Tesla Motors Inc. (TSLA), the maker of electric cars led by Elon Musk, said it’s making its first payment early on U.S. Energy Department loans the California startup used to engineer and produce the Model S sedan.
Tesla, which qualified for $465 million in U.S. loans in June 2009, last week said in a filing that the Energy Department requested a faster repayment schedule by Oct. 31 as it expands sales of the $57,400 Model S and additional all-electric cars. The Palo Alto, California-based company was “happy” to oblige, Musk said yesterday.
“Far from being worried about our survival, the DOE is highly bullish about our future and doesn’t want us to delay early repayment of the loan if we have the cash on hand to do so,” Musk said in a blog post on the company’s website. “I am happy to announce that we will be initiating an advance payment today to prefund the principal payment that is due in March 2013.”
The Energy Department is working with Tesla to accelerate its repayment schedule, Bill Gibbons, a department spokesman, said in an e-mail. “Tesla continues to make loan payments on time and in full,” he said.
The company and the Energy Department will develop a prepayment plan over the next few months that’s in the interest of both sides, said Christina Ra, a company spokeswoman.
The loan program used by Tesla, Fisker Automotive Inc., Ford Motor Co. (F) and Nissan Motor Co. (7201) was created in 2008 by President George W. Bush’s administration to spur a U.S. market for highly fuel-efficient cars and trucks. Money was disbursed by President Barack Obama, who set a goal of having 1 million electric vehicles on U.S. roads by 2015.
Musk announced the early repayment hours before Obama and Republican presidential candidate Mitt Romney held their first debate in Denver. The automotive loan program, as well as the bailouts of General Motors Co. (GM) and Chrysler Group LLC, have been topics of conversation on the campaign trail this year, with Romney in March calling Tesla and Fisker beneficiaries of Obama’s “crony capitalism.”
Romney, in the debate, said Obama has picked “losers” in alternative-energy loans and grants. He repeated references in a Sept. 28 campaign appearance to Tesla, Fisker, failed solar- panel maker Solyndra LLC and Ener1 Inc., which filed for bankruptcy protection in January after receiving a $118 million Energy Department grant to make electric-car batteries.
“I mean, I had a friend who said you don’t just pick the winners and losers, you pick the losers, all right?” Romney said. “So this is not the kind of policy you want to have if you want to get America energy secure.”
Romney didn’t mention Ford or Nissan, profitable automakers that received the two largest loans from the vehicle program.
Musk said yesterday that Tesla, which hasn’t turned a profit, expects to be “cash flow positive” by the end of November.
Republican vice presidential candidate Paul Ryan in a CBS News interview last month criticized loans to Fisker, which has delayed producing a car in the U.S. Ryan didn’t mention Tesla or other vehicle-loan recipients.
Fisker said this week it’s delivered more than 1,500 of its $103,000 plug-in Karma sedans to U.S. customers. The Anaheim, California-based company said last week it raised an additional $100 million from private investors.
Musk, in a June speech at the company’s production plant, said a Romney victory would have a “minor impact” on the U.S. electric car market because “there’s such momentum behind electric vehicles.”
Sales of rechargeable autos, including battery-only cars such as Tesla’s Model S and plug-in hybrids that include a gasoline engine for added range, are up 186 percent this year to 31,743 vehicles, based on data compiled by Bloomberg.
Tesla previously said it would begin repaying loan principal in December, as required under the lending agreement. Its repayment schedule for interest on the loan began in February, according to last week’s filing.
One amendment to the loan repayment terms was a reduction in the amount Tesla was required to hold in a repayment fund, Musk said yesterday.
“In discussions with the DOE, Tesla has never asked for or even hinted at postponing repayment of the loan,” he said.
“We did suggest that holding nine months’ worth of principal payments in advance in a reserved account was a bit extreme and, moreover, was never part of our original loan agreement,” Musk said. “The DOE agreed and reduced the advance payment reserve account to six months.”
Investors may welcome accelerated repayments of the loans because it would “suggest that the company is on surer financial footing,” Amir Rozwadowski, a Barclays analyst who has an overweight rating on Tesla shares, said in a report today. That also would remove “the political headline risk around Tesla’s attachment to what seems to be perceived as an unsuccessful government program,” he said.
The company, which initially offered shares to the public in June 2010, sold 6.93 million more in a secondary offering that closed yesterday. Tesla has said it expects to receive net proceeds of $192.7 million, or $221.6 million if the underwriter, Goldman Sachs Group Inc., exercises its option to purchase additional shares in full.
Those funds are being set aside for “risk reduction,” Musk said yesterday.
“Given that we do have a global supply chain and that floods, fires, hurricanes or earthquakes can cause supply chain interruptions and halt production, we thought it would make sense to raise capital to protect against such an event,” Musk said.
Tesla last week lowered its 2012 production target to as many as 3,225 cars from about 5,000. Through the end of September, the company has built 359 Model S vehicles at its Fremont, California, plant, and delivered more than 250, Musk said yesterday.
Tesla shares rose 0.3 percent to $29.40 at the close in New York. They’ve gained 2.9 percent this year.