Tesla recently announced that it will be raising $1.5 billion in equity in order to find production of its newest vehicle. They plan on raising this capital through the issuance of junk bonds. Although Tesla is valued higher than both G.E. and Ford Motor Co., they have yet to make an annual profit. Most investors in Tesla are riding on hopes that the Model 3 will be a mass-market hit.
Tesla has recently made some massive purchases, such as its purchase of Solar City, and therefore has a considerable amount of debt and for this reason that they are issuing these high-risk high-reward bonds. According to Moody’s senior vice president, Bruce Clark, the major challenge facing Tesla will be the execution risks associated with the production of a totally new vehicle. While Tesla’s R&D costs have been staggering these last few years, Elon Musk believes that the Model 3, due to its low price of $35,000 dollars, will be a smash hit and finally realize his goal of Tesla becoming a mass market manufacturer of cost effective electric vehicles.
How will Tesla achieve the numbers they are hoping for? One thing is for certain, it has people excited, as there have already been 455,000 preorders for the Model 3 and growing by 1,800 reservations each day.