Tesla Inc. plans to raise about $2 billion through debt and stock offerings, after CEO Elon Musk overestimated the ability of the Model 3 sedan to generate enough cash for the company to be self-sustaining.
The electric-car maker filed May 2 to sell $1.35 billion in notes and about $650 million in shares. Tesla stock, which has plunged 30% this year, surged as much as 5.9% in premarket trading, and its bonds rallied.
“We view this as a clear net positive for Tesla,” Wedbush Securities analyst Dan Ives said in a note. The electric-car maker needed to “take its medicine and clear the air of the very real investor worries.”
Tesla’s CEO said on several occasions last year that the manufacturer no longer would need to raise capital as its first mass-manufactured car ramped up. Musk changed his tune after the first quarter, when a record decline in vehicle deliveries and the company’s biggest-ever debt payment depleted its cash balance to a three-year low of $2.2 billion.
Musk will participate in the offering by buying as much as $10 million in stock. Tesla hired Goldman Sachs Group Inc., Citigroup Inc., Bank of America Corp., Deutsche Bank AG, Morgan Stanley, Credit Suisse Group AG, Societe Generale SA and Wells Fargo & Co. to underwrite the share offering, according to the filing.
Of course I’m told Goldman Sachs is leading the financing for Tesla. Expect an upgrade soon after their short clients cover. $tsla— Ross Gerber (@GerberKawasaki) May 2, 2019
It’s not yet known how many shares the banks plan to purchase. Tesla said the total proceeds of the offerings could be about $2.3 billion if underwriters fully exercise their option to purchase additional securities. The offering is expected to price after the market close.
Tesla’s 5.3% bonds due 2025 were the best performer in the high-yield market early May 2, rising more than 2 cents on the dollar to 88.063 cents, according to Trace.
After reporting a loss per share that was double what Wall Street expected, Musk sought to assure investors on Tesla’s April 24 earnings call that the company would return to profitability in the third quarter. He told analysts there was “merit to the idea of raising capital” to expand.
A raise of around $2 billion is in line with what several Tesla analysts were expecting. An infusion of that amount would get Tesla closer to a ratio of 15% of cash to sales, a historical level among traditional auto manufacturers and suppliers, according to Bloomberg analyst Joel Levington. Tesla has stayed at around half that level, he said.