Tesla Plans to Fund New Shanghai Car Factory With Local Debt

Tesla Inc. said it plans to use mostly local debt to fund a new factory in Shanghai, its first outside of the U.S.

The facility, known as the Gigafactory 3, is expected to churn out about 250,000 vehicles and battery packs per year initially, capacity that will double over time. The first cars are forecast to roll off the production line in about three years, Chief Executive Officer Elon Musk said in aletter to shareholders.

Bloomberg Newsreported earlier Wednesday that the company would look to China to at least partially fund the $5 billion cost, citing a person familiar with the plans, who asked not to be identified as the matter is private. While construction is expected to start in the next few quarters, Tesla’s investment won’t begin “in any significant way” until next year, according to the letter.

Investors and analysts have repeatedly said that Teslawill need to raise money over the next year, with someestimates in excess of $2 billion. Musk has been adamant that the firm need not raise more financing, saying that increased production will produce the necessary cash flow to finance the company’s needs.

Critics will need more convincing. Tesla ended the second quarter with more than $2.2 billion of cash and equivalents, down from nearly $2.7 billion in the first quarter. It’s been spending billions of dollars on accelerating manufacturing of its Model 3 sedan, which Musk has referred to as “production hell.”

Teslasaid Wednesday that its cash burn slowed in the second quarter as Model 3 production picked up. The company expects next quarter to become sustainably profitable for the first time in its 15-year history.

“The financing that they have on the Shanghai Gigafactory is testament that Elon still has investor confidence and the ability to win investors over,” said Gene Munster of Loup Ventures. “But the bears still have something to chew on, because Tesla hasn’t hit profitability yet."

— With assistance by Dana Hull

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