Tesla also amended a separate asset-backed credit agreement, increasing how much it can borrow by as much as $700 million.”.

It’s probably not the last round to complete the factory, as expected total investment is to be about $2 billion.

The facility is set to produce 3,000 Model 3 per week at some point in the future.

Bloomberg notes also that Tesla just paid $920 million in convertible bonds, which matured on March 1:

“The fresh borrowing follows Tesla’s largest-ever debt payment last week. Settling the $920 million convertible bond that matured March 1 taxed the company’s balance sheet, which had about $3.7 billion in cash and equivalents at year-end.”

Tesla Gigafactory 3 facts:

  • location: Shanghai, China
  • wholly-owned subsidiary (not joint venture)
  • construction was started in January 2019
  • initial construction should be completed by the end of summer
  • production of cars should start in second-half of 2019 (volume production from 2020)
  • expected total investment: about $2 billion
  • purpose: production of affordable versions of Model 3/Model Y for greater China region (higher cost versions of 3/Y and all S/X to be produced in the U.S.)
  • battery packs will be assembled using lithium-ion cells from various suppliers, including Panasonic
  • expected volume: 500,000 per year

Source: Bloomberg

Categories: China, Tesla

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37 Comments on "Tesla Secures More Than $500 Million For Gigafactory 3"

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A one year loan on a 30 year factory is a pretty bad mismatch. The amount won’t fully fund what Tesla claims will be in place by yearend, either. They haven’t told the whole story here. Not sure why.

Construction loans are usually at a higher interest rates than a mortgage on a completed building. They likely plan to re-finance before the loan comes due.

Sure, but you want to have your takeout financing in place ahead of time. It’s possible they do, of course, and that’s just not in the news yet.

The SEC filing states: “the loan facility is non-recourse to Tesla or its assets”. In other words, they can enter into a long term loan well before the current one expires. As Patrick points out, hopefully at better rates once the building is up.

I doubt they’ll get a lower rate on permanent financing. This one is quite good at 3.5%.

Note that Tesla’s corporate bonds trade at an 8% yield.

DroopyDogWorld is Oh SO Concerned! Yet again. Always without facts. Every story, Droopy will be Concerned!!

As Tesla completes their construction loan, it will be replaced by a discounted CRE loan with an LPR well BELOW the official fixed 4.35% prime rate. This is part of the package of incentives that Tesla negotiated during the site selection process.

If you haven’t figured it out yet, the 3.5% isn’t just “quite good”, it also a discounted rate from the official fixed 4.35% prime rate set by China. I’m not sure how you thought Tesla would be getting Construction Financing at -.85% from the fixed 4.35% prime rate without receiving discounted loan rates?

And before you go whining about “gubbermint cheeze”, this is no different than the types of discounts negotiated by Amazon, or Boeing, or any other large entity that is designed to get them in the door, so over the LONG TERM future growth will more than pay for the initial incentives.

“A one year loan on a 30 year factory is a pretty bad mismatch. ”

???? Does it work differently inChina? Here in US you pay significantly higher rates on construction loans and they are significantly shorter. Typically here the maximum is two years. If you can complete construction within a few months why would you want to waste money on a longer loan? I’ve never done a construction project in. China. Please enlighten me.

After having paid off the .9 billion in Q1 Tesla should have about 2.8 billion quick assets to finance the remaining 1.5 billion for GF3 project and they should have at least an additional 400 million in credit lines. What is the concern?

@Gasbag said: “Here in US you pay significantly higher rates on construction loans and they are significantly shorter…. What is the concern?”
———————

Correct… it’s normal including in China.

Tesla will likely have no problem financing remainder of Tesla Giga China nor Tesla Giga Western Europe.

Tesla is in relative good financial shape barring a deep global economic downturn… and even then Tesla will probably be in a better shape to survive that than most if not all of the traditional car makers.

Tesla already negotiated discounts for $2 Billion in loan packages during the China site selection process. This is just the initial loan. China has state-owned banks, and the official %4.35 rate is fixed by the Chinese gov’t. Tesla will have no problem borrowing the money they need.

Tesla’s cash balance reported at the end of the quarter is somewhat misleading: since most of deliveries happen towards the end of each quarter, while production (and presumably paying bills) continues throughout, the cash balance is surely quite a bit lower in the middle of the quarter — so we don’t really know how much money they have for investments…

OTOH, they have had a very large operational cash inflow over the last two quarters. While it will surely be lower in Q1, and might be somewhere in the middle over the next couple of quarters, it should still be good enough to easily cover expected CapEx requirements…

“Tesla’s cash balance reported at the end of the quarter is somewhat misleading: since most of deliveries happen towards the end of each quarter, …”

Generally it is domestic deliveries which rise in the final month of a quarter while foreign deliveries decline. There is actually significantly less fluctuation in total deliveries.

Regardless if you want to know about short term liabilities those will be detailed in their balance sheet. Compare multiple quarters juxtaposed with quarterly production and the mystery should disappear.

Foreign deliveries also rise in the last month of the quarter, because those cars spend most of the first two months on boats and in ports.

Right. Tesla makes its deliveries much faster at the end of a quarter, which means they’re also getting income much faster during that time. Income is not anywhere close to evenly distributed along the timespan of a quarter; it’s weighted toward the end in a pretty lopsided fashion.

“Foreign deliveries also rise in the last month of the quarter, because those cars spend most of the first two months on boats and in ports.”

True. There is also more month to month unevenness to income. I’m not arguing either point. My point was that there is less month to month unevenness to income than month to month domestic deliveries. There is also no arguing my point.

Month to month carryover of income and expenses are irrelevant as Financial statements are reported on a quarterly basis not monthly. In order to make your original point that quarterly reports of current assets are misleading you need to support that there are material quarterly carryovers in expenses and revenues.

Typically suppliers offer terms of 2/10 net 30. This gives Tesla significant incentive to pay their supplier within 10 days of receipt of the supplies if they have the liquidity to do so. Consequently Tesla will have paid for most supplies before the associated revenue is recognized.

Tesla says they pay net 60. They made a big deal out of getting paid for Model 3s long before they have to pay for the parts and supplies. This produced a lot of their cash flow in Q3 when their volumes increased dramatically.

“Tesla says they pay net 60. ”

If true that could create a temporary challenge as you’ve suggested but after homologation and working through the delivery kinks it should be predictable and within their control. If they have to borrow another billion prior to converting the loan I would not expect that to be a problem.

The equity offering that shorters promised last year didn’t happen. That is an option.

Tesla actually negotiated much more favorable terms for the Model 3 from parts suppliers. Their agreement got them enough time to receive the parts, build the car, and deliver it domestically before having to pay for the parts with no penalty.

My point was that cash balance in the middle of the quarter is significantly lower than at the end, i.e. they have less “spare” capital than the quarterly reports would suggest. Quarter-to-quarter carry-overs are irrelevant to that.

Gasbag, phase 1 only takes them to 3000 cars/week. Tesla plans for this factory to eventually do 10k/week. I’d expect a loan package with multiple tranches to fund it to completion, with a takeout option to convert to a long term mortgage upon completion. As I said, that may all be there, at least implicitly, but the way it’s stated in the 8-K makes it easy for the banks to leave Tesla hanging.

Also, Tesla should end Q1 with ~2.5b of cash, assuming they deliver a ton of cars worldwide in March. Their cash balance drains down pretty far during the quarter, though. It’s not available to fund substantial capex. They just added 500m to their Credit Agreement, which will help the mid-quarter cash situation. Things got too close for comfort last week.

“phase 1 only takes them to 3000 cars/week. Tesla plans for this factory to eventually do 10k/week. I’d expect a loan package with multiple tranches ”

Ah… I understand. I was speaking only of what has been published which is obviously phase I only. If they have a full plan it would be better that they not publish it since even their concrete plans are quite fluid ( see the gallery store chapter.) I would expect part of the plan is for phase II to be partially financed by the fruits of phase I. I would also expect significant profits in the second half of the year.

I’m not surprised that they focused on financing for Phase 1 only for now, considering that plans for the further phases are probably still very much in flux…

Increasing the credit agreement doesn’t necessarily signify any actual tightness — it just means that with more assets at hand, they are now allowed to take out a bigger loan at any time if the need arises, giving them more flexibility.

How would you know how much is needed to fund what they claim will be in place by year end?…

“How would you know how much is needed to fund what they claim will be in place by year end?…”

….cuz I read the article 😂 try it.

I have, unlike you apparently. The article mentions $2 billion for the *finished* factory, not the first phase. Tesla explicitly claimed expected costs of $500 million for the first phase.

Tesla says they’ll have stamping, welding/joining and paint shop, plus final assembly and battery module/pack assembly by yearend. That’s in the $1.5b territory. Most of the cost is in shippable stuff like equipment and tooling, so there’s not much advantage to building a plant in China vs. somewhere else.

They’ve hinted at a manual final assembly line, like they have in the tent at Fremont, at least to start. That will save time and a little upfront cost. They already paid $141m for the land, so this 500m is on top of that. But they’re still 500-700m short.

I don’t think they are actually planning battery assembly this year. It wasn’t in the shareholder letter. (Elon might or might not have said something about it on the conference call — it was indiscernible…) Some recent source (IIRC from regulatory filings?) suggests battery assembly and seat production will come next year.

As for the costs of these things, I’m pretty sure Tesla has a better understanding of them than you do. Or maybe they don’t, and the financing will actually be short: but in any case, the loans they got are what they believe — and explicitly claimed — they will need; so no surprise there.

Chinese banks showing interest in funding Gigafactory 3 is a positive sign towards the realization of an electric revolution in China and beyond. Absolutely overwhelming

Funding Secured! 😉

That sounds familiar.

(⌐■_■) Trollnonymous

Wait a minute….
You cut and pasted that!
😛

Smart move to get presumably rather powerful local parties financially invested in Tesla’s well being, that way you create local allies that might come in handy someday in the economic wild west that is China.

Yes, indeed. And also powerful local (or at least domestic) parties which have a motive to help Tesla navigate the minefield of red tape and palm-greasing which is required to run a business in China.

Any bets on when we’ll see a cheap knockoff Model 3? :evil-grin:

Tomorrow…

Frankly, who cares? A significantly cheaper knock-off will be so much worse, it won’t be competition for the original at all. It will only be competition for other cheap Chinese models.

We’ve already seen multiple attempts by Chinese auto makers to make a clone of the Model S. To be polite, at best none of them should give Tesla any real competition.

Tesla is beating pretty much all traditional auto makers in innovative design and EV tech, as well as moving even further away from the dead weight of the dealership. Tesla is pretty much beating the competition in every respect except the build quality of the car bodies, the one area of quality where Tesla still lags behind its competitors. But as Sandy Munro observed, the demographic that’s buying most Tesla cars doesn’t care about panel gaps!

Altho I’m sure that eventually Chinese auto makers will be able to deliver cars that can actually compete in first-world markets, and while “never” is a long time, I think it’s almost certain that it’s going to be quite a few years before any Chinese auto maker can challenge Tesla in overall quality or value for the price.