November 17, 2017

Breakingviews: Tesla Takes Crowdfunding to 250 mph

by Breakingviews

Elon Musk has found a new way to help satisfy Tesla’s unquenchable thirst for capital. The money-losing $53 billion electric carmaker unveiled a surprise new Roadster model while showing off a battery-powered truck. The flourish came with a financial twist: pre-orders for the first-edition supercar alone may raise $250 million up front.

Thursday’s event provided some details of Musk’s planned entrance into the electric road-haulage market: a truck with a 500-mile range at full load. Already some analysts see the big rig as a distraction from what Musk himself has called the “manufacturing hell” of getting production of the company’s Model 3 sedan anywhere near the eventually anticipated 500,000-plus a year.

The Roadster, which Musk said would hit the road in 2020, a year after the truck, only adds to the company’s ambitious plans. Moreover, they all cost more money for a carmaker that is already burning through well over $1 billion of cash per quarter.

Tesla in August sold $1.8 billion of junk bonds at a 5.3 percent coupon, according to a filing with the Securities and Exchange Commission, in an offering boosted from an initially planned $1.5 billion. At an enterprise value well over 100 times analysts’ average estimate of 2017 EBITDA, according to Thomson Reuters data, Tesla stock is pricey enough to issue more, too. Despite a recent slide of more than 10 percent it’s still up 46 percent this year.

Down-payments for cars that won’t be delivered for years are, however, a handy source of cost-free working capital. The 1,000 special “Founders Series” Roadsters, if all pre-ordered right away, would only bring in enough to cover about three weeks of cash burn at the 2017 pace to date. Orders for the regular version of the sports car, with a $50,000 reservation fee, could further add to Tesla’s pot – with $686 million of customer deposits already on its balance sheet at the end of September.

The bonds issued in August have traded down and now yield around 6 percent. Wannabe early adopters of the lightning-fast new Roadster – which Musk says will accelerate from zero to 60 mph in less than 2 seconds and be able to drive 620 miles before recharging – might be rich and eager enough to let the entrepreneur have their money with no such return. If so, he will have succeeded in taking crowdfunding to 250 mph.

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