Tesla Inc. (NASDAQ:TSLA) is preparing itself to release its Model 3 by the end of the year, but reports suggested that the company will need a massive cash influx to fund the production of the car. CEO Elon Musk had denied that the company will require more money to fund the car but said that they could raise funds to reduce risk. And now the automaker is just doing that by raising $1.15 billion to fund the vehicle.
The funds will be raised through the issuance of common stock worth $250 million and senior convertible notes of $750 million which will be due in 2022. Tesla has also given underwriters an option of purchasing 15% additional of both the offerings with a time limit of 30 days to bring the total cash influx to $1.15 billion. CEO Elon Musk will participate in the funding by purchasing common stock worth $25 million.
Tesla in its official press release said, “The aggregate gross proceeds of the offerings, including the options granted to the underwriters, is expected to be approximately $1.15 billion. Tesla intends to use the net proceeds from the offerings to strengthen its balance sheet and further reduce any risks associated with the rapid scaling of its business due to the launch of Model 3, as well as for general corporate purposes.”
The new debt and equity funding will act as a buffer for Tesla as the company already had $3.4 billion of cash at the end of the fiscal year 2016, an increase of more than $2 billion compared to the fiscal year 2015. The funds will help Tesla not only in the volume production of Model 3 but also assist in expanding its production facilities to meet the high demand for its electric car.
Tesla has already ventured into energy storage systems and solar products and thus will be needing cash in the future for its Powerwall, Powerpack, and solar roofs. The Palo Alto Company has also said that it will be building three more Gigafactories in the upcoming years which will also eat up a lot of its cash and buffer cash was always on the card.