Tesla to Borrow $1.4 Billion for Shanghai Factory & China Operations
【Summary】Tesla is completing its new Shanghai factory with some big help from a group of Chinese banks. Reuters reports that the California-based electric automaker secured a $10 billion yuan ($1.4 billion) five-year loan facility for Tesla’s new factory in China.
Tesla is completing its new Shanghai factory with some big help from a group of Chinese banks. Reuters reports that the California-based electric automaker secured a $10 billion yuan ($1.4 billion) five-year loan facility for Tesla's new factory in China.
Part of the loan will be used to roll over an existing loan, according to three sources that spoke to Reuters.
The loan facility is a credit line that a business can use to finance various projects. A loan facility can be extended by banks if it's deemed to be creditworthy, which apparently Tesla is becoming in the eyes of Chinese lenders.
China Construction Bank (0939.HK) (601939.SS) (CCB), Agricultural Bank of China (1288.HK) (601288.SS) (AgBank), Industrial and Commercial Bank of China (601398.SS) (1398.HK) (ICBC) and Shanghai Pudong Development Bank (600000.SS) (SPDB) are among the banks which have agreed to give Tesla the massive loan, one source with direct knowledge said to Reuters.
Tesla's new Shanghai factory is helping the automaker enter China's auto market, which is the world's biggest. By building vehicles in China, Tesla will avoid steep import tariffs imposed on its U.S.-built vehicles, allowing the company to sell its vehicles at a lower price and remain more competitive from rivals.
The Shanghai facility is Tesla's first assembly plant outside of the U.S. Currently, Tesla ships all of its vehicles from its factory in Fremont, California.
The Chinese banks earlier this year already offered Tesla a 12-month facility of up to 3.5 billion yuan ($500 million), which is due to be repaid on March 4, 2020, according to a filing the automaker made to the U.S. Securities and Exchange Commission.
That new loan will be partially used to roll over the previous 3.5 billion yuan debt, according to the first source that spoke with Reuters. The second source said the remaining funds will be used on the factory and Tesla's China operations.
Tesla secured an interest rate usually reserved for China's top tier banking clients. The new loan's interest rate will be fixed at 90% of China's one-year benchmark interest rate, which is the same as the 3.5 billion yuan loan, the first source said.
China cut its one-year benchmark interest rate to 4.20% in September, shortly after the Federal Reserve in the U.S. lowered the target range for its key interest rate by 25 basis points to between 1.75% and 2% for the second time since 2008.
Tesla CEO Elon Musk speaking at the groundbreaking ceremony for the Shanghai Gigafactory in Jan 2019. (Photo: Reuters)
Tesla's Shanghai factory was built at a rapid pace. The automaker held a groundbreaking ceremony in January for the initial phase of construction. By October, Tesla was added to a government list of approved automotive manufacturers as was granted a certificate to start production in the country.
Tesla is aiming to build 1,000 Model 3's per week by the end of the year. Tesla eventually aims to build 500,000 vehicles annually at the factory.
resource from: Reuters
Originally hailing from New Jersey, Eric is a automotive & technology reporter covering the high-tech industry here in Silicon Valley. He has over 15 years of automotive experience and a bachelors degree in computer science. These skills, combined with technical writing and news reporting, allows him to fully understand and identify new and innovative technologies in the auto industry and beyond. He has worked at Uber on self-driving cars and as a technical writer, helping people to understand and work with technology.
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