Tesla Reduces Uncertainty Raising $500 Million in Stock Sale

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Elon Musk
Tesla CEO Elon Musk. Photographer: David Paul Morris/Bloomberg

The decision by Tesla Motors Inc. to sell more shares and raise $500 million gives Elon Musk’s electric-car company a little more breathing room until it can efficiently produce its Model X sport utility vehicle.

“This takes away the bear argument that Tesla doesn’t have enough cash,” Ben Kallo, an analyst with Robert W. Baird & Co., said in an interview Thursday. “And having Elon buy on the deal, as he’s done in the past, shows his confidence going forward. It takes uncertainty off the table, and you’re seeing the stock trade up a bit today as a result.”

Tesla rose 1.8 percent Thursday to $242.51. The stock has gained 9 percent this year through Wednesday.

The smallest and youngest publicly held U.S. automaker faces huge capital expenditures as it expands globally and triples its vehicle lineup. During an earnings call with analysts last week, Musk said the company may raise equity capital “as a risk-reduction measure.”

Tesla said in a regulatory filing Thursday that 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.

Musk Buying

Musk, the chief executive officer, whose 22 percent stake in Tesla makes him the company’s largest shareholder, intends to purchase $20 million of common stock at the public offering price.

Tesla shares slid 16 percent through Wednesday after 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.

Thursday’s filing to sell 2.1 million shares represents the fourth time Tesla has sold common stock since it June 2010 initial public offering, when it raised $226 million in 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.

‘Staggering Amounts’

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.

Deliveries of the Model X are set for late September and the Model 3 in late 2017.

‘Not Done’

“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.

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. The Palo Alto, California-based company has a market valuation of more than $30 billion.

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