Electric Automaker Tesla to Raise $2 Billion by Issuing New Shares
Electric automaker Tesla continues its rapid rise, becoming the most valuable U.S. automaker by a wide margin, after its stock price more than doubled since the start of the new year. Now the California company plans to raise another $2 billion by issuing new shares of stock.
Tesla said it would offer 2.65 million shares new shares.
Of that amount, Elon Musk, Tesla's CEO, will purchase up to $10 million of common stock. In addition, board member Larry Ellison, the co-founder of Oracle, will purchase up to $1 million in Tesla shares.
Tesla's shares were down roughly 1% in morning trading hovering around $804 after slipping as much as 7% in premarket trading. The stock has tripled since October after the company posted an unexpected third quarter profit bolstered by high demand for the Model 3.
In just under eight years since launching the Model S, Tesla's market capitalization now exceeds that of U.S. automakers General Motors Co and Ford Motor Co combined, two companies with over 100-year histories. Tesla was founded in July, 2003 as a niche EV startup producing the electric Roadster.
The issuance of new shares comes as a surprise. Just two weeks ago, Musk said that Tesla would not need to raise more money. During an earning call on Jan 29, Musk has repeatedly assured investors that Tesla will not need to raise capital for costly initiatives including production of a new vehicle model, the ramp-up of its China production and the construction of its first European factory.
"It doesn't make sense to raise money," Musk said during the call, responding to an investor who asked why Tesla isn't taking advantage of its skyrocketing share price to accelerate production. Musk said the company would generate enough cash on its own to fund ambitious expansion plans.
"Diluting the company to pay down debt doesn't sound like a wise move," Musk said on the same call.
Musk also said Tesla needed to produce more batteries to increase vehicle production, adding that some projects like its electric semi-truck program could not proceed without improvements in battery manufacturing.
Tesla builds batteries for its vehicles in a joint venture with Panasonic at its Nevada gigafactory. The factor also builds batteries for Tesla energy storage units.
The automaker is also working on an electric pickup truck called the Cybertruck, the next generation of the generation of the Tesla Roadster sports car, which was the company's first electric car.
Tesla, whose outstanding debt was $13.42 billion at the end of 2019, posted its second quarterly profit in a row in January and said it would comfortably make more than half a million cars in 2020, its highest number ever.
The electric automaker's profits were also boosted by strong demand for the company's first mass-market vehicle the Model 3, as well as the opening of its Shanghai factory, Tesla's first overseas factory.
The newly opened Shanghai gigafactory is building the Model 3, and eventually the Model Y crossover for the China market. Construction was completed in just 9 months and deliveries of the first China-made Models 3's began last month.
Tesla said it plans to use proceeds from the new shares to strengthen its balance sheet and for general corporate purposes.
Regardless of the new shares, Tesla is in a strong position as it prepares to start deliveries of the second more affordable vehicle, the Model Y crossover. The Model Y is the company's first crossover model, which is a very popular vehicle category for U.S. consumers as traditional sedans fall out of favor.
Elon Musk predicts that the 315-mile range Model Y might outsell all of Tesla's other vehicles combined. Deliveries of the Long Range version are set to begin next month. It starts at $46,690. Deliveries of the more affordable Standard Range version are expected to begin early 2021.
Goldman Sachs and Morgan Stanley are the lead joint book-running managers. Barclays, BofA Securities, Citigroup, Credit Suisse, Deutsche Bank Securities and Wells Fargo are additional book-running managers.
The underwriters will get an option to buy up to $300 million in additional shares.
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