Chinese banks to give $1.4 billion loan to Tesla for its Shanghai factory

The American electric auto manufacturer, Tesla, announced on Monday that it has signed an agreement with a group of Chinese banks for a loan of $1.4 billion. The funds will be directed at establishing a new car plant for Tesla in Shanghai and roll over a part of an existing loan. According to the announcement, the two parties have agreed on a time period of five years for the loan.  

It was further revealed that the banks that have pledged financial support for Tesla’s new venture include Agricultural Bank of China, China Construction Bank, Shanghai Pudong Development Bank, and Industrial and Commercial Bank of China.

Tesla Had Previously Received 3.5 Billion Yuan Of Financial Help From Chinese Banks

In its filing to the United States Securities and Exchange Commission (SEC), Tesla also added that the U.S manufacturer of electric vehicles had also received 3.5 billion yuan of financial help from Chinese banks earlier in 2019. Tesla is to pay this amount bank to the bank before March 4^th 2020, as per the previous agreement.

Sources inform that Tesla plans on using a part of the new loan to repay the previous 3.5 billion yuan, while the rest of it will entirely be dedicated to the establishment of a new plant in Shanghai. The interest rate on the new loan, as per the sources, will be capped at 90% of the Chinese benchmark (one-year) interest rate. China had agreed to the same interest rate on its previous loan of 3.5 billion yuan to Tesla as well. According to the analysts, the offered rate marks the best that China offers to some of its most valuable clients.

Neither the Chinese banks nor Tesla commented on the news so far.

Tesla’s Plant In Shanghai Is The First That Is Located Outside Of The U.S

The Shanghai manufacturing plant marks Tesla’s first that is located outside of the U.S. By the end of 2019, the company aims at achieving the production rate of 1000 cars (Model 3) per week in China. The factory that is currently under construction is a part of Tesla’s larger plan of boosting sales in China. China is one of the largest auto markets around the world.

Shanghai’s government has recently been vocal in expressing its support for Tesla’s project. The government has been actively trying to invite foreign investments to its auto market. Tesla’s factory will be the first car plant in China that will be completely owned by a foreign entity.

The impact of the announcement on Tesla’s stock is expected to be seen later today, once the market opens on Monday.