Tesla's cash burn has prompted short-sellers like Greenlight Capital's David Einhorn to bet against the Palo Alto, California company. Investors desperate for income have depressed the yield gap between single-B-rated junk bonds and United States Treasury bonds by almost 2 percentage points over the past year, to 3.59 points, according to Bank of America Merrill Lynch. That lines up with the 5.4% investors are demanding for junk-rated companies, according to Bloomberg Barclays index data. The convertibles give holders a chance to profit if Tesla succeeds, by letting them swap the bonds for stock.
Despite the improvement in performance, the long-range model detailed by the EPA is not the Model 3 Performance confirmed by Tesla's owner, Elon Musk.
It was initially assumed that the Model Y, a small sports utility vehicle, would be based on the Model 3 in the same way Tesla's larger SUV, the Model X, is based on the company's Model S saloon auto.
By late next year, Musk aims to produce cars at a rate of 500,000 per year, a meteoric increase in output. Tesla referred to the arrival of the Model 3 as a "crucial step" in the company's mission to speed the transition to renewable energy.
Tesla burned through $1 billion in the second quarter preparing for the Model 3's arrival. We are thinking about debt, but we're not thinking about an equity raise.
The Model 3, he said, was designed from the outset with mass production in mind to push down cost and crank cars out quickly.
Even if Mr. Musk is not as successful as Wall Street estimates, he should sell more than enough cars to make the leverage, and the additional interest bill, easy for bondholders to swallow. "Obviously, that's like the promised land right there". Dimensional Fund Advisors LP raised its stake in Tesla by 26.1% in the fourth quarter.
Moody's Inverstors Service assigned Tesla a B2 corporate family rating and a B3 rating on the company's offering of senior unsecured notes. "Tesla's a company that's always on to the next big innovation or the next big advancement and they raise money well in advance of when the public finds out about that".
Some observers have predicted that the company, which has yet to make a profit, will use up at least $2bn this year, hence the need for more cash.
At the end of June, Tesla had total cash on hand of US$3.0bn, compared to US$4.0bn the previous quarter.
The company said earlier this month that 518,000 people have put down $1,000 deposits for the vehicle since March 2016.
The report comes days after the company began selling its long-awaited Model 3 [pictured above], which the earnings release called "a huge milestone".
Solar power and battery storage now make up a small percentage of Tesla revenue, but it has high hopes for both.