Tesla Motors Inc. (TSLA), which received $465 million in U.S. Energy Department loans to develop and build electric cars, will repay the funds five years ahead of schedule in a plan approved by the government.
The carmaker said in its annual report yesterday that the department approved amended terms of the loan agreements that enable it to complete repayment by December 2017. Starting in 2015, the Palo Alto, California-based company will make accelerated payments from excess free cash flow, Chief Financial Officer Deepak Ahuja said in a telephone interview.
“Any remaining balance that’s there at the end of 2017 we’ll pay off as a balloon payment,” Ahuja said yesterday.
The maker of battery-powered Model S sedans, led by billionaire Elon Musk, has a goal of becoming profitable this quarter, with deliveries of the vehicle forecast to rise to a record 20,000 units in 2013. Production snags in last year’s second half boosted operating expenses and triggered a wider fourth-quarter loss for Tesla than analysts anticipated.
The original terms required repayment of the loans by 2022, 10 years after the funds were drawn down. Tesla said on Sept. 25 that it was working with the Energy Department on a modified repayment schedule. Amended terms of the loan agreements were registered on Dec. 20 and March 1, the company said yesterday.
Musk said in a Bloomberg Television interview with Betty Liu last month that Tesla would repay the money in five years.
Warrants Tesla issued to the Energy Department as part of the loan agreements vest in 2018 if the loans aren’t paid off. They would enable the government to buy more than 3 million Tesla shares at a discount.
“The value of those warrants is very substantial,” Ahuja said. “The terms of the original loan had a very good incentive for us to pay off the loan early.”
The loan amendment “formalizes that and avoids the vesting of that warrant,” he said.
Under the agreement, funds for the early payments will be generated from cash above a $200 million threshold “over our reservations balance,” Ahuja said.
Tesla also said in the filing yesterday that sales of so- called Zero-Emission Vehicle credits from its electric cars jumped to $40.5 million last year from $2.7 million in 2011.
California’s environmental rules require large automakers to sell a certain number of electric and plug-in vehicles in the state annually. Those that fall short can buy such credits from companies such as Tesla that generate more than they need.
Ahuja declined to identify which companies bought Tesla credits, and the carmaker didn’t disclose details in its annual report. Tesla reported sales last year of 2,650 Model S sedans, which sell for about $60,000 to more than $100,000, before a $7,500 U.S. tax credit.
The company said in the filing that production of its second all-electric vehicle, the Model X sport-utility vehicle, starts in late 2014 at the Fremont, California, plant set up using the federal loan funds. Tesla said it intends to build as many as 15,000 of the battery-powered crossovers annually.
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