Tesla Convinces Investors to Buy $600M in Bonds

Elon Musk raised $600 million in bonds in just a few short hours Monday – money that will help it pay for the production ramp-up of the Model 3.

Tesla is looking to raise $1.5 billion to help bring the Model 3 to market, which at $35,000 is the brand’s most affordable and accessible car to date. Musk this week embarked on a four-day endeavor looking to sell bonds and raise the necessary funds to offset the costs. The bonds carried a B3 credit rating, or in other words, were highly speculative and non-investment grade.

While the bonds carried a poor investment rating, some on Wall Street are betting on Tesla’s ‘halo effect’ to spawn returns. Because Tesla’s brand is so strong, it makes sense for some to bet on its long-term performance even though it’s burning cash.

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With investors betting on Tesla’s brand strength, the automaker is pretty much in a win-win scenario. Bond yields are at a low, as are risk premiums and interest rates, so it could end up paying minimal interest on the bonds while also raising enough cash to pay for the Model 3’s launch.

But while some are betting on Tesla’s future performance to result in returns, not all are convinced. Ramping up production for an all-new car like the Model 3 is a significant challenge, even for a major automaker, and it may experience setbacks. A production delay coupled with new electric cars from brands like Volkswagen and Audi could put Tesla in a tough financial spot. Let’s hope that halo effect is real.

[Source: Automotive News]