13 August, 2017
If you need proof that bond investors have lost their minds, take a look at the latest bond offering from Elon Musk and Tesla Inc (NASDAQ:TSLA). Being a famous person who makes movies and electric cars respectively is certainly hard for reasons beyond my ken, but the number of vaguely-worded statements issued about the end of a "normal relationship" lead me to believe otherwise.
As a reminder, the Tesla Model 3 is offered from $ 35,000 in the United States, or about 30,000 € at home, where it should land in 2018.
Musk wants to produce 10,000 Model 3s per week by the end of next year, putting the company on pace to make more than 500,000 of the vehicles annually. In March, the company raised $1.4 billion through a convertible debt offering.
Actually, that makes ideal sense since it was believed that everyone who got their new EVs already was a Tesla Inc. employee, which means they were bound by contract to keep quiet about the Model 3 until every possible issue had been ironed out.
Details about Tesla's shingle-based Solar Roof system have been slow in coming since the company revealed the product past year.
All in all, it is delays all around Tesla's camp.
Meanwhile, Tesla says the customer response to Model 3 has been "overwhelming".
Ultimately, the depth of investor interest will determine the bond's interest rate.
Tesla and Musk seem to be the center of controversy these days.
Tesla had issued four convertible bonds to date - the company now has US$3.3bn outstanding - but it has never before accessed the public unsecured bond market.
The tactics worked, as bond buyers proved willing to overlook the company's negative cash flow and its repeated trips to capital markets to bolster its balance sheet. Additionally, Tesla is continually bringing in newer, more state-of-the-art automation.
Tesla had over $3 billion in cash on hand at the end of the June quarter, compared with $4 billion on March 31st.