Elon Musk: Only Local Debt to Fund China Factory

DETROIT - JANUARY 12: Elon Musk, Chairman, Product Architect and CEO, Tesla Motors, talks about the Model S electric vehicle during the press preview for the world automotive press at North American International Auto Show in Cobo Center January 12, 2010 in Detroit, Michigan. The 2010 North American International Auto Show (NAIAS) opens to the public January 16th. (Photo by Bryan Mitchell/Getty Images) *** Local Caption *** Elon Musk

Tesla Inc. (TSLA) chief executive officer Elon Musk has announced that he sees no need for his electric vehicles (EV) company to raise capital by selling stocks, and his company’s new factory in China will likely be funded with a loan from a local Chinese bank, according to CNBC. (See also: Tesla Plans Production Facility in China.)

Talking about the possibility of raising equity while speaking on Tesla’s second-quarter earnings call, Musk confirmed, “I have no expectation of doing so, do not plan to do so.” As the company continues to spend big cash to bump up the production of its mass-market Model 3 car, Musk has been facing questions around continued funding of operations and expansion initiatives like building the Chinese factory.

Chinese Factory to Seek Local Loan

Any necessary funding for the Chinese factory will come from local loans by a Chinese bank, Musk confirmed. The factory will manufacture batteries and assemble vehicles at the same facility and is expected to need $2 billion of initial investments. Though the company needs to get the necessary permit from the Shanghai authorities, it expects to start manufacturing cars in around two years. The company has plans to produce half a million cars each year for the Chinese market, though it may take up to five years to hit that target. While Tesla has not shared any detailed investment plan, reports indicate that the investments in Chinese factory may touch $5 billion. (See also: Tesla Plans to Invest $5B in Chinese Factory: Report.)

Tesla’s sales in China took a big hit as the U.S. and China imposed mutual tariffs on imports. Tesla’s imports from the U.S. into China face a heavy 40% tariff, which has significantly shot up the prices of Tesla cars in the large Asian nation. The fateful development is also pushing Tesla to go faster on starting the Chinese facility in the minimum possible time.

Does Tesla Need Capital?

Despite Musk repeatedly claiming that Tesla may not go for capital raising, research analysts at investment bank Goldman Sachs have claimed that the American EV maker is facing challenges with Model 3 car and is going to need significant amount of cash to sustain its operations. (See also: Tesla Needs $10B by 2020 to Sustain: Goldman Sachs.)

Tesla reported a record loss of more than $742 million for the June ended quarter, up from around $401 million during the same quarter a year ago. The company claims that it will become profitable through cost cutting initiatives and rationalizing margins.

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