Tesla is using its car leases as collateral for a big $546 million loan as it turns to debt markets to raise additional cash to combat the blistering burn rate of its auto and energy business, according to multiple reports.
The bonds are pegged to leases of its Model S and X cars, and it marks the first time that Elon’s electric albatross has turned to asset backed securities for new money(Tesla has already tapped public markets, junk bond markets, and convertible-bonds to get additional capital).
All of this is driven by the company’s scorching burn rate. A report from Bloomberg citing Barclays Plc analyst Brian Johnson said Tesla could spend $4.2 billion this year.
Tesla’s cash crunch can be blamed on the company’s continued delays and cost overruns associated with the production of the Model 3, Tesla’s low-end electric vehicle (priced to sell at $35,000).
Investors in Tesla’s asset-backed bonds make money off of the lease payments of the vehicles and then on the resale value of the car. According to Bloomberg some analysts have cautioned that the EVs might not have the same high resale value as cars, noting there’s not much of a track record for reselling EVs.
While this may be Tesla’s first push into asset backed securities, it’s not the only non-traditional path Musk has pursued to raise cash for his businesses.