Tesla Inc has now entered into an agreement with Chinese financial firms. This agreement is for a secured term loan facility that can be as much as 9 billion Yuan, or around $1.29 billion. This information was given by way of a regulatory filing that was done on Thursday.
China Throwing Weight Behind Tesla
Furthermore, one of the world’s most famous electric car makers has signed an agreement in regards to an unsecured revolving loan facility. This facility can total up to 2.25 billion Yuan. With both these loans in place, Tesla plans on opening a car manufacturing plant in Shanghai, China.
The lenders of this agreement are numerous. Big names like the Agricultural Bank of China, China Construction Bank Corp, Industrial and Commercial Bank of China, and lastly, the Shanghai Pudong Development Bank are in this roster. This information was once again given by way of the regulatory filing.
Paying Off Debt With More Debt
The loan was made for both construction and production of the new Shanghai factory, but will also serve another purpose. The funds could be used to repay a previous debt that totaled into the 3.5 billion Yuan mark. This loan’s due date comes on the 4th of March next year. While it isn’t exactly wise to repay a loan with another loan, Tesla might pull it off with the profits from the Shanghai factory.
The Shanghai manufacturing plant will serve as Tesla’s first site that is outside the borders of the United States. The Shanghai site serves as the centerpiece of the company’s ambitions to boost worldwide sales and become truly competitive in the world’s biggest auto market. As an added benefit, the company will dodge the higher import tariffs that come from cars that are made in the US.
Earlier this week, Reuters had reported that there were insiders familiar with the matter that stated that Tesla had reached an agreement with a group of Chinese banks. The deal was for a loan of 10 billion Yuan at the time, based on a five-year loan facility and made to help support the company’s Shanghai plant. The new investment will allegedly be pegged at 90% of China’s one-year benchmark interest rate, which is the same interest as Tesla’s earlier loan.
The government of Shanghai has also thrown its support into Tesla’s venture, marking the first wholly foreign-owned car plant that has the privilege of doing so. All that can be said for sure, especially when doing business with China, is that it’s wholly foreign-owned for now.