Tesla Motors, the electric-car maker that has seen its stock advance more than sevenfold in the past year, will spend as much as $5 billion on a new battery factory so it can make more affordable cars.
Tesla said it plans $4 billion to $5 billion in total investment in the so-called gigafactory by 2020 and will fund about $2 billion of that amount. The company is exploring locations in Texas, Nevada, Arizona and New Mexico, according to a presentation on its website. The facility may employ about 6,500 people, the Palo Alto, Calif.-based automaker said.
“This would rank as the most attractive industrial project out there of that size, given the investment and number of jobs,” said Dennis Cuneo, president of DC Strategic Advisors and a former Toyota executive who helped that carmaker select plant sites. “It looks like they want a robust competition from these four states and incentives are probably going to be a big factor.”
Tesla CEO Elon Musk has said the battery plant is critical to achieving Tesla’s goal of moving beyond the premium auto space to becoming a mass-market automaker capable of producing 500,000 or more electric vehicles annually. The facility may also help Tesla and SolarCity Corp., a power company partly owned by Musk, achieve his goal of becoming a big player in the power-storage industry.
Tesla is offering $1.6 billion of convertible senior notes to help fund the factory, the company said in a separate statement. Proceeds from the note sale will also be used to produce the “Gen III” vehicle that’s cheaper than the current $71,000 Model S sedan.
The offering will also help accelerate growth of Tesla's business in the U.S. and overseas, as the company prepares to enter China next month.
“The Gigafactory is designed to reduce cell costs much faster than the status quo and, by 2020, produce more lithium- ion batteries annually than were produced worldwide in 2013,” Tesla said. “By the end of the first year of volume production of our mass market vehicle, we expect the Gigafactory will have driven down the per kWh cost of our battery pack by more than 30 percent.”
Musk said last week that Panasonic Corp., currently the biggest supplier of lithium-ion cells used in Tesla’s batteries, may also be involved in the plant. Panasonic’s participation is “not 100 percent confirmed,” he said in Bloomberg Television interview.
While Tesla identified only four states, “it’s going to draw interest from many others,” said Cuneo, based near Reno, Nev. “This is going to generate a lot of excitement.”
Liz Jarvis-Shean, a Tesla spokeswoman, declined to comment on Tesla’s position on an Arizona bill that would permit businesses to refuse service on religious grounds, a measure opponents say is meant to allow discrimination against gays.
Tesla will offer $800 million of notes due 2019 and $800 million due 2021, the company said today. The company plans to grant the underwriters a 30-day option to purchase as much as an additional $120 million due 2019, and an additional $120 million, due 2021, for a total potential offering size of as much as $1.84 billion. The coupon, conversion rate and other terms of the notes haven’t been determined, according to the statement.
Goldman Sachs, Morgan Stanley, JPMorgan Chase and Deutsche Bank are jointly managing Tesla’s offering, the company said.
“This an industry that consumes cash,” said Alan Baum, an analyst at Baum & Associates in West Bloomfield, Mich., who tracks alternative-powertrain technologies. “This gives them the opportunity to execute their plan — and at the same time modify their plan.”
The fundraising move echoes Tesla’s sale of $1.08 billion of new shares and notes in May 2013 amid a previous surge in the company’s shares.
“Obviously, they understand the need to strike while the iron is hot,” Baum said. “What they are doing is taking advantage of being looked at as a different kind of company.”
The shares rose 3 percent to $260.50 on Wednesday in extended trading after closing at a record $253 in New York. The stock has gained 68 percent this year.