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Tesla outlines scheme for $4-5B battery Gigafactory; announces $1.6B offering
27 February 2014
|The planned cell output of the Gigafactory in 2020 exceeds 2013 global production by current manufacturers, Tesla said. Click to enlarge.|
Via a post on its website, Tesla Motors outlined its plan for its future battery “Gigafactory”, projected to require between $4-5 billion in investment from Tesla and its partners by 2020, with a resulting cell capacity of up to 35 GWh/year and pack capacity of up to 50 GWh/y to service a projected 500,000 Tesla electric vehicles per year.
Tesla plans to invest directly approximately $2 billion, the rest to come from its partners in the venture. During the company’s Q4 earnings call last week, Tesla CEO Elon Musk noted that because Panasonic is Tesla’s primary partner on battery production, the “default assumption” is that Panasonic would continue to partner with Tesla in the Gigafactory. Reports have surfaced that Panasonic is considering a $1-billion investment, but nothing has been announced or confirmed at this stage.
Musk also noted last week that “The Gigafactory would absorb all of the cells produced, and would still need to bring in more cells from around the world.”
In October 2013, Panasonic and Tesla had already expanded their 2011 supply agreement so that Panasonic will supply nearly 2 billion automotive-grade lithium-ion battery cells to Tesla through 31 December 2017 at long-term preferential prices. (Earlier post.)
In its comments, Tesla noted that its goal of producing a mass market electric car in approximately three years provides an opportunity to leverage its projected demand for lithium-ion batteries to reduce their cost faster than previously thought possible.
By the end of the first year of volume production of its mass market vehicle, Tesla expects the Gigafactory to have driven down the per kWh cost of the Tesla battery pack by more than 30%.
Finalists for the Gigafactory location are Nevada, Arizona, New Mexico and Texas. Tesla envisions beginning construction on the Gigafactory this year.
|Click to enlarge.|
$1.6-billion offering. Separately, Tesla announced an offering of $1.6 billion aggregate principal amount of convertible senior notes in an underwritten registered public offering. Tesla intends to use the net proceeds from the offering to accelerate the growth of its business in the US and internationally; for the development and production of its “Gen III” mass market vehicle; the development of the Tesla Gigafactory; and other general corporate purposes.
Of the total offering, Tesla will offer $800 million aggregate principal amount of convertible senior notes due 2019 and $800 million aggregate principal amount of convertible senior notes due 2021.
In addition, Tesla intends to grant the underwriters a 30-day option to purchase up to an additional $120 million in aggregate principal amount of convertible senior notes due 2019 and an additional $120 million in aggregate principal amount of convertible senior notes due 2021, for a total potential offering size of up to $1.84 billion.
The convertible senior notes due 2019 will be convertible into cash, shares of Tesla’s common stock, or a combination thereof, at Tesla’s election. The convertible senior notes due 2021 will be convertible into cash and, if applicable, shares of Tesla’s common stock (subject to Tesla’s right to deliver cash in lieu of such shares of common stock). The interest rate, conversion rate and other terms of the notes are to be determined.
In connection with the offering of the notes, Tesla intends to enter into convertible note hedge transactions and warrant transactions, which are generally expected to prevent dilution up to approximately 100% over the common stock price at the time of pricing of the notes due 2019 and 120% over the common stock price at the time of pricing of the notes due 2021.
Tesla intends to use a portion of the proceeds from the offering to pay the net cost of the convertible note hedge transactions. In connection with establishing their initial hedge of the convertible note hedge and warrant transactions, the hedge counterparties or their affiliates expect to enter into various derivative transactions with respect to the common stock concurrently with or shortly after the pricing of the notes, including with certain investors in the notes.
Goldman, Sachs & Co., Morgan Stanley, J.P. Morgan and Deutsche Bank Securities are acting as joint book-running managers for the offering.
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