Tesla Issues $1.5 Billion In Junk Bonds To Finance Model 3 Production

There are two things that Tesla is particularly good at doing: building state-of-the-art EVs, and spending money.

The recent release of the new Model 3 saloon has proven both of these points without a doubt. The new Model 3 is already receiving rave reviews from automotive journalists around the world, and mainstream carmakers around the world are already on notice. Not surprisingly, however, this kind of greatness doesn’t come cheaply.

In order to raise money for Model 3 production, Tesla took steps to offer $1.5 billion USD worth in bonds to potential investors. Although Tesla is no stranger to going to the market for cash, this is the first time that Tesla has entered the junk bond market. While Tesla will get some much needed operating cash from selling bonds, the move into the junk bond market will further increase Tesla’s ballooning debt levels. Including the company’s December takeover of SolarCity, Tesla is positioned to take on over $4.5 billion in liabilities within a one-year period.

The rapidly increasing debt levels have led Standard & Poor’s to downgrade Tesla’s credit rating to a “B-“. Despite this, investors don’t seem to be too intimidated by the risk of investing in Tesla’s latest issue of bonds. According to Tesla, demand from investors has been strong, despite the high risk and relatively low rate of return. Stock in Tesla jumped over $10 US after the company announced the bond issue. As a result, many investors have been bullish on Tesla’s future.

But the optimism doesn’t hide the fact that Tesla won’t become profitable in the near future. Nor does it brush off the fact that Tesla is taking a huge risk with the Model 3. Tesla needs the Model 3 to sell if it has any hope of staying on the top of the EV industry. After announcing his breakup with Amber Heard, the last thing Elon Musk needs is more heartache…