Tesla’s Pitch to the Public: “Fund our DOE Debt”

Electric car maker Tesla Motors filed to raise $100 million from public market investors via an initial public offering Friday.

Of course you already own part of Tesla Motors via the $465 million debt facility taxpayers loaned the company through the Department of Energy.

And, based on the company’s financials, you’d better hope that we taxpayers have first lien on its assets. Tesla lost $82.7 million in 2008 and lost $31.5 million during the first nine months of 2009.

Of course, there’s little mention of what would happen under a bankruptcy scenario to the money you’ve loaned the company.

Presumably bankruptcy would be impossible, thanks to the Dept. of Energy’s requirement that the company keep 105% of the amount it has drawn down in loans on hand to pay them back. Or, more simply, each dollar we give Tesla must be backed up by $1.05 in the car-maker’s bank account in order to go through. that the company maintain a: “debt service reserve account on or before December 31, 2012, in an amount equal to all principal and interest that will come due on the advances on the next two payment dates. Once we have deposited such two payments, we will not be required to further fund such debt service reserve account.”

That’s a high solvency hurdle to hit for a startup company, or any company that loses tens of millions of dollars each year.

So Tesla needs money to get money. And that’s the purpose of this IPO. The company wants to fund its public debt with a public offering. From the S-1 regulatory filing:

In addition to our obligation to fund a portion of the project costs as described above, we have agreed to set aside 50% of the net proceeds from this offering and any subsequent offerings of stock occurring before the completion of the projects, up to an aggregate of $100 million, to fund a separate, dedicated account under our DOE Loan Facility.

Of course the DOE loan isn’t the only way the public is financing this company. California, for example, is cutting the company a break on taxes that could be worth $320 million. The breaks come from the California Alternative Energy and Advanced Transportation Financing Authority and exempt the company from sales and use taxes for its manufacturing equipment. That’s money that won’t go to pay down the state’s $20 billion budget shortfall.

Financing private company growth with public money may be the new normal, but do we have to finance Elon Musk’s private jet?

It turns out that that Tesla’s CEO is no different from the Big Three CEOs, who flew to Washington to ask for a taxpayer bailout in 2008. Tesla paid $175,000 for Elon Musk to operate his private jet for six months while on business, documents show.


Thanks to a commenter that pointed out my initial read of the S-1 was misguided with respect to the necessary funds that must be kept on hand in order to receive the DOE loan. The company must maintain a payment account with sufficient funds to pay back the government for two payment periods. It is not required to keep 105% of the DOE loan, as I had suggested, but is required to keep 105% of the portion of the project it is expected to finance. –Alex