Tesla filed for an offering of common stock and convertible notes and indicated that it would raise to 2 billion dollars. $650 million are to come in the form of new equity and the other $1.35 billion in convertible notes. Also, Elon Musk will acquire $10 million in shares.
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News of the CEO buying into the new offering send the Tesla shares up. Elon Musk’s $10 million purchase will give him 41,896 additional stakes of the company. Moreover, Tesla’s filings indicate that mayor funds such as Goldman Sachs, Bank of America, Societe Generale, Citigroup, Deutsche Bank, Morgan Stanley, Credit Suisse, and Wells Fargo are underwriting the offering.
In a press release that accompanied the offer, Tesla writes that the company wants to use the net proceeds “to further strengthen its balance sheet, as well as for general corporate purposes”. The latter can possibly be the losses Tesla just reported for Q1. The amount of the bond new capital is close to the said loss in cash position that dropped to $2.2 billion. Tesla attributes the losses to the fact that Q1 pricing actions on the Model S and X incurred a net $121 million loss, also due to higher return rates. Another $67 million went into a combination of restructuring and other non-recurring charges. Moreover, Tesla had to shoulder a $920 million convertible bond repayment in the last quarter and said vehicle deliveries had also been pushed to Q2.
More so, Tesla has not raised fresh capital since 2017 in advance for the Model 3 and again in 2018. The latter incidence was more of a freeing up of bonds worth 546 Million dollars (we reported).
New money or a stable capital income is needed as the electric car maker continues to invest in building up not only production capacity but to do so more effectively. The Model 3 is considered the first step of a platform which Tesla plans to “cost-effectively and quickly replicate across geographies and vehicle types,” states the earnings report. In concrete terms, this means the upcoming Model Y and of course the Gigafactory 3 in Shanghai where Tesla expects to “build a second-generation Model 3 line in China that we expect will be at least 50% cheaper per unit of capacity than our Model 3-related lines in Fremont and at Gigafactory 1”.
Update 5 May 2019: Tesla has set records since the news broke on Friday. The actual offering managed to raise 2.7 billion dollars of fresh capital. Tesla CEO Elon Musk also doubled his initial commitment for buying shares and will now buy stock worth up to $25 million, the company said.
Update 9 May 2019: Tesla has now completed its 2.7 billion U.S. dollar capital increase announced last week. According to a statement to the U.S. Securities and Exchange Commission (SEC), the amount consists of $860 million through the issuance of new shares and $1.84 billion in convertible bonds.