Tesla borrows $520m from China for Shanghai Gigafactory

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Production at Tesla’s ‘Gigafactory 3’ in Shanghai has just taken a big step towards becoming a reality with the electric vehicle, solar and battery maker having arranged a 12-month RMB3.5 billion ($520 million) loan facility with four Chinese lenders – including the world’s largest bank and two other members of China’s ‘Big Four’.

The one-year loan arrangement was signed by Tesla last Friday, as revealed by a submission filed with the U.S. Securities and Exchange Commission (SEC) yesterday.

A subsidiary of Elon Musk’s business – Tesla (Shanghai) Co Ltd – agreed the terms of the loan with the China Construction Bank Corporation, the Agricultural Bank of China Ltd and global banking giant the Industrial and Commercial Bank of China Ltd, as well as Shanghai development lender the Shanghai Pudong Development Bank Ltd. The first three are all state-owned lenders with the latter a nationwide incorporated commercial bank, founded in 1993 with the permission of the People’s Bank of China.

With Tesla’s Shanghai arm already having drawn down RMB31.1 million yesterday, the interest rate on the short-term arrangement will be 90% of the People’s Bank one-year rate for renminbi-denominated amounts and 1% above LIBOR (the London inter-bank offered rate that regulates loans between London’s leading banks) for dollar amounts. The loan package will mature on March 4 next year.

 

Giga ambition

The credit line will be used exclusively to fund development of Tesla’s third gigawatt-scale facility, and its first outside the United States, after the company announced in October that it had secured a 210-acre site in Shanghai for a factory that is intended to produce 500,000 autos, engines and batteries per year. Purchase of the site followed the signing of a cooperation agreement with the Shanghai Linyang Area Development Administration in July. Although Tesla did not reveal how much it had paid for the site, news agency Reuters at the time stated similar parcels of land had sold for around $140.52 million.

The foundation stone was laid at the site in January and Musk said construction work would be complete in the summer with the first Model 3 autos due to come off the production line by the end of the year.

Tesla is rarely far from the headlines and made the news last week when it cut the price of the Model 3 it hopes will take EVs mainstream to $35,000 on its website on Thursday night. The following day, several media outlets reported on the company’s decision to close the majority of its dealerships worldwide in order to focus on online sales as part of the bid to keep the price of the Model 3 down.

Yesterday’s SEC filing also revealed that on Wednesday, Tesla Inc. and subsidiary Tesla Motors Netherlands B.V. refinanced the company’s ABL credit facility. The carmaker extended the loan facility by $500 million – a similar amount to that negotiated with the Chinese lenders – to $2.43 billion and doubled an additional credit facility from $200 million to $400 million.

Some $2.23 billion of the loans, due for repayment in June next year, had their term extended to July 1, 2023.

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