Tesla Motors Inc., the maker of luxury electric cars, filed to offer 2.1 million shares to raise about $500 million to expand the business beyond the addition of a sport utility vehicle next month.
The company said the proceeds, which may reach $566.5 million if underwriters fully exercise their option to purchase additional shares, will be used to expand the company’s retail operations, charging network and energy-storage business as well as to develop the world’s largest battery factory and a more-affordable electric car called the Model 3, according to a filing with the Securities and Exchange Commission.
“They are raising capital to fund growth, which is a good thing,” said Dan Dolev, an analyst with Jefferies LLC.
The offering gives a bit more of a cash cushion to the smallest and youngest publicly held U.S. automaker, which faces huge capital expenditures to expand globally and triple its vehicle lineup. Chief Executive Officer Elon Musk said last week that the company may raise equity capital “as a risk-reduction measure.” Tesla stock rose 1.3 percent to $241.20 at 9:49 a.m. New York time.
The shares slid 16 percent through Wednesday since closing at $282.26 on July 20, the first trading day after announcing a “Ludicrous Mode” option that could take a Model S sedan from zero to 60 miles (97 kilometers) per hour in 2.8 seconds. Musk introduced the brand’s first sales incentive on July 29 and on Aug. 5 said that deliveries may fall 10 percent short of the original goal if suppliers can’t deliver needed parts in time.
Musk, the company’s largest shareholder, indicated he may buy as many as 83,974 shares in the offering at a price of $20 million, according to the filing.
Tesla raised $226 million in its June 2010 initial public offering, the first IPO for a U.S. automaker in a half century. In May 2013, the company raised $1.08 billion in equity and debt offerings, a move that allowed it to repay its $465 million Energy Department loan nine years ahead of schedule. In February 2014, Tesla borrowed $2.3 billion more in convertible debt to help finance the so-called gigafactory that it’s building near Reno, Nevada. In June, Tesla obtained a credit line of as much as $750 million.
Musk has been candid about Tesla’s capital expenditures and lack of profitability. Increasing battery production and developing new models will require billions in investments and delay consistent profitability.
During an auto-industry event in January, Musk said the company might become profitable on a net basis by 2020, when annual sales reach 500,000.
During the fourth quarter earnings call in February, Musk warned that Tesla is “going to spend staggering amounts of money on CapEx.” After the first-quarter earnings release in May, Tesla said it had $1.51 billion in cash and cash equivalents as of March 31, down from $1.91 billion three months earlier and down from $2.6 billion a year earlier, prompting analyst Adam Jonas of Morgan Stanley to characterize Tesla’s cash burn as “eye watering.” Tesla reported cash and equivalents of $1.15 billion at the end of the second quarter.
While net income remains years away, Chief Financial Officer Deepak Ahuja said the company will become free cash-flow positive, probably near the end of this year and “certainly” by the first quarter of 2016 as production of the Model X SUV accelerates.
“Clearly they are not done raising capital. It’s just $500 million, and they’ll need more to bring the Model 3 to market,” Andrea James, an analyst with Dougherty & Co., said in an interview Thursday. “But this gets them through to free cash-flow positive in” the fourth quarter.
Underwriters for the latest offering are Goldman Sachs Group Inc., Morgan Stanley, JPMorgan Chase & Co., Deutsche Bank AG, Bank of America Corp. and Wells Fargo & Co., according to the filing.
The stock rose 7.1 percent this year through Wednesday, outpacing the 1.7 percent gain by the Russell 1000 Index. The Palo Alto, California-based company has a market valuation of more than $30 billion.
Tesla had 127.1 million shares outstanding as of June 30, according to the filing Thursday. The proposed offering would increase that by 1.7 percent.