Tesla Inc. is raising $1.5 billion as it ramps up production of the Model 3 sedan, its first mass-market electric car.
The company said Monday that it plans to offer senior notes due in 2025 and would use the offering's proceeds to further strengthen its balance sheet during rapid scaling of the Model 3.
Tesla delivered the first 30 Model 3s to employees at the end of July. At the time, Chief Executive Elon Musk worried some investors when he warned that Tesla was about to embark on "at least six months of manufacturing hell" as it tries to get Model 3 production to 5,000 cars a week by December.
But last week, Musk clarified his comments, and said Tesla should be able to overcome any supplier issues and other potential obstacles. Musk said investors should have "zero concern" about whether Tesla will be able to meet its goal of making 10,000 Model 3s a week by next year.
That will cost money, though, and Tesla is burning through cash at a rapid rate. The Palo Alto, Calif., company spent $1.2 billion in the second quarter preparing for the Model 3's arrival.
Tesla had $3 billion in cash on hand at the end of the second quarter, but said it expects to spend $2 billion in the second half of this year.
Telsa has alluded to using the debt markets for funding, but Jeffrey Osborne, managing director and senior analyst at Cowen & Co., said few people thought it would happen so soon.
"The challenge with doing it now is that the company is at a transformational phase," Osborne said. "Debt holders want to see stable cash flow, and they do not have a lot to hang their hats on in terms of predictability."
Osborne also recommended that Tesla disclose more information about the costs of projects such as building factories.
The Model 3's $35,000 starting price — half the cost of Tesla's previous vehicles — and range of up to 310 miles could bring hundreds of thousands of customers into the automaker's fold, taking it from a niche luxury brand to the mainstream.
The company said this month that 518,000 customers have put down $1,000 refundable deposits for the car since March 2016.
Musk told stock analysts last week, though, that the figure "was just a guess." The total is actually 455,000 when cancellations are subtracted, he said.
Tesla shares fell 0.5% on Monday to $355.17.
Times staff writer Rachel Spacek contributed to this report.
3:05 p.m.: This article was updated with additional information about Tesla's finances and with Tesla's stock movement.
10:40 a.m.: This article was updated with additional information about deposits for Model 3 cars and with comments from Jeffrey Osborne.