Tesla Motors OKs $40 Million in Financing To Step Up Production, Powertrain Sales
By Scott Doggett November 3, 2008
Tesla Motors said today that its directors had approved $40 million in convertible-debt financing to step up production of its Roadster electric sports car (pictured) and Model S electric luxury sedan and to expand its battery-electric powertrain sales unit.
Last week, Tesla founder Elon Musk said the electric-car startup was moving to close a commitment exceeding $20 million from existing investors to bolster a cash balance that had dropped to $9 million.
The directors opened a roughly 30-day financing round during a meeting Sunday, company spokeswoman Rachel Konrad told Green Car Advisor today, adding that most of Tesla's major investors had pledged a combined $40 million to ensure that amount was met when the round closes.
In addition to the new financing round from investors, Tesla also expects to secure another $200 million in still-pending loans from the U.S. Department of Energy. Musk said last week that the investor financing would suffice until the DOE loans become available.
Collection of the pledged $40 million will take place after the financing round concludes at the end of this month or early December, Konrad said.
Convertible debt is a loan that can be turned into equity later. It's popular with savvy startup investors because it's an excellent way to secure investment funds without setting a valuation on a company, which can be an uncertain and disruptive process for a young company.
Musk (pictured), who became a billionaire by founding PayPal, said last week he would personally ensure that the San Carlos, California, company would have enough cash to deliver all of its orders for the $109,000 Tesla Roadster, which is the world's first production battery-powered sports car.
Tesla has delivered fewer than 60 of the plug-in zero-emissions Roadsters despite having taken more than 1,200 orders and deposits of between $5,000 and $60,000 for those orders. Like established automakers, Tesla has been hit hard by the recent turmoil in financial markets as well as cost overruns.
When Tesla failed to secure a $100-million investment round last month, Musk cut 24 percent of the company's work force and delayed development work on a battery-powered sedan. He also took the CEO post from Tesla's former chief executive, Ze'ev Drori.
"We didn't raise the $100 million but we still need to raise some money to get to cash flow positive," Musk said last week. "We actually probably only need on the order of $20 million to do that. We're going to raise more than that, but we only need about $20 million."
Konrad said the money is for continuing three operations: accelerated production of the Roadster, development of the Model S, and expansion of Telsa's little-known powertrain sales business.
"We haven't talked much about this, but we sell powertrains to other automakers and we already have one deal that's significant to us," she said this morning. "That business unit is cash flow positive already, but we want to increase the scope of it."
Contracts with automakers prevents Tesla from disclosing to whom they are selling powertrains, Konrad said.
She confirmed an earlier report that the launch of the Model S will likely be delayed six to nine months. The company had hoped for a late 2010 launch, but was now looking at the first vehicles rolling off the assembly line during the second half of 2011, she said.
Konrad said development of the $60,000 sedan isn't going "into mothball-mode," but rather it is occurring "at a slightly slower pace and funding level than we were previously."
The company is counting on the taxpayer-backed Energy Department loans to offset up to 80 percent of the development cost of the Model S. Tesla expects it to compete successfully against the likes of the BMW 5 Series for luxury and performance.
The current total investment in Tesla is $147 million, Konrad said, of which Musk's portion is about $55 million. The total investment will be $187 million "or possibly more" at the end of the financing round, she said.
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