Tesla has lined up Rmb11.25bn ($1.6bn) in cheap new financing from a consortium of state-backed Chinese lenders as it races to start deliveries of its mass-market Model 3 sedan from its Shanghai Gigafactory.
The electric carmaker is counting on the new plant to supply the massive Chinese automotive market while sidestepping shipping costs and tariff uncertainties, which this year already forced Tesla to raise and lower prices in line with the twists and turns of Washington’s tit-for-tat tariff battle with Beijing.
The new Shanghai plant was built in record time after groundbreaking in January and Chinese authorities giving Tesla the go-ahead for mass production in November. The plant will double Tesla’s production capacity of its Model 3 sedan, analysts say.
Tesla announced it had struck a deal with four Chinese lenders for a Rmb9bn term loan to finance construction and production at the Shanghai plant, secured by the land and buildings, and a separate Rmb2.25bn unsecured revolving credit facility.
The carmaker used a portion of the financing to pay off an earlier Rmb3.5bn loan that was due next year.
Analysts say the loans from the state-backed lenders came with preferential terms — renminbi borrowings from the facilities bear interest at less than the Chinese central bank’s market rate, while dollar borrowings on the revolving facility are priced at the London interbank rate plus 0.8 per cent. In contrast, a Tesla bond due in 2025 yields 5.8 per cent, according to Bloomberg.
Most Chinese companies borrow above the central bank’s market interest rate, said Shen Meng, director at Chanson & Co, a boutique investment bank in Beijing. “With the trade war and the softening economy, the government puts great symbolic significance on Tesla’s project,” he added.
The Shanghai factory is Tesla’s first manufacturing site outside the US and also China’s first car plant wholly owned by a foreign company.
The ample state funding made available for Tesla contrasts with tight conditions at dozens of China’s electric vehicle start-ups, which are struggling to raise new capital and running into flagging demand for their cars after a rollback of consumer subsidies this summer.
Sales of new energy vehicles, including hybrids and battery-powered cars, fell 45.2 per cent in November, from a year earlier.
That could be a problem for Tesla as well as it aims to start shipping cars next month.
“The slowdown in the auto market is the wild card,” said Tu Le, head of Sino Auto Insights, a consultancy. “At least it’s not going to impact them in the short term as they’ll be ramping up production for the next six months.”
Additional reporting by Don Weinland in Hong Kong