Investors were all too eager to buy up Tesla's debt.
Tesla was in desperate need of cash in order to fund increased Model 3 production. Problem was, it didn’t have required amount of cash on hand, so it turned to other means in order to get the money. As we reported last week, Tesla, for the first time ever, issued $1.5 billion worth of junk bonds, which are corporate bonds that are high-risk and high-return. For their part, yield-hungry investors were all too willing to buy up those bonds.
In fact, according to Reuters, demand for Tesla junk bonds was so high that the EV carmaker ended up selling $1.8 billion of "eight-year unsecured bonds at a yield rate of 5.30 percent." The resulting cash influx will be put towards Tesla’s production goal of 500,000 cars by the end of next year and, also for the first time, help generate a profit. Typically, a company that issues junk bonds is not in the best of shape, but Tesla is poised to be the exception to that. There a few reasons why. Previous Tesla investors have been rewarded thanks in part to the $3.3 billion Tesla has raised on convertible bonds, which continue to perform well – just like its stock.
Speaking of which, Tesla stock was up by 0.7 percent last Friday, even with the just issued junk bonds. Point being is that investors have huge confidence in Tesla and, perhaps more importantly, its dynamic CEO, Elon Musk. Along with other market factors unrelated to Tesla, the timing of the issued junk bonds looks to be good. Tesla is getting more than the asked for amount of cash it needs for increased production, and investors stand to make a hearty return, and there’s manageable to little risk for both sides.