Tesla announced plans Wednesday to raise at least $1.6 billion in debt to finance the expansion of its electric car business, develop its upcoming mass market vehicle and build the company’s much anticipated battery plant.
The Palo Alto, Calif., company separately released additional details about its plans for the so-called Tesla Gigafactory on its corporate blog, saying it will produce more lithium ion batteries in 2020 than the total global output last year.
The factory promises to address one of the company’s critical challenges, a supply crunch for batteries that constrains its ability to meet demand for its vehicles. It should also drive down production costs.
“As we at Tesla reach for our goal of producing a mass market electric car in approximately three years, we have an opportunity to leverage our projected demand for lithium ion batteries to reduce their cost faster than previously thought possible,” the company said in a statement. “In cooperation with strategic battery manufacturing partners, we’re planning to build a large scale factory that will allow us to achieve economies of scale and minimize costs through innovative manufacturing, reduction of logistics waste, optimization of co-located processes and reduced overhead.”
As Tesla’s mass market “Gen III” car hits full production by the end of the decade, the company expects the factory to drive down the per-kilowatt cost of its battery packs by more than 30 percent.
The producer of the popular Model S sedan said final site selection for the Gigafactory is under way and suggested through an illustration that Texas, Nevada, Arizona and New Mexico were all vying to land the plant within their borders. The facility will total some 10 million square feet and eventually employ around 6,500 workers. It will be powered at least in part by wind and solar energy.
Capital expenses will be split among Tesla and still unnamed partners, which will together invest between $4 billion and $5 billion through 2020, the company said. Tesla expects to directly invest around $2 billion.
Chief Executive Elon Musk said during the company’s earnings conference call last week that Panasonic, Tesla’s key battery supplier, would likely be its primary partner. Reuters reported additional details on a potential investment Wednesday, citing an unnamed source.
Finished battery packs from the plant will be shipped to the company’s vehicle production facility in Fremont, Calif.
A planned timeline shows production launching around 2017. The company expects to produce batteries for up to 500,000 cars annually by 2020. By way of comparison, the company only expects to deliver 35,000 vehicles this year.
Goldman Sachs, Morgan Stanley, J.P. Morgan and Deutsche Bank Securities will jointly manage the debt deal. Tesla will offer $800 million in convertible senior notes due 2019 and another $800 million in convertible senior notes due 2021.
In addition, the company plans to give the underwriters a 30-day option to purchase additional notes worth $240 million, which would push the offering up to $1.84 billion.
Some of the proceeds will go toward general corporate purposes. The notes will be convertible into cash, common stock or some combination thereof, generally at Tesla’s discretion.
Analysts have been keen to hear more about Tesla’s plans for the battery plant, as it removes a curb on production and helps diversify the business. Becoming the majority partner in the world’s largest lithium ion battery plant opens up loads of new business opportunities, as others have noted.
“Applications abound, including for use in grid storage, military operations, and unmanned aerial vehicles,” wrote Dougherty & Co. analyst Andrea James in a recent research report. “In our view, Tesla has always essentially been in the (battery) cell business.”
She added: “It would also put Tesla farther ahead of other auto companies, such as BMW, that are introducing electric vehicles with battery pack technology that is not as advanced as Tesla’s.”
Update: This story has been updated with an analyst quote, details from fourth-quarter results and additional context.
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