Tesla this morning filed a registration statement to raise capital through the issuance of convertible notes worth up to $1.55B and a TSLA share sale of up to $739M.
The amount of the bond new capital is very close to the loss in cash position over the first quarter which saw the auto and energy products maker’s cash holdings drop to $2.2B.
The convertible notes are due in 2024. Tesla expects to receive net proceeds from this offering of “approximately $1.3 billion” or “approximately $1.5 billion” if the underwriters decide to go with the additional notes available.
As for the equity raise, Tesla is offering 2,723,198 to 3,131,677 shares:
“Concurrently with this offering, we are offering 2,723,198 shares of our common stock (or 3,131,677 shares if the underwriters’ option to purchase additional shares of common stock in such offering is exercised in full) in a public offering. This offering is not contingent upon the closing of the concurrent common stock offering and the concurrent common stock offering is not contingent upon the closing of this offering.”
Tesla CEO Elon Musk said he was in for $10 million totaling about 42,000 new shares of the 2.7M being issued. Musk hinted at the share raise during the conference call last week.
“I don’t think raising capital should be a substitute for making the company operate more effectively. I do think there is some merit to raising capital, but is sort of probably about the right timing.”
Tesla shares have been on the decline in recent weeks, falling to a 2+ year low this week in the mid 230s. Already this morning in pre-market trading, the stock is up over 4% or 10 points.
Last quarter’s earnings were worse than what the market expected. Tesla noted that it sold very few vehicles in the first two months of the quarter with most Model 3 inventory being shipped to Europe and Asia. Model S and X sales were also down ahead of the new motors and suspension announced last week.
During the last month of the quarter Tesla made some erratic decisions first announcing the closure of most of its retail operations to coincide with the $35,000 Model 3 launch. Then it changed prices across the board, took the $35,000 Model 3 “off the menu,” and reinstated most of its retail operations.
We’ve been saying for months (years?) that Tesla should issue another capital raise. If they had done so in the last half of last year, they could have done it from a much better position. The market’s reaction to today’s news shows however that it isn’t too late and will get Tesla the operating cash that it needs.
With this extra money, and it really isn’t that much in the grand scheme of things, Tesla should feel comfortable enough to keep prices stable and not resort to drastic moves like shutting down retail. TSLA Bulls have recently been making their case that the fundamentals of the company are sound.
Note: The author is currently long TSLA
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