September 18, 2020

Tesla is going back to the markets to raise more than $2 billion through stock offering

Tesla said Thursday it plans to raise more than $2 billion through a common stock offering and will use the funds to strengthen its balance sheet and for general corporate purposes, despite signaling just two weeks ago that it would not seek to raise more cash.
Tesla CEO Elon Musk will purchase up to $10 million in shares in the offering, while Oracle co-founder and Tesla board member Larry Ellison will buy up to $1 million worth of Tesla shares, according to the securities filing.
The automaker has also granted underwriters a 30-day option to purchase up to $300 million of additional common stock. If underwriters exercise that option, Tesla could raise as much as $2.3 billion.
The stock offering conflicts with statements Musk and CFO Zach Kirkhorn made last month during Tesla’s fourth-quarter earnings call. An institutional investor asked that given the recent run in the share price, why not raise capital now and substantially accelerate the growth in production? At the time, Musk said the company was spending money sensibly and that there is no “artificial hold back on expenditures.”
“We’re spending money I think efficiently and we’re not artificially limiting our progress,” Musk said dueing the January 29 call. “And then despite all that we are still generating positive cash. So in light of that, it doesn’t make sense to raise money because we expect to generate cash despite this growth level.”
Kirkhorn added to Musk’s comments noting that the company had laid a good foundation and was not holding back on growth.
“We have two products, two vehicle products launching right now and that will consume much of the bandwidth of the company to stabilize those over the course of the year,” Kirkhorn said. “And then looking into next year, we have even more products launching, more factories. So we want to be smart about how we spend money and grow in a way that’s sustainable. So we don’t fall victim to the mistakes I think we made a year and a half or so ago.”
However, Tesla shares have risen more than 35% since the January 29 earnings call, perhaps proving too tempting of an opportunity to ignore.
This latest stock raise could prove critical to fund Tesla’s number of projects. A regulatory filing posted prior to the stock offering notice indicates Tesla’s capital expenditures could reach as high as $3.5 billion this year.
“Considering the expected pace of the manufacturing ramps for our products, construction and expansion of our factories, and pipeline of announced projects under development, and consistent with our current strategy of using partners to manufacture battery cells, as well as considering all other infrastructure growth, we currently expect our average annual capital expenditures in 2020 and the two succeeding fiscal years to be $2.5 billion to $3.5 billion,” Tesla said in its 10K filing, which was posted Thursday.

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