Tesla Secures Over $500 Million From Chinese Banks For Shanghai Gigafactory

By Amit Chowdhry ● March 9, 2019

Tesla Motors has secured as much as $521 million in loans from Chinese banks for its Gigafactory in Shanghai, which will build vehicles and batteries. The loans are being provided by China Construction Bank Corp., Agricultural Bank of China Ltd., Industrial & Commercial Bank of China Ltd. and Shanghai Pudong Development Bank Co. and will mature in March 2020, according to a regulatory filing.

Tesla also amended a separate asset-backed credit agreement, which increases how much it can borrow by as much as $700 million. In January, Tesla CEO Elon Musk estimated that the company would need about $500 million to build the plant and ramp up production up to 3,000 Model 3 vehicles per week. This new borrowing follows Tesla’s largest-ever debt payment last week — which was a $920 million convertible bond that matured March 1.

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Over the last few years, Tesla negotiated with local authorities to become the first overseas automakers to wholly own a manufacturing facility in China. Tesla broke ground for the facility in Shanghai on January 7. And Tesla is planning to start battery and Model 3 production at the factory by the end of the year.

According to Bloomberg, Tesla is now able to borrow at more favorable rates. The yuan-denominated loans accrue interest at a rate equal to 90% of the one-year rate published by the People’s Bank of China. If the loan was dollar-denominated, then it would be 1% more than Libor.

The filing states that Tesla amended and restated the asset-backed loan credit agreement to increase the total lender commitments by $500 million to about $2.4 billion. And the pact also allows Tesla to obtain up to $200 million in additional commitments along with an option to extend the term of most of the total commitments to 2023. The Gigafactory is expected to cost about $2 billion.

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Tesla recently had to increase the prices of its vehicles it sells in China in order to offset the cost of new tariffs that were imposed by the Chinese government in response to President Trump’s duties on Chinese goods.

Last week, the government in Shanghai said it welcomed Tesla’s decision to invest in the new factory along with research and development as well.

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Reuters reported that Tesla is expected to produce its first set of cars about two years after construction begins at the factory in Shanghai. And then it will ramp up to as many as 500,000 vehicles per year about two to three years later. This is a big deal because most factories are built to handle 200,000 to 300,000 vehicles per year.

Tesla pointed out that the launch of the plant in Shanghai will not impact its U.S. manufacturing operations. The company also has Gigafactories in Nevada and New York.