Tesla Defies Gravity With More Capital Being Raised

Cars and Drivers

Published: March 16, 2017 10:40 am

Last Updated: January 12, 2020 1:54 pm

When most companies announce a secondary offering of stock along with convertible senior notes, the share price drops. Tesla Inc. (NASDAQ: TSLA) is not most companies.

On Wednesday the company announced that it will offer $250 million in common stock and $750 million in convertible senior notes due in 2022 in concurrent underwritten public offerings. Combined with 30-day underwriters’ options for an additional 15% on both offerings, the total take rises to $1.15 billion. Tesla founder and CEO Elon Musk will purchase $25 million worth of the common stock offering.

Tesla stock traded up more than 2% Thursday morning, a sign that investors remain willing to support the company and its ambitious goals even as the costs to reach those goals rises.

The company said it intends to use net proceeds from the offerings “to strengthen its balance sheet and further reduce any risks associated with the rapid scaling of its business due to the launch of the Model 3,” in addition to using the proceeds for general corporate purposes.

No terms have been set for the convertible notes offering other than that the notes will be convertible either into shares or cash at terms yet to be determined. Tesla said it will “enter into convertible hedge transactions and warrant transactions to limit dilution of its common stock.”

Although Tesla posted larger-than-expected net losses in the fourth quarter and in the 2016 fiscal year, fourth-quarter revenues were higher and new order totals rose sharply. At the same time, CEO Musk said that the company was planning to invest $2.o billion to $2.5 billion in capital spending to prepare for production of the Model 3. With current assets totaling around $6.3 billion and current liabilities of about $5.8 billion, more cash was going to have to come from somewhere.

Tesla’s shares traded up about 2.1% at $261.20 Thursday morning, in a 52-week range of $178.19 to $287.39. The 12-month consensus price target is $246.63.

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