Facing Cash Burn, Tesla Is Selling $1.5 Billion in 8-Year Notes

Facing Cash Burn, Tesla Is Selling $1.5 Billion in 8-Year Notes

In a press release Monday morning, Tesla Inc.

Regarding demand for the Model 3, reportedly, Musk told a reporter (or a few reporters) that Tesla had 455,000 net reservations for the Model 3 (after cancellations). Last year the company produced 84,000 vehicles, which was a gain of 64% from the prior year.

Tesla's cash burn has prompted short-sellers like Greenlight Capital's David Einhorn to bet against the Palo Alto, California company.

This would be the company's first sale of non-convertible bonds, according to data compiled by Bloomberg. Investors desperate for income have depressed the yield gap between single-B-rated junk bonds and United States Treasury bonds by almost 2 percentage points over the past year, to 3.59 points, according to Bank of America Merrill Lynch. Tesla reported an increase in Model S/Model X orders since the Model 3 launch, something Elon Musk attributed to clearing the air on the confusion of Model 3 being a third generation product of Tesla, superior to the previously launched models.

The $35,000 price of the new model is half the cost of its base Model S - and is considered to be Tesla's first electric vehicle marketable to the middle class. Patience, though, has its rewards, as is the case with the Tesla Model X.

Tesla says the reason behind the price drop has much to do with improvements in margins, which came about as the automaker prepares to ramp up production in a big way where the Model 3 is concerned.

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When Musk was asked last week if he would like to raise more cash as a buffer, he said the company was considering a debt offering but not an offering of stocks.

If Model 3 sales meet Tesla's expectations, the federal government's $7,500 consumer credit per vehicle will run out for its customers, with unknowable effects on Model 3 sales.

"The Nirvana is that we can make the auto and get paid for the vehicle before we have to pay our suppliers, which then the faster you grow, the faster your cash position grows", CEO Elon Musk said on a conference call last week. "Obviously, that's like the promised land right there".

In other news, Director Kimbal Musk sold 4,690 shares of the company's stock in a transaction on Monday, July 3rd. Vetr upgraded shares of Tesla from a "strong sell" rating to a "sell" rating and set a $335.62 price target on the stock in a report on Tuesday, June 13th.

The company said it used up $1.16 billion of cash during the quarter, but it has $3 billion cash on hand, enough for "sufficient liquidity". In the meantime, the Model 3 is supposed to be the first electric auto for the masses.

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