Tesla announces $2 billion capital raise right after Elon Musk said ‘it doesn’t make sense’

Tesla is today announcing a new stock offering worth over $2 billion — just a few weeks after CEO Elon Musk shut down the idea, saying that “it doesn’t make sense.”

Of course, that was before Tesla’s stock jumped to over $700 per share.

During Tesla Q4 2019 earnings call last month, Musk was asked if it would make sense for Tesla to raise some capital with its higher stock price.

The CEO answered in the negative:

Well, we’re actually spending money as quickly as we can spend it sensibly. So if there’s any sensible way to spend money, we’re spending it. There is no artificial hold back on expenditures. Anything that I see that is what looks like it’s got good value for money, the answer is yes immediately. But we’re 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.

However, just a few weeks later, Tesla is now announcing a new stock offering of 2.65 million shares, which would help Tesla raise over $2 billion.

In a filing with the SEC, Tesla says that it plans to use the proceed to “further strengthen our balance sheet” and for “general corporate purposes”:

We intend to use the net proceeds from this common stock offering to further strengthen our balance sheet, as well as for general corporate purposes. Pending use of the proceeds as described above, we intend to invest the proceeds in highly liquid cash equivalents or United States government securities.

Tesla expects the net proceeds from the stock offering to vary between $2 billion and $2.31 billion:

We expect to receive net proceeds from this offering of approximately $2.01 billion (or approximately $2.31 billion if the underwriters exercise their option to purchase additional shares in full) after deducting the underwriting discounts and our estimated offering expenses. The estimated net proceeds are based on the assumed public offering price of $767.29 per share, which was the last reported sale price of our common stock on February 12, 2020.

Both CEO Elon Musk and board member Larry Ellison said that they plan to buy shares as part of the offering — about $10 million and $1 million worth, respectively.

Here’s the filing in full:

[scribd id=446896633 key=key-qRosBIYFiWYY7zPbyXtz mode=scroll]

Electrek’s Take

I guess Elon changed his mind quickly after the stock surge following the quarterly earnings.

Even though he said that they are spending money as fast as they can and there’s no point in getting more since they are cash-flow positive and sitting on about $6.3 billion in cash, he couldn’t resist, with the stock at over $700 per share.

However, the market doesn’t like the dilution, with the stock being down almost 5% in pre-market trading.

When Tesla raised money in the past, it was generally linked to a massive project like Gigafactory 1 or bringing the Model 3 to production. Investors liked those capital raises because even though they brought dilution, they also enabled growth.

Now that Tesla is raising money just for its balance sheet, it’s not the same thing.

What do you think? Let us know in the comment section below.