Tesla Plans $2 Billion Stock Offering; Musk and Ellison to Purchase New Shares

Tesla founder Elon Musk will purchase around $10 million in new shares as the clean energy carmaker plans to raise $2 billion in fresh capital.
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Tesla Inc. (TSLA) - Get Report shares pared earlier declines Thursday after the carmaker said it will raise $2 billion in new common stock, less than two weeks after founder and CEO Elon Musk said it "didn't make sense" to raise money.

Tesla said it will use the cash to shore up its balance sheet, as well as for 'general corporate purposes". Tesla said Musk will take up around $10 million worth of stock from the sale, while Board member Larry Ellison will purchase $1 million. The underwriting team, lead by Goldman Sachs GS, will have the option to buy an additional $300 million in shares, Tesla said.

"The aggregate gross proceeds of the offering, assuming full exercise by the underwriters of their option to purchase additional securities, would be approximately $2.3 billion before discounts and expenses," Tesla said in a statement. "Tesla intends to use the net proceeds from the offering to further strengthen its balance sheet, as well as for general corporate purposes."  

Tesla shares were marked 5.5% higher in mid-day trading following news of the stock issue to change hands at $809.71 each.

Musk told investors on Tesla's Q4 earnings call on January 29 that Tesla was "spending money I think efficiently and we're not artificially limiting our progress. 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," he added. "Diluting the company to pay down debt doesn't sound like a wise move."

Tesla shares, however, rose from $567 to a record high $968.98 each following the group's fourth quarter earnings, which rose 10.9% from the same period last year to $2.06 per share, smashing the Street consensus forecast of $1.75. Group revenues also impressed, rising 2.1% to $7.38 billion and edged past analysts' estimates of a 7.05 billion tally.

Execution has been a major part of Tesla's recent surge, with the Palo Alto, California-based carmaker topping he lower end of Wall Street forecasts for 2019 deliveries with a full-year tally of 367,500 units, lead by the sale of 92,500 Model 3s over the three months ending in December.

"We are not surprised by the capital raise considering co.'s ambitious growth plans, including a new factory in Germany and possible factory in Texas, in light of the stock's run-up and the fact it issued equity last May at $243/share," said Garrett Nelson, senior equity analyst at CFRA Research, who carries a "sell" rating on Tesla stock. 

"Recent speed bumps including a coronavirus-related delay in vehicle deliveries from its new China factory and Model X recall likely factored into management's decision to proceed with the offering. Tesla also filed its 10-K today, in which it disclosed that it expects capex to average $2.5 billion to $3.5 billion annually in the 2020-22 period, up from prior guidance in its last 10-Q of $2.0 billion to $2.25  billion in the 2020-21 period, which should equate to weaker free cash flow than it has generated in recent quarters."