DealBook: In a Plus for Electrics, Tesla Repays a Big Federal Loan Early

Stan Honda/Agence France-Presse — Getty ImagesThe Tesla Model S was introduced at the 2013 North American International Auto Show.

The taxpayer no longer has to worry about Tesla Motors.

Tesla, the maker of electric cars, paid off a $465 million loan on Wednesday that the Energy Department made in 2010. The repayment is a lift to the Obama administration, whose clean-energy loan programs faced criticism after the collapse of Solyndra, the solar panel maker. The company, using money it raised last week in the markets, is repaying the government nine years before its loan was due.

“Today’s repayment is the latest indication that the Energy Department’s portfolio of more than 30 loans is delivering big results for the American economy while costing far less than anticipated,” Ernest Moniz, the energy secretary, said in a statement.

Tesla’s payment will be the latest source of excitement to its supporters. But whether Tesla remains a good advertisement for government aid partly depends on how the company now performs. Should Tesla falter badly, it will only highlight the risks of lending to experimental companies.

Electric car enthusiasts have rushed to buy its main product, the Model S, a high-priced luxury sedan. Tesla also has plenty of fans in the markets, where investors who have piled into the company’s shares, in the belief that Tesla will find plenty of buyers for its cars.

Elon Musk, who co-founded and leads Tesla, issued a statement thanking the Energy Department, Congress and taxpayers for the loan. “I hope we did you proud,” he said.

After the demise of Solyndra in 2011, government efforts to subsidize clean-energy companies came in for special scrutiny. Mitt Romney included Tesla in a batch of companies he called “losers” during last year’s presidential contest.

Tesla’s exit from the government loan may now refresh the debate over how much support to give young, clean-energy firms.

“Tesla is repaying early and it’s a great vindication,” said Greg Kats, president of Capital-E, a firm that invests in clean-energy companies. “Tesla has really helped push the Big Three automakers down the energy efficiency track.”

Noah Berger/ReutersA Tesla Model S at the factory in Fremont, Calif. Electric car enthusiasts are flocking to the Model S, which is a luxury sedan.

The Energy Department on Wednesday said that losses on its loans were equivalent to 2 percent of its $34 billion portfolio.

Tesla has not fully weaned itself from government support. Buyers of Tesla cars can get substantial tax credits that reduce the purchase price. After a $7,500 tax credit, the lowest-cost Model S is $62,400.

The company is also able to generate large amounts of revenue from selling green energy credits to other automakers. Morgan Stanley estimates that Tesla can cover its capital expenditures this year from selling those credits.

Tesla was able to pay back the loan all at once because it took advantage of a meteoric rise in its stock price. Its soaring share prices helped it raise approximately $1 billion in the market last week by selling new stock and debtlike securities.

“The reason the loan is being paid off is not because of vehicle sales,” said Patrick J. Michaels, a director at the Cato Institute, a libertarian-leaning research group.

Tesla started delivering the Model S to consumers earlier this year and expects to sell 21,000 cars in all of 2013. But it is not clear whether the initial burst of demand for its sedan was merely the result of enthusiasts rushing to get their cars. Skeptics doubt the market is as big as the company projects, and expect the shares to plunge when that becomes apparent. While Tesla has made ambitious targets for selling cars, its more immediate financial projections seem less impressive. It recently suggested that cash flows from its operations might not be positive in the second quarter and it seemed to forecast a drop in North American sales in the second half of the year.

One perceived weakness in Tesla’s plans is the relative expense of the Model S. The company may face only limited demand until it comes up with a substantially cheaper car.

“They are going to have to have a vehicle that costs much less than $100,000,” Mr. Michaels said.

Though Tesla is on an upswing now, the Energy Department appeared to have some concerns about the company during the life of the loan. In several instances, the department softened the conditions of the loan. These amendments to important covenants might have allowed Tesla to avoid falling into a default, which could have been embarrassing for the Energy Department after the collapse of Solyndra.

Defenders of the amendments say it is common for investors to change the terms of financing for young companies. Also, the changes show that the Energy Department spotted that Tesla had potential and was wise to make the adjustments.

“Tesla is arguably making the most exciting car in the world today,” said Mr. Kats, who worked in the Energy Department during the Clinton administration. “This loan program has exceeded expectations.”

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DealBook: Bid for Cash by Tesla Motors Is Likely to Energize Company and Critics Alike

Larry W. Smith/European Pressphoto AgencyFranz von Holzhausen, Tesla’s chief designer, showing the company’s Model X at the North American Auto Show in January.

Tesla Motors announced plans on Wednesday to tap the markets for more cash, a move that will buy it time to meet its ambitious goals but will also fuel debate over its prospects.

Tesla, the maker of electric cars founded and led by the entrepreneur Elon Musk, said it hoped to raise approximately $830 million by selling new shares and debtlike securities. The company said that Mr. Musk personally planned to buy $100 million of shares in the offering.

The plans could raise questions about the company’s ability to generate cash flows from its operations. Last week in an investor conference call, Mr. Musk played down the notion that Tesla would soon tap the public markets to raise new money. “We don’t have any plans right now to raise funding,” he said.

Tesla’s main product, a luxury sedan called the Model S, was the subject of New York Times articles this year involving a test drive of the car and its charging capacity. Mr. Musk has repeatedly challenged the articles, saying they were unfair.

Since then, however, Tesla has generated a stream of positive headlines, including a glowing review this month for the Model S from Consumer Reports.

The financing announced on Wednesday could prove a pivotal development in the intense debate over Tesla’s future.

The company’s shares have risen by 150 percent this year as more investors have started to express belief that the company will make electric vehicles that people will flock to buy because they perform as well as gasoline cars.

Other investors, however, remain unconvinced. They have bet against Tesla’s shares, saying they believe there is not much of a market for its cars beyond a small group of enthusiasts. These skeptics say they think that excitement has evolved into a stock mania. Tesla’s market value, nearly $10 billion, now exceeds that of Fiat. But the investors who placed those skeptical bets, called short-sellers in stock-market parlance, have suffered heavy losses as Tesla shares have soared. In fact, because of the paradoxical dynamics of short-selling, when these investors unwind their negative Tesla bets, they help force the company’s shares even higher. That phenomenon partly explains why Tesla’s stock is up 50 percent in just the last five days.

“Right now, Tesla is a story stock,” said Carter W. Driscoll, who analyzes clean-technology companies for Ascendiant CapitalMarkets. “Let’s be realistic here, they’ve only produced a quarter’s worth of vehicles.”

For investors betting against the shares, that skepticism will have been particularly painful in recent days. For Tesla, though, the meteoric spike in its shares presents an attractive opportunity to raise money without hurting existing shareholders too much.

“You have to give them kudos for their timing,” Mr. Driscoll said.

The company will take in the money in two ways: it will offer new shares on the public markets to investors; and it will raise $450 million from the debtlike securities, which the company will have to pay back in 2018. The company expects to price the offerings after the close of regular trading on Thursday, according to Sarah Meron, a Tesla spokeswoman.

The company said some of the money would be used to pay down a big federal loan that helped it set up production facilities for the Model S.

Critics of the Obama administration’s clean-energy financing program have focused on the Tesla loan. In last year’s presidential campaign, Mitt Romney included Tesla in group of companies he called “losers.”

The company has about $440 million outstanding on the loan, which was made by the Energy Department. Ms. Meron declined to say when the company would pay off the loan.

The cash from the offering of stock and securities will give Tesla an important cushion to fall back on if its young operations stutter. During the investor call last week, Mr. Musk did say the company might tap markets to protect itself against “some sort of risk event.”

While buying time for Tesla, the decision to raise cash could also end up emboldening critics who said they believed that Tesla was going to experience weak cash flows from its operations this year. In the investor call last week, Tesla executives did not project that cash flows would be positive in the second quarter. They also suggested a decline was possible in North American sales as the year progresses.

The company has also stopped giving out the number of reservations in place for its cars, a metric that investors had previously found useful for assessing future demand.

This post has been revised to reflect the following correction:

Correction: May 18, 2013

An article on Thursday about Tesla Motors’ plans to tap the markets for more cash misstated, at one point, the way in which the company plans to raise the money. As the article correctly noted elsewhere, the company will sell new shares and debtlike securities; it will not raise new money from another Energy Department loan.

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