Elon Musk Able To Raise $600 Million For Model 3 In Just A Few Hours

Tesla CEO Elon Musk is coming through on his pledge to raise $1.5 billion for ramping up production of the Model 3.

He was able to raise $600 million in just a few hours meeting with bond buyers in Manhattan on Monday, according to investors briefed on the matter.

It was part of a four-day road trip Tesla is taking to bring in high-yield junk-rated bonds needed to build 500,000 new vehicles next year.

Sources said Tesla might end up paying no more than 5 percent on the bonds. It may not be the best investment that bond fund managers have seen, but it’s been more appealing due to the recent condition of financial markets.

“It’s a great deal for them, which by definition means it can’t be a great deal for the investors,” said Marty Fridson, chief investment officer of Lehmann, Livian, Fridson Advisors. “The reason they’re getting a good deal is because yields are near record lows and risk premiums are much less than they should be. Tesla is taking advantage of that.”

Tesla is spending a lot of cash on building out the Fremont, Calif., assembly plant, and its Gigafactory in Nevada. The company burned through a record $1.16 billion in cash during the second quarter.

Automotive News depicted the $600 million in deals made Monday as if the charismatic Musk were able to set up a situation where bond investors are “closing their eyes and buying it.”

It’s yet another successful road trip for Musk and colleagues – eight times tapping into equity market investors over the past seven years.

But are they really “cult-like followers” of Musk?

Lead underwriters on the junk bond rally include major financial institutions — Goldman Sachs, Morgan Stanley, Barclays, Bank of America Merrill Lynch, Citigroup, Deutsche Bank, and RBC, according to the IFR financial publication.

Musk spoke to investors Monday at the New York Palace Hotel, where visitors got to check out a blue Model 3 parked in the courtyard. The Tesla chief also invited his guests to visit the Fremont plant later in the week.

SEE ALSO: Tesla Issuing Junk Bonds To Raise Needed Funds For Model 3 Launch

Kevin Mathews, global head of high yield at Aviva Investors Americas, compares Tesla’s move to what Netflix was able to do in October. The entertainment company raised $1 billion on bonds with a 4.375 percent coupon, and it’s been trading lately at about 4.2 percent. There are still enough buyers on the market to support Netflix’s growth story and ignore the losses – and Tesla has been able so far to do the same.

“The halo effect is real,” said Mathews. “We saw that with Netflix. As a brand name, people know it, they know the situation from a financial standpoint, so when it came to market, people bought it.”

Tesla investors are confident the company can scale up appropriately to meet the 500,000 vehicle production target for next year and one million in 2020. They’ve been impressed with the number of buyers backing the Model 3, and expect positive long-term outcomes from the SolarCity merger and the energy storage market served by Tesla’s lithium-ion batteries.

Automotive News


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