Tesla (TSLA) announces $5 billion capital raise — taking advantage of stock price’s meteoric rise

Tesla (TSLA) today announced a $5 billion capital raise to take advantage of the stock price’s meteoric rise.

While Tesla CEO Elon Musk previously said that the company wasn’t interested in a new capital raise as it believed it was capable to finance its ambitious growth through its operations, it looks like they couldn’t resist following the stock price increase.

Tesla’s stock price has rose 500% in 2020 and the stock is now trading at close to $470 billion.

To take advantage of the situation, Tesla announced today a $5 billion capital raise:

On September 1, 2020, Tesla, Inc. (“Tesla”) entered into an equity distribution agreement (the “Equity Distribution Agreement”) with Goldman Sachs & Co. LLC, BofA Securities, Inc., Barclays Capital Inc., Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Morgan Stanley & Co. LLC, Credit Suisse Securities (USA) LLC, SG Americas Securities, LLC, Wells Fargo Securities, LLC and BNP Paribas Securities Corp., as sales agents (each, a “Sales Agent” and collectively, the “Sales Agents”), to sell shares of common stock, par value $0.001 per share, of Tesla (the “Common Stock”) having aggregate sales proceeds of up to $5.0 billion (the “Shares”), from time to time, through an “at-the-market” offering program (the “Offering”).

It’s Tesla’s second capital raise in 2020. The automaker raised $2 billion in February.

Like with the last capital raise, Tesla doesn’t specify any use of the proceed other than “strengthening the balance sheet”:

We currently intend to use the net proceeds from this 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.

As of the end of last quarter, Tesla had record cash and cash equivalents of $8.6 billion.

The sale of $5 billion new shares is going to put some pressure on the incredible run of Tesla’s stock price over the last month and it is already feeling the effect.

Tesla’s stock (TSLA) was up by as much as 7% in pre-market trading before the announcement and it went down to being up 1% following the announcement.

Electrek’s Take

I get that they want to take advantage of the stock price increase, but are they actually going to use it?

If they keep going for marginal quarterly profits, like Elon said they would, that money is just going to sit on the balance sheet.

Unless, they are expecting a big downturn, which is not impossible considering the situation around the world, then yes, it might be useful.

But otherwise, I prefer that a profitable company announces a specific use of the proceeds when announcing a new capital raise.

I wouldn’t mind if Tesla said that they are going to use the proceeds from the $5 billion worth of shares to quickly build a massive battery terrafactory to accelerate production.

That might still happen, but it doesn’t look like Tesla is willing to take a loss doing it anymore.

Either way, when Tesla announced the capital raise, it was trading at almost $500 billion – $5 billion was roughly a 1% dilution.

At $500 a share, it is 10 million shares, and 118 million TSLA shares traded hands yesterday alone.

You can see why Tesla didn’t think it would be too difficult to raise the money.