Tesla Wants to Raise $1.5 Billion for Model 3 Production

Tesla's "production hell" also apparently extends to the company's cash reserve.

Bloomberg via Getty Images

Tesla has been readying itself for its upcoming "production hell" as it begins to pump out around half a million reservations for the Model 3. With increased production comes the need for increased funding, in order to keep up with orders and scale up at a rate which will allow Tesla to deliver its promised 10,000 units per week in 2018. There's just one thing Tesla seems to be in need of—cash.

After announcing its intent to spend $500 million on production costs for the Model 3 during the company's quarterly investor's meeting, Tesla also hinted at another round of investment fundraising in the near future. On Monday, Tesla announced its goal to raise $1.5 billion towards the production of the Model 3 through the sale of senior notes to investors. In a press release, Tesla stated the following:

Tesla today announced that it intends to offer, subject to market and other conditions, $1.5 billion in aggregate principal amount of its senior notes due 2025 (the "Notes"). The Notes will be senior unsecured debt obligations of Tesla. The interest rate, redemption prices and other terms of the Notes are to be determined.

Tesla intends to use the net proceeds from this offering to further strengthen its balance sheet during this period of rapid scaling with the launch of Model 3, and for general corporate purposes.

If one were to reserve a Model 3 today, Tesla claims that the delivery would come around Q4 2018. Given that information, it has become clear that Tesla plans to quickly blow through its reserved allocation, should it be able to scale fast enough. With current reservation numbers, Tesla stands to fulfill enough Model 3 orders to earn between $17.5 billion and $29 billion before expenses by Q4 of 2018—should all Model 3s be delivered on time.

Even though Tesla continues to empty its wallet, spending nearly $1 billion since last quarter, shareholders continue to drive the price of TSLA stock up. In 2017, the value has increased more than 66 percent, making its way to $356.91 at the time of this writing. CEO Elon Musk has admitted that Tesla's stock is overvalued, yet traders believe in the automaker.

Should Tesla pull off the Model 3 production as intended, it opens up a whole new world for the company financially—as well as for the electric car market in general.