Tesla Increases Borrowing Capacity By $500 Million With Two New Credit Agreements

DEC 21 2016 BY ERIC LOVEDAY 28

Tesla Emblem On Model S

Tesla Emblem On Model S

A couple of months ago, Tesla CEO Elon Musk went on record (Twitter, of course – see below) stating that the raising additional funds wouldn’t be necessary for Tesla through the end of 2016 (an answer to a question to one was specifically asking). Well, that may still be true, but regardless Tesla Motors still just took the necessary steps to raise its borrowing capacity by some $500 million.

Despite Musk Saying No Additional Funding Was Necessary, Tesla Went Ahead And Secured Additional Funding

Despite Musk Saying No Additional Funding Was Necessary, Tesla Went Ahead And Secured Additional Funding

Per Bloomberg’s report:

“Tesla, which last month acquired money-losing solar-roof installer SolarCity Corp. for $2 billion, boosted a credit line with Deutsche Bank AG by $200 million, according to a regulatory filing Tuesday. The company has the potential to add another $50 million to that agreement, and also increased a separate credit facility by another $300 million.”

“With Tuesday’s disclosure, Tesla’s credit lines would reach about $1.8 billion.”

Nobody is surprised by this move to secure additional credit as it is in anticipation of larger future capital needs surrounding the Model 3 and Gigafactory, it’s just that Musk said it wasn’t necessary, so now he’s kinda on the hot seat.

The vast majority of the additional credit is expected to be applied to the Gigafactory and to tool up for Model 3 production.

Bloomberg adds:

“Tesla isn’t commenting beyond the contents of the filing on plans to expand its credit lines, said Sarah O’Brien, a company spokeswoman.”

Maybe the fund aren’t necessary, as Musk says, but in the world of corporate biz, it’s often always money, money, money!

Original Musk tweets on the subject:

Tesla CEO Elon Musk (@elonmusk) on raising more funding

Tesla CEO Elon Musk (@elonmusk) on raising more funding in 2016, or Q1 2017

Source: Bloomberg

Categories: Tesla

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28 Comments on "Tesla Increases Borrowing Capacity By $500 Million With Two New Credit Agreements"

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Who Cares??? Get the Model 3 on the road!! (Smile)

right anxious,
isn’t the giga factory supposed to be cranking out cells by now???
9 days till the end of 2016.

Not even remotely related to the subject ..

/spam

That is a lot of cars on their way to “customer” 🙁

I believe Tesla will need some serious cash in 2017 for sure.

And as Fed starts to increase interest rate, the cost of borrowing will only go up.

Tesla is hedging its bet now by increasing its credit line.

Of course, I wouldn’t be surprised to see more Solar Bond issuing in 2017 as well.

Tesla will need a lot of cash infusion, from ramping up of the Model 3 to the build out of the Buffalo solar plant to ramping up of the Gigafactory.

Cash is the blood of the company for sure.

Yep, not cheap to go into mass production.

Is there a typo? Why would he be on the hot seat if he wasn’t supposed to need to borrow more through 2016? We’re only a week or so away from 2017 after all.

No typo. There was an expectation that Tesla would do another fund raising round before year’s end in anticipation of future expenses/needs (and as a result of yet-to-be-released quarters)…to which Musk (for some reason still unbeknownst to anyone but him) decided to tweet a reply that kinda inferred it wasn’t needed/necessary. Here is one of the tweet strings in question: The language was in flux a bit thereafter, with further descriptors of no new capital raise needed for current operations, but that situationally it might still make sense to do so. — We should note that TWO days before that Musk tweet Tesla filed an SEC filing saying that the company did intend to raise captial: “While Tesla expects that its current sources of liquidity, including cash and cash equivalents, together with its current projections of cash flow from operating and retail financing activities, will provide it with adequate liquidity based on its current plans through at least the end of the current fiscal year, Tesla is currently planning to raise additional funds by the end of this year, including through potential equity or debt offerings, subject to market conditions and recognizing that Tesla cannot be certain that additional funds… Read more »

Right. Companies don’t think in the present. They are always thinking 3 to 4 quarters into the future.

Just as the current stock price is not reflective of the current operations, but what position the company will be in the future.

Exactly. Just because Elon doesn’t think Tesla doesn’t need to borrow any more money this quarter, doesn’t alter the fact that it’s prudent for Tesla to have available sources of credit when they’re needed. Tesla will be ramping up production of both the Model ≡ and the Gigafactory over the next couple of years if not longer, so it’s not a question of if Tesla will need to borrow heavily, but when.

Don’t forget about the Bufflo SCTY factory now that Tesla owns that too…

They will need a lot of cash to open that factory too.

I thought that was pretty much finished… they were supposed to be ready production (ie to ‘open’) a month or so back, no?

I just read the SolarCity Q2 earnings call transcript here … http://seekingalpha.com/article/3998172-solarcity-scty-lyndon-r-rive-q2-2016-results-earnings-call-transcript?page=4

At the top of Page 4 Peter Rive (CTO) says “..the majority of the capital expenses in order for us to get going on module manufacturing have essentially being (been?) incurred.”

The rest of the transcript is well worth a read for anyone interested in SolarCity (and therefore Tesla). Lots of interesting stuff. Don’t bother reading the comments though. This *is* a SeekingAlpha webpage!

Martin, I greatly appreciate you reading thru that and reporting the most pertinent info, so we don’t have to. Wading thru the garbage at Seeking Alpha is something I’ve done far too much of already. Thanks for taking the hit for the team!

Continued after:

“So as exciting as a product as this is, the majority of the manufacturing expenses just for the module line here are essentially incurred. And then, we also have been looking at ways to significantly improve the capacity of the manufacturing facility in Buffalo. And we have both process equipment improvements as well as layout improvements that, I think, gives us the ability to meaningfully increase it above a gigawatt a year. And what’s really important for us in the factory is that it’s competitive for years to come. So we’re going to take the time to make equipment modifications as you get the layouts exactly right. We don’t want to rush to actually initiate some of the equipment installation for the cell line and then have that be a regretful layout only months later.”

So, the cost for 1GW solar is in place. But if they want to produce Solar Roof or ramp beyond that, then we will see how much that cost will be incurred.

If they are shooting for $0.40-$0.50/W cost on the existing product, then the additional cash will be needed for new solar roof line for sure.

“I just read the SolarCity Q2 earnings call transcript here … ”

Another thing to point out is the fact that Q2 earning call happened on August 9th, 2016. Then on August 22, they issued $140 million solar bonds at 6.5% yield for 18 month.

So, take it for what it is worth.

Edit: I put one too many “doesn’t”s into that first sentence. Hopefully my gentle readers can figure out my meaning, and mea culpa for bad editing.

Also the cost of money is going up. They just did raise rates and have plans to do so again, the Fed, a number of times this year.

Wonder if the recent Fed announcement gave some sense of urgency on the debt side?

Ok, that makes a lot more sense. Thanks for the detailed explanation Jay!

No problemo, we probably could have flushed that backstory out a little more in the piece, (=

To me it sounds like a statement about debt that was expressly limited to Q4 2016 and Q1 2017 has been used to build a strawman that Elon somehow said they would not ever need to borrow or raise funds ever again.

He never said that.

We will see Tesla go straight through to the end of Q1 2017 with Tesla NOT raising any more funds, or borrowing into Credit Lines, and it will happen exactly as Elon said it would.

Then come summer (or whenever they start ramping up M3 production, they will borrow money to upfront production costs for cars that they will sell the instant they are built. It is a no-brainer investment at the same level as floor plan financing at pretty much every single successful ICE car dealership nearly everywhere in the western world.

But all we will hear from the usual suspects is a bunch of BS about how Elon said Tesla wasn’t going to have to borrow any money, so he’s a liar…

I thought he originally was referring to a stock raise which is different than debt funding. Most companies have to balance the two different sources of cash in order to run the company effectively. $2B is relatively small for debt. For example, GM has $79B in debt and $44.7B in equity. Ford has $137B in debt and $31.5B in equity.

I hope solar bonds go on sale soon.

Did you miss the 6.5% 18month round couple months back?

I certainly don’t think the new one will be as good now that Tesla owns SCTY…

Musk promissed no additional moneys are needed before or after anouncing increase in projected & planned capacity?

I read somewhere that this was just for covering the increase in new cars leased. So that it has nothing to do with the Model 3 or any kind of production or the gigafactory or whatever.

I have no idea if that is the case, but it would be interesting to hear someone who has looked into these credit lines weigh in on that.