Musk eats his words as Tesla sells US$2 billion of stock


“It doesn’t make sense to raise money because we expect to generate cash despite this growth level,” Tesla CEO Elon Musk said two weeks ago with the electric vehicle and solar power manufacturer having US$6.3 billion of cash and equivalents on its balance sheet at the end of December.

Overnight Tesla announced it will sell up to US$2.3 billion of common stock in a new public offering, taking advantage of the astronomical jump in its share price.

The California-based company’s shares are now valued about three times as much as the last time the company raised money in May last year. A higher share price means that Tesla can boost its bank balance and not give away as much of the company to new shareholders. Elon Musk and director, the billionaire Oracle founder Larry Ellison, have stated their “preliminary interest” in purchasing $US10 million and $US1 million of the stock respectively.

With this latest funding round, the company’s cash position would be at its highest in the company’s history at around US$8 billion and there is a lot already announced that needs funding.

Tesla has begun manufacturing the Model 3 at its factory in Shanghai, China, with investment needed to make the compact SUV. Tesla has also announced plans to build on the outskirts of Berlin, Germany, with a factory to open in July 2021.

Tesla, Model Y, Elon Musk

Tesla’s Model Y is about to enter production fully, followed by the Semi later this year. The Cybertruck is scheduled to go on sale in late 2021.

“It (the stock issue) shouldn’t be that surprising, though. Tesla’s stock has gone parabolic. Just six months ago, a US$2.3 billion equity raise would have diluted shareholders by almost 6%; at today’s price, it’s just 1.6%. Investors may as well be begging the company to sell more equity (Musk’s compensation package encourages this too),” wrote Liam Denning on Bloomberg Opinion.

“Tesla is doing the sensible thing by giving the punters what they want and shoring up its balance sheet. And yet, alongside the stalled growth in revenue, losses and capex-budget boomerang, doing the sensible thing also happens to undercut the price-boosting narrative that Tesla has turned the corner on self-funding. Even if companies can sell equity cheaply, they tend not to do so unless they think they need the money.”

The company’s shares rose 4.72% on the stock issue news, taking the share price to US$803.41.

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