Tesla Files For $2 Billion Shares Sale
$1.4 billion of the total amount will be used to in the production of the Model 3by Kirby Garlitos, on
Tesla Motors Inc. has announced plans to sell $2 billion in shares of its common stock to help fund for an incoming rush in expenses brought about by the upcoming production of the Model 3. Of that amount, $1.4 billion in stock shares will be used to fund the production of the Model 3 with the remaining shares sale being used to cover tax obligations on stock options that CEO Elon Musk is exercising.
A total of 6.8 million shares are expected to offered, although that amount could balloon to 8.24 million shares if the underwriters, led by Goldman Sachs and Morgan Stanley, exercise an option to buy additional stock from the automaker. For his part, Musk is looking to sell 2.78 million shares.
The decision to sell these shares was expected and it was only a matter of “when” Tesla would do it as opposed to “if” it’s going to do it. Turns out, the California-based electric car maker opted to strike early in anticipation of the launch of the Model 3 sedan. Tesla’s newest model is already a hit despite the fact that the car has yet to go on sale. According to Tesla, it already has 373,000 pre-orders for the car, a number that exceeded even the company’s own expectations. That amount already strikes off 8,000 orders that have been cancelled and 4,200 reservations that were determined to be duplicate orders from eager customers.
The incredible interest behind the Model 3 has already prompted Tesla to accelerate its 500,000-unit build target to 2018, two years earlier than its previous goal of 2020. But that accelerated plan also comes with accelerated spending, and Tesla is gearing up for that with the shares sale. It’s not just the production of the Model 3 that Tesla is thinking about. Related to that is the ramping up of its battery factory in Reno, Nevada to help accommodate the rush of production models it plans to built. The company also said that part of the spending will be used in expanding sales and service globally and adding more charging stations for use by customers.
Not surprisingly, news of Tesla’s impending shares sale saw the company’s stock close at $211.17 on Wednesday, May 18, 2016. As of 10 am ET, the company’s stock price sits at $212.21.
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Why it matters
Considering how much pressure Tesla in under to meet the expectations it has set for the Model 3, I’m actually surprised that it didn’t announce this shares sale much sooner. But it did come at the right time for the company because it’s going to be doing a lot of spending as production for the Model 3 approaches. It needed to raise some money, or at least some combination of equity and debt to also align the cash it’s going to have on hand.
The decision to open the shares sale isn’t a question of whether the company should have done it; the question is whether people should buy Tesla’s stock if they can afford it. I’m not going to pretend to be an expert in this department, but according to Bloomberg, Goldman Sachs analyst Patrick Archambault upgraded the stock to "buy" from "neutral" in a report just before the Tesla offering. I’m guessing that’s a good indicator that now’s a good time to jump in on the Tesla bandwagon.
From a purely production stand point, Tesla needs to make sure that it’s going to put the money it raises to good use. The surge in demand for the Model 3 has also raised questions on whether the company can deliver the car in a timely manner. It doesn’t help that Tesla has a long history of production delays so the pressure’s definitely going to be on the company to live up to its promise this time. The proceeds from the shares sale should help in that regard, although in the world of automotive big league business, nothing can be considered set in stone until the cars are ready to be delivered.
Read our full review on the Tesla Model 3 here.
Source: Automotive News