Tesla is looking for fresh cash sources, and for that, the US electric carmaker is raising $1.5 billion via an offering of Junk Bonds. The automaker is desperately looking to ramp up production of its $35,000 Tesla Model 3. The decision was made public on Monday.

CEO Elon Musk dares all

This is a daring move by CEO Elon Musk who has equal faith in bond investors as in stock investors. The former would be as hungry as the latter to back Model 3, for most believe it is going to be a massive hit. Raising such an amount has its own share of risk, and this raises execution risk for the $60 billion electric automaker.

Tesla is currently using up roughly $1 billion per quarter, and it has about $3 billion in cash. Musk has embarked on one of the most dangerous journeys in automotive history, reports The New York Times.

Musk is taking the production of Model 3 from zero to 400,000+ a year and that too in about 18 months. This naturally is a huge feat that many think is unachievable. Fortunately for Musk, Tesla’s shares have gone up by 67 percent this year. The company has experienced a growth that even the most buoyant analysts never expected. Even if the junk bond strategy does not click for Musk, and is not as successful as Wall Street estimates, even then, he will be able to sell more than expected Model 3 electric sedans to make the leverage.

“Bond investors, who typically don't love companies that don't make money, will be far more forgiving when it comes to Tesla,” bond expert Robbie Goffin told Reuters.

High-yield bond market flying high

Even if Tesla sells five million shares at 15 percent discount, it will still raise the $1.5 billion. This will dilute Musk’s stake of 20.4 percent by only 3 per cent.

However, it will probably not come to this, especially when the high-yield bond market is flying high. According to Thomson Reuters data, the bond sale is expected to raise debts about 5.5 times the forecast for 2017 earnings. This is before amortization, depreciation, taxes, interest or Ebitda. Ebitda is expected to double next year and triple by 2020.

However, Musk is not worried about the debt and is solely concentrating on ramping up Model 3 production. Currently, the company is going through “manufacturing hell,” as rightly put by Musk. A lot is depending on this least expensive car being made by Tesla up to now. Meanwhile, Musk has stated during a press briefing that he expects Tesla Model 3 annual demand to go past 700,000 units. Musk continues to awe!
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