Tesla Launches $5 Billion Capital Raise As Investors Drive Up its Stock Price
2020 has already been a banner year for Tesla. With the launch of the new Model Y crossover in March and the automaker's stock surging over sixfold since January, the California company is now the world's most valuable automaker by far, with a market cap of over $450 billion. After a five to one stock split last Friday, which brought Tesla shares down to a more realistic $450 a share, it made Tesla stock a bit more accessible to new investors.
On Tuesday, electric automaker Tesla unveiled its biggest program of new share sales as a public company, seeking to cash in on soaring Wall Street interest in the electric carmaker to raise up to $5 billion, which would beef up Tesla's cash reserves for any future debts.
It's Tesla's first since its initial public offering a decade ago and comes just a day after the stock split took effect.
For Tesla the time is right for a share sale. Tesla said it plans to use proceeds from the offering to strengthen its balance sheet and for general corporate purposes.
The company is seeking to expand its production capacity, with new factories in the works in Germany and Austin, Texas. Tesla is working to introduce two new models, the electric semi truck and futuristic Cybertruck, which will require significant new investments.
On the other side of the world, Tesla's new Shanghai factory, its first overseas plant, started producing the Model 3 in December 2019 for the China market.
Craig Irwin, a Roth Capital Partners analyst who has the equivalent of a ‘hold' rating on the stock, on Tuesday said the capital raise did not come as a surprise, Reuters reported on Tuesday.
"They will need cash for all the facilities they are building, and new growth initiatives," Irwin said.
Ten major banks, including Goldman Sachs, Bank of America Securities, Citigroup Global Markets and Morgan Stanley, will conduct the sale. Tesla however gave no timeline for its completion.
David Whiston, an analyst at Morningstar Research, told Reuters it remained to be seen how much money Tesla will ultimately raise. The company had $8.6 billion in cash and cash equivalents at the end of June.
"I can understand them taking advantage of the stock's incredible run, but they don't need the money right now," Whiston said to Reuters.
In February, Tesla announced plans to raise $2 billion in a stock offering, back when its stock was trading between $800-900 a share.
Tesla shares rose about 8% in early premarket trading, but retreated to trade about 1% higher on the day after the news.
The company's soaring stock jumped an additional 70% since the split was announced on Aug. 11, and was once again trading over $2,000 before the stock split last Friday.
Tesla's stock performance has also propelled Chief Executive Officer Elon Musk's personal fortune past $100 billion, making him one of the world's wealthiest individuals.
Tesla meteoric rise has also prompted the world's legacy automakers to follow the company's lead in the EV segment or risk being left behind. Tesla's U.S. rivals General Motors and Ford Motor Co. are developing their own electric models for the first time. In addition, new electric models from European automakers BMW, Vokswagen, Audi, Porsche and Mercedes Benz are in development.
Musk has repeatedly assured investors over the past year that Tesla would not need to raise more money for its global expansion, the development of new vehicles, or to pay down debt. Tesla's stock performance over the past several months only bolsters Musk's assurances.
With all of Tesla's recent and rapid success, the company however is still dodged by quality problems, so there is still room for improvement as a car company. Now that rivals are introducing their own electric models, Tesla is facing serious competition for the first time in its ten year history.
In June, Tesla finished dead last of out 32 automakers in the annual JD Power Initial Quality Study. The annual study measures the problems drivers reported during the first 90 days of ownership.
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