Tesla Bonds Raise More Funds Than Expected



Tesla Model 3

The popularity of the Tesla Model 3 is staggering, especially when considering the circumstances.

It really comes as no surprise that once again, Tesla raised more money than planned with its recent high-yield junk bond offering.

Last week, Tesla set out to raise another $1.5 billion last week via a debt offering. The company aimed to cover the amount through the sale of senior unsecured debt obligations:

“The issuer will use the net proceeds from this offering to further strengthen its balance sheet during a period of rapid scaling with the launch of Model 3, and for general corporate purposes.”


The crowd packed in at the recent Tesla Model 3 handover event.

Just prior to the sale, Tesla reported during its Q2 earnings call that it had a cash balance just over $3.0 billion, and explained that this should be enough to head into Model 3 production:

“Cash balance of slightly over $3.0 billion at the end of Q2, plus expected cash generated from operations in the second half of 2017, provide sufficient liquidity to fund our capex projections, and provide flexibility through the Model 3 ramp.”
However, having access to an additional $1.5 billion as another safety net is surely welcome:
“Capital expenditures should be about $2 billion during the second half of 2017, as we make milestone-based payments for Model 3 equipment, continue with Gigafactory 1 construction, and expand our Supercharger, store, delivery hub, and service networks.”

All said and done now, Tesla raised a whopping $1.8 billion from the sale last week, accounting for about $300 million more than anticipated, with a yield of 5.30 percent, which is also above the original estimate of 5.25 percent. The eight-year bonds, which were rated negative B by S&P and B3 by Moody’s, were primarily underwritten by Goldman Sachs.

Regardless of Tesla’s reputation on some levels and among some analysts and competitors, there is no doubt as to the company’s intense level of support. Obviously, a significant group of investors have ultimate faith in the company, and Tesla has had no issue with any of its fundraising efforts. Larry McDonald, author of The Bear Traps Report newsletter, exclaimed:

[It] speaks to the sheer insanity found in the high-yield market to have a deal like this upsized with terms so unappealing to investors. The deck is stacked for Tesla in bond deal terms, congrats to Elon Musk.”

Despite these observations, there must to come a time that the Silicon Valley automaker moves forward without the need for more and more. Otherwise, Tesla’s reputation stands to decline. Efraim Levy of CFRA shared:

“It was well-received. In a large extent it does show that people are interested in the bonds of the company because they believe in the long-term growth … story.”

“By 2025 there’s no more room for excuses.”

Of interest:  With the political unrest of late, some investors have already grown a bit leery of the low yield on these bonds, as Bloomberg reported Friday (August 18th) that the bonds are already trading under par:

“The company’s $1.8 billion of 5.3 percent notes due 2025 slipped below par almost immediately, trading as low as 97.4 cents on the dollar on Friday, according to data compiled by Bloomberg. The eight-year securities had priced a week ago at a record-low yield for a bond of its rating and maturity — a touch higher than initial talk of 5.25 percent — and Tesla had added $300 million to the offering to meet demand.” 

Earlier Tesla announcement:

Tesla Announces Proposed $1.5 Billion Offering of Senior Notes

PALO ALTO, Calif., Aug. 07, 2017 (GLOBE NEWSWIRE) — Tesla today announced that it intends to offer, subject to market and other conditions, $1.5 billion in aggregate principal amount of its senior notes due 2025 (the “Notes”). The Notes will be senior unsecured debt obligations of Tesla. The interest rate, redemption prices and other terms of the Notes are to be determined.

Tesla intends to use the net proceeds from this offering to further strengthen its balance sheet during this period of rapid scaling with the launch of Model 3, and for general corporate purposes.

The Notes have not been and will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and the rules promulgated thereunder. The Notes will be offered only to qualified institutional buyers in the United States pursuant to Rule 144A of the Securities Act and outside the United States to non-U.S. persons in reliance on Regulation S under the Securities Act.

This announcement does not constitute an offer to sell or a solicitation of an offer to buy any of the foregoing securities, nor shall there be any offer, solicitation or sale in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful.

Source: CNBC

Categories: Tesla

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31 Comments on "Tesla Bonds Raise More Funds Than Expected"

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So Tesla has to be able to make a profit by 2025 including paying down the bonds.

Even if Tesla was not making a profit at that point or not enough to pay off the bonds, it would probably make an interesting buyout candidate for another car mfg. considering the push by so many governments from UK to France to China to go EV.

The bond holders might take big hit but Tesla mfg and support for existing cars would continue beyond 2025.

Unless the price of Tesla’s stock drops quite significantly, and by that I mean something like 2/3 or more, then any plan to buy out Tesla Inc. would be financially insane. Compared to the enterprise value, Tesla’s stock is very inflated, and has been for years.

2025 is eight years away. Will investors really continue to eagerly throw huge wodges of cash at Tesla if it continues not to show a net profit for that long? Tesla pretty clearly is following the Amazon.com business model, the model of deferring net profits in favor of rapid growth for some years, but even Amazon.com didn’t remain less than net profitable for that many years.

I certainly don’t want to parrot what the anti-Tesla FUDsters keep saying, but I hope that Tesla can start showing a consistent quarterly net profit within five years. I’m not a “financial guy”, but I suspect that if it still isn’t showing a net profit five years from today, then Tesla will start having difficulty finding investors willing to keep throwing large amounts of cash their way. That day may even be less than five years away.

In the meantime…


“Unless the price of Tesla’s stock drops quite significantly..”

Which is what the analysts are talking about in 2025 or before if Tesla is not making enough of a profit to pay its debts.

It’s why they noted the 2025 date.

The trends before that will tell the story, really 2020 when Tesla should (per Tesla) be making 500,000 cars and showing a profit.

And it is doubtful a buyer would do it via stock purchase as they would want the bondholders to take a hit. They would not want to purchase the repayment of the bonds referenced in this article.

If you expect Tesla to be around in 2025 with high certainty, then this bond only makes sense if you think Tesla is less than $550/share in 2025. That’s a market cap of $110B (assuming 3% dilution/yr). So maybe 2M cars per year, $4k net margin/car, plus a couple billion in energy+solar profits, all with a P/E ratio of 11.

Hard to say whether stocks or bonds are better…

“Tesla Bonds Raise More Funds Than Expected”

Just who was it who expected Tesla bonds not to raise more than the target figure? Everybody who has been following the “story” of Tesla knows that their fund-raising offering are always oversold. Anyone who finds this to be “unexpected” hasn’t been paying attention.

So when every informed person expects Tesla to raise “more than expected”, is it really unexpected? 😉

“Just who was it who expected Tesla bonds not to raise more than the target figure?”

I believe the expectation they are talking about is Tesla’s number when issuing the bond.

The junk bond status, high risk of not getting paid back based upon basic financial standards, is what the analysts were referring to in regard to the bond’s status.

+ 1. We bleeding cash but nothing to see here

They underwriter sets expectations, the bond yield is in the 5% range and must be held to term.

Yes, and they’ve already fallen below par.
As a number of people pointed out they were not the pick of the liter, by any stretch of the imagination.
Not a good deal for bond holders.
Like a sailor on Monday morning waking up after a 3-day pass, saying”I’ll never do that again.” Investors were dumping them like they were 5 day old fish.

At 7-8% yield they’re worth the risk. A couple poor Tesla articles and we’ll see them get there.

That’s more like what they should pay. As it is it’s like free money for Tesla.

Yup, I don’t blame Tesla for taking the money while conditions are good. A few hiccups when they actually launch the M3 and this bond sale would have been a lot harder.

As for the bond buyers… they’re taking a lot of risk with little upside. But I guess, as the saying goes, a fool and his money are soon parted.

Right, like you previously pointed out, there are a lot better deals out there.

A heavily indebted, cash flow negative, highly risky tech company with an over-inflated stock price issues junk bonds which are over-subscribed and the bonds immediately go underwater. And Goldman Sachs is involved. Yup, nothing to see here, move along.

A serial anti-Tesla troll lamely trying to make a mountain out of a (relative) molehill as Tesla grows rapidly.

Yup, nothing to see here so move along troll!

I’m not anti-Tesla, I’m pro-reality. Junk bonds are never a good sign. They are the sub-prime lending of corporate finance.

+ Johnray

You are right, but Tesla is smart to do it. Don’t give any equity and only pay roughly 5% interest to raise nearly $2 billion? All.day.long.

Reality is the 5.3% interest and over subscription. You are paying too much attention to the nomenclature rather than the numbers. The reality is in the numbers.

John Ray falsely claimed:

“I’m not anti-Tesla…”

Why try to deny you’re a serial Tesla basher? You’ve worked hard in a short amount of time to establish that reputation. Why not just own up to the image you’re working hard to establish?

But go ahead, John Ray, prove me wrong: Link to just one positive comment about Tesla which you’ve posted to InsideEVs. You can find a link to any post by clicking on the time-and-date at the top of that post.

Just one positive post about Tesla or its cars. You can’t, because you haven’t made one!

I’ve been saying this for a while…Tesla has a large fan base of wealthy silicon Valley millionaires that are willing to continue funding the company as long as they are making good forward progress. So trying to evaluate Tesla just like a traditional century-old US automaker is foolish.

Tesla is more than just a car company. It is company that makes really cool high-tech cars AND a project to help deal with climate change. As long as the cars are cool and the technology is getting cheaper/better, they will continue getting the funding that they need.

What happens when silifreaks money dries up and overspeculation is corrected by the markets. Most of these tech companies will belly up like they did in 2000. Tesla will fold like a pancake. I see GM buying them out and it becomes a new brand for them

Ok. You can bet that money will dry up. You can bet that people don’t bet their money with their conscience on climate change. Good luck with that.

The Trump presidency only forces people to double down on where to put their money. Tech = science. There are not a lot of science deniers making millions in tech. Every move by old auto is one more foot in the grave.

And GM buying Tesla? That is a hoot. There are 10 buyers I would put above them and many of them aren’t auto manufacturers.

I love all the talk – wait until Tesla has competition. That has been the talk for years. The Germans talk but are they building battery factories? The US companies and our financial structure (ie short term profit structure) and unable to weather the storm. Their only hope is government mandates to justify the investments. China is doing them a huge favor but they also have to fight it.

“Most of these tech companies will belly up like they did in 2000. Tesla will fold like a pancake.”

Well, anti-Tesla FUDsters and short-sellers have been saying that for years. But Tesla keeps right on growing and right on selling very highly rated, very desirable cars.

Frankly, I think it’s B.S. to equate Tesla Inc. to one of the dot-com companies which collapsed circa 2000. Those other companies collapsed because they didn’t have anything unique to offer. All they had was an internet address and an idea about selling existing products there.

If Wall Street suddenly comes to its senses and starts evaluating Tesla on its enterprise value, rather than on hopes and dreams, then the “cheap money” Tesla is getting will dry up. That means Tesla would have to sharply reduce the rate at which it is growing, but I think it’s frankly silly to suggest Tesla as a business would suddenly collapse.

So long as Tesla is making and selling compelling cars, it will continue to make money and will continue to lead the EV revolution.

“The reports of my death have been greatly exaggerated.” — Mark Twain

“So trying to evaluate Tesla just like a traditional century-old US automaker is foolish.”

When people start saying the rules don’t apply to a company’s financial basics it raises even more red flags.

Tesla will need to start making a profit by 2020 or whenever it is producing the 500,000 cars a year that Tesla has set as its profit point. I think people will give Tesla some slack in getting to the 500,000 production level but less slack if Tesla is not making a profit when it gets to 500,000 in sales.

“When people start saying the rules don’t apply to a company’s financial basics it raises even more red flags.”

How did that work for Amazon.com? Hmmm? It didn’t, of course.

It certainly does not make sense to evaluate Tesla as if it’s not a growth company. For example, GAAP accounting methods are appropriate for stagnant companies; ones which are not growing significantly from year to year. But GAAP methods are not appropriate for growth companies like Amazon.com or Tesla.

Now, I do agree it’s not appropriate to evaluate Tesla solely on its market cap, because that’s based entirely on stock price, which by any rational assessment is greatly inflated.

I’m not a “financial guy”, but at least some of those who are, say the enterprise value is a better assessment of Tesla’s true value. That seems reasonable to me.

I don’t think Tesla will go under. If they have to file bankruptcy Apple would buy them.

But I don’t buy junk bonds.

Only institutions and “qualified” buyers buy sub investment grade corporate bonds.

The feds don’t want Wall Street boiler rooms cold calling grandma selling junk bonds.

I would imagine not many “qualified” buyers hang out in the comment section of insideevs

Virtually anyone can buy junk bonds. I’ve bought many over the years. You just have to click some check boxes on your broker’s web site showing you have experience in such matters and understand the risks.

I can’t buy these bonds, at least not yet. They are unregistered, and only available to QIBs (qualified institutional buyers). That’s basically $100 million under management, though you can qualify with less if you jump through enough hoops. Companies often issue bonds to QIBs then later register them to help create a more liquid market. If Tesla does so you and I will then be able to buy them. Not that I would, at least not anywhere near par.

The reason why bonds trade at a lower price after issue is simple. Sell to a sister company abroad at a dicount to purpously generate losses saves taxes in US. Also, interest is not paid daily for bonds, but ince a year. To whomever holds them at that day. That’s why they cost more a few days before the day of the interest payment, and usually trade lower a few days after issue (or payday). Goes for almost all bonds.

I don’t think Tesla will ever fold or it will go under in any point. But there is NO way that I will be buying the “low yield” Junk bond. I mean, there are plenty of other better yield bonds out there with lower risk or high yeild at similar risk. Tesla’s yield is too low for the type of “junk bond” it is issuing.

But, it is “supply and demand”. So there are people who are willing to take risks on them, then that is their money.

I just hope that none of my Bond Mutual funds own any of them…

Full disclosure: I have been past owner of Solar Bonds at 6.5% for 18 months and that was yielding WAY HIGHER than this current junk bond.