The finale to Tesla CEO Elon Musk’s glitzy semi-truck unveiling last week in Southern California featured a surprise product unveiling and a familiar fundraising strategy.
Shortly after Musk finished rattling off stats about the new electric Semi, a bright red sports car drove out of a fog-filled trailer and onto the stage, as the crowd erupted with cheers. It was the next-generation Roadster -- an updated version of Tesla’s original groundbreaking luxury electric sports car, which was first revealed almost a decade ago.
As soon as the car emerged at the event, potential customers had the chance to reserve one. This isn't the first time Tesla has asked customers to pay for a product they won't receive for several years, but the new Roadster brings the creative financing model to a whole new level.
For the first thousand customers willing to put down $250,000 in upfront cash for the vehicle, Tesla is offering the Founders Series Roadster, a limited-edition vehicle with all of the bells and whistles, plus early adopter bragging rights. The Founders Series Roadsters aren't expected to reach customers until 2020 -- if Tesla meets that deadline. In the meantime, the company is asking for a $5,000 credit card payment and a $245,000 wire transfer within 10 days of making the reservation.
If all 1,000 of those Founder’s Series Roadsters are reserved, it would deliver $250 million to Tesla. That’s more than the company raised from its IPO back in 2010.
Tesla also started accepting reservations for the base version of the Roadster last week for $50,000. Musk stoked up interest in the new Roadster by tweeting that a special version might be able "fly short hops.” It’s "just a question of safety,” he said -- an big understatement for a far-fetched idea. "Rocket tech applied to a car opens up revolutionary possibilities.”
The electric semi-truck reservation is a bargain by comparison to the flying sports car, with reservations priced at $5,000 per vehicle.
It's Tesla's latest strategy to raise cash as spending accelerates -- at times reaching $1 billion per quarter -- on Model 3 tooling and Gigafactory infrastructure. The company has made similar moves for each successive car it's unveiled over the years, from the Roadster to the Model X to the Model 3.
An acknowledgement on the next-gen Roadster booking page states: “You understand that we will not hold your Reservation Payment separately or in an escrow or trust fund or pay any interest on your Reservation Payment.”
As Automotive News describes it, Tesla’s reservation deposits aren’t counted as revenue until the customer receives the car. But the deposits are added to cash holdings and labeled as liabilities on the balance sheet. Tesla can use the money however it chooses, but it sits on the books as debt until the reserved car is delivered.
Such cash holdings could come in handy if Tesla spends more heavily than expected, and if the public markets start to turn. The company could need a new source of funding if its Model 3 production problems aren’t worked out by the end of the first quarter of 2018.
Its first corporate bonds aren’t faring well, which could be an indicator that the company’s ability to tap into public markets is starting to wane. If credit agencies downgrade Tesla as a result of Model 3 issues, alternative financing could be helpful.
It’s unclear exactly how many people have reserved the Roadster and the Semi. But the buzz, particularly for the Roadster, has been high. One loyal, wealthy customer tweeted: “Take. My. Money @elonmusk.”
Tesla already has a few early customers for its semi-truck, including Walmart, JB Transport Services, and Ryder System Inc.
Beyond the deposits, the release of a new version of the Roadster is pretty smart. It’s the first time Musk has opted to refine an existing product, instead of jumping into a brand-new category -- like launching an SUV, a solar roof, a grid-scale battery or a semi-truck. Tesla originally intended the Model X to be built on the Model S platform, but Musk has said the Model X had far more differences than intended.
Returning to Tesla’s luxury roots also means that the company has the opportunity to push the bar with performance. The next-gen Roadster is being billed as the fastest car in the world, capable of accelerating from 0 to 60 miles per hour in 1.9 seconds. It will also have a 200-kilowatt-hour battery pack, which would give it a 620-mile range.
The electric-car industry has long used performance sports cars for R&D.
Re-releasing the Roadster could allow Tesla to tap some of its most loyal customers. These fabulously wealthy early adopters are likely to hold tight for years, even if Tesla doesn’t get them their Roadsters until after 2020.
