Pedestrians walk past a Tesla Inc. showroom in Shanghai, China. (Photographer: Qilai Shen/Bloomberg)

Tesla Plans to Fund New Chinese Car Factory With Local Debt

(Bloomberg) -- Tesla Inc. said it plans to use mostly local debt to fund a new factory in Shanghai, its first outside of the U.S.

The facility, known as the Gigafactory 3, is expected to churn out about 250,000 vehicles and battery packs per year initially, and that capacity will double over time. The first cars may roll off the production line in about three years, Chief Executive Officer Elon Musk said in a letter to shareholders Wednesday.

Bloomberg News reported earlier Wednesday that the company would look to China to at least partially fund the $5 billion cost of a plant that would make 500,000 cars a year at full capacity, citing a person familiar with the plans, who asked not to be identified as the matter is private.

While construction is expected to start in the next few quarters, Tesla’s investment won’t begin “in any significant way” until next year, according to the letter. Musk said on a conference call Wednesday that the cost would probably be closer to $2 billion for the factory to be able to build 250,000 vehicles a year.

Big Plans

Investors and analysts have repeatedly said that Tesla will need to raise money over the next year as it pursues ambitious expansion plans, with some estimates in excess of $2 billion. Musk has been adamant that the company won’t need to raise more financing, saying that increased production will produce the necessary cash flow to finance the company’s needs.

Critics will need more convincing. Tesla ended the second quarter with more than $2.2 billion of cash and equivalents, down from nearly $2.7 billion in the first quarter. The electric-car pioneer has been spending billions of dollars on accelerating manufacturing of its Model 3 sedan, which Musk has referred to as “production hell.”

Tesla said Wednesday that its cash burn slowed in the second quarter as Model 3 production picked up. The company expects to become sustainably profitable for the first time in its 15-year history in the second half of this year.

©2018 Bloomberg L.P.