Tesla announced on Thursday, February 13, 2020, that it would offer $2 billion of common stock, a move that came just two weeks after Elon Musk told investors the carmaker had no plans to raise more capital.
According to the filing, Tesla will sell 2.65 million shares, with Goldman Sachs and Morgan Stanley as underwriters, and expects gross proceeds of about $2.3 billion before expenses. Underwriters have a 30-day option to purchase another $300 million of stock.
Musk is taking as much as $10 million of the offering, and board member Larry Ellison is putting in up to $1 million. The company stated that it plans to use the proceeds “to further strengthen its balance sheet, as well as for general corporate purposes.”
The market’s initial reaction was a flinch. Tesla shares fell as much as 6% in premarket trading before reversing course to climb 4.8%, closing at $804.00 after touching an intraday high of $818. The reversal came as analysts framed the raise as a way to shore up the balance sheet and fund expansion.
The wider market context is a stock on a tear. Tesla shares have climbed about 120% over the past three months and 225% over six months, which is precisely the kind of run that made traders expect a share sale. Two weeks earlier, Musk had argued against it. “It doesn’t make sense to raise money because we expect to generate cash despite this growth level,” he said at the time.
The company has heavy spending ahead. Tesla has guided to around $3.5 billion in capital expenditure this year, tied to the earlier-than-expected delivery of the Model Y, higher output at Gigafactory Shanghai and construction of a new European factory in Berlin.
Analysts noted the timing was favorable. Wedbush’s Dan Ives called the move “smart, strategic,” one that removes any “doomsday scenario around cash crunch,” while New Street’s Pierre Ferragu described it as “unexpected but sensible.”
Sources
- Tesla offering $2 billion in common stock with Elon Musk buying
- Tesla shares (TSLA) slide amid $2 billion stock offering announcement
