Tesla gets preferential rates on US$1.61 billion of loans from Chinese banks as Shanghai plant prepares to roll out Model 3 electric cars next week

Elon Musk has secured the financial backing of four Chinese state-controlled banks for Tesla's first offshore assembly, giving the US carmaker access to loans at cheaper-than-market rates to complete a cornerstone investment in Shanghai’s new economic zone.

Tesla will get up to 11.25 billion yuan (US$1.61 billion) in financing from China Construction Bank, Industrial and Commercial Bank of China, Agricultural Bank of China and Shanghai Pudong Development Bank at “preferential rates,” according to a banker involved in the deal.

The loan is ahead of a key milestone as Tesla starts delivering China-built cars on Monday, giving it a spot in the world’s biggest market for electric cars, according to a Bloomberg report on Friday. The first 15 units of Model 3 cars assembled at Lingang near Shanghai will be for its employees, a company representative said by phone.

The new loan package comprises a 9 billion yuan secured loan and 2.25 billion yuan unsecured revolving loan, according to a Tesla’s US exchange filing on Thursday. Part of the loan will be used to repay a 3.5 billion yuan loan due in March next year.

The 9 billion yuan loan carries an annualised interest rate of 0.7625 percentage point lower than the market-quoted rate published by the People’s Bank of China, while the revolving loan costs 0.425 percentage point below the market rate. The central bank’s guided one-year lending rate is about 5 per cent.

China is showering Tesla with favours as the Asian nation identifies the new energy sector as one of the 10 key industries for self-sufficiency and challenge for global leadership under its “Made in China 2025” economic blueprint. The factory is a bright spot in a year marked by souring ties as the US and China imposed higher tariffs on exports.