Tesla Inc. secured as much as $521 million in loans from Chinese banks to build a vehicle and battery factory in the country, putting the carmaker a step closer to producing Model 3 sedans at its first overseas plant.
The loans from China Construction Bank Corp., Agricultural Bank of China Ltd., Industrial & Commercial Bank of China Ltd. and Shanghai Pudong Development Bank Co. mature in March 2020, according to a regulatory filing. Tesla also amended a separate asset-backed credit agreement, increasing how much it can borrow by as much as $700 million.
Chief Executive Elon Musk estimated in January that Tesla will need roughly $500 million to get the plant built and production ramped up to 3,000 Model 3s a week. The total cost will be higher, and the company had said it planned to tap local banks for a majority of the funding.
The fresh borrowing follows Tesla’s largest-ever debt payment last week. Settling the $920-million convertible bond that matured March 1 taxed the company’s balance sheet, which had about $3.7 billion in cash and equivalents at year-end.
After years of negotiations with Chinese authorities to become the first foreign automaker to wholly own a manufacturing facility in the country, Tesla broke ground on the outskirts of Shanghai on Jan. 7. Musk has said the company plans to start battery and Model 3 production at the factory by the end of the year.
Tesla can now do so by borrowing at favorable rates. The yuan-denominated loans accrue interest at a rate equal to 90% of the one-year rate published by the People’s Bank of China. For dollar-denominated loans, the rate is 1% more than Libor.
Beginning local production in China is key for Tesla to reduce the costs of its cars in what is the world’s largest market for electric vehicles. Battery-powered autos have been a rare bright spot amid the broader market’s slowdown. Local manufacturing also will help the company sidestep any re-escalation of trade tensions between the U.S. and China.