Tesla raises $1.8bn

The American automaker, Tesla has raised $1.8 billion in the US junk bond maker.

This is $300 million more than it was expected to raise in its first high-yield junk bond offering.

Background

Tesla is an American automaker founded in 2003 by Elon Musk. It specializes in electric cars, lithium-ion battery energy storage and more. It is predominantly known for manufacturing luxury electric cars. In 2008, it released the world’s first electric sports car called the Tesla Roadster. One of its models, Model S has been the world's best-selling plug-in electric car in 2015 and 2016.

In countries like the US, the sale of electric cars has significantly increased. In 2016, the sale of electric vehicles in the US rose by 37%. California, in particular, was the biggest market for electric cars. Globally, the sales of electric vehicles have more than doubled since 2014. This was due to concerns over growing oil prices and the environment.

In July 2017, the governments of UK and France announced that they would be banning diesel and petrol cars and vans by 2040. The nations are hoping to promote the sales of electric vehicles, which are more environment friendly.

Analysis

On August 4^th, 2017, Tesla announced that it was looking to raise $1.5 billion by selling bonds. By August 7^th, it had revised its projections and said it would raise $1.77 billion. Private investors were not part of the fundraising – only major institutions participated.

Many of the investors are expecting profit due to Tesla’s production of its cheapest car to date – Model 3. Efraim Levy of CFRA, the independent investment research firm, said, “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…” However, he warned, “By 2025 there's no more room for excuses.”

Tesla has announced that it will be producing over 500,000 Model 3 cars annually from its at its Fremont factory.

Assessment

Our assessment is that the industry is betting high on the company’s vision of a cleaner, more sustainable energy industry. However, if the electric car industry does not grow in line with the vision, then Tesla might not be able to sustain in the future.