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Musk: $500 million enough to launch output at Tesla's Shanghai plant

UMS Institute | 2019/2/6

 


Tesla Inc. CEO Elon Musk told investors the company won’t incur a heavy financial burden to get production up and running at its first overseas factory, seeking to soothe investor concerns about capital requirements for a new Shanghai plant.

Capital expenditures of about $500 million (3.35 billion yuan) are needed for Tesla to reach a weekly production rate of 3,000 vehicles at the factory, Musk said on an earnings call Wednesday. A majority of the funding will be by local banks, and with competitive debt financing and “extremely compelling interest rates,” Tesla doesn’t expect the investment to be a capital drain on the company, he said.

“These are the biggest banks in the world,” Tesla CFO Deepak Ahuja said on the call. “And for them, $500 million is not a large amount of money in the scheme of things.”

Financing for the plant, which Musk earlier said would cost about $2 billion to reach an annual capacity of 250,000 vehicles in the first phase, was a source of intense speculation when the carmaker was bleeding cash until last year. The company now has a healthier balance sheet and about $3.7 billion in cash and equivalents.

After years of negotiations with authorities in China, Musk broke ground on the plant in the outskirts of Shanghai on Jan. 7. The automaker aims to finish initial construction this summer and start Model 3 production by the end of the year. With the Shanghai plant in operation, Tesla expects to have a global weekly production rate of about 10,000 vehicles or close to it by the end of the year.

The capital expenditure that Tesla expects to incur is for the required equipment, Ahuja said, signaling costs such as land expenses aren’t included in the estimates.

For vehicles made in China, Tesla will source battery cells from a combination of sources, including locally, its Gigafactory in Nevada and Japan.

Production in China will offer a significant advantage and is “fundamental to the future of Tesla,” Musk said, adding the company is receiving a lot of support from the Shanghai and central governments.

“Phase one is about 10 percent of what we think the Gigafactory will ultimately be,” he said. “So, it’s a major deal.”


 

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