US electric vehicle manufacturer, Tesla, is aiming to take advantage of the recent rally in its stocks by offering up to $2 billion worth of common stocks. The move comes just two weeks after CEO Elon Musk promised not to take advantage of the surge to raise additional capital.
Following the common stock offering announcement, Tesla's stock prices dropped by as much as 6 percent in premarket trading. The initial reaction was later corrected, with the stock climbing by more than 4.8 percent.
The recovery was mainly fueled by analysts and investors' predictions that the added capital would fuel the company's expansion plans. Tesla's stock prices hit an intraday high of $818 per share on Thursday before closing at $804 per share.
Musk will reportedly be buying up to $10 million worth of the stocks that will be offered, while Tesla board member Larry Ellison will buy up to $1 million. Around 2.65 million Tesla shares will be made available to interested investors through Morgan Stanley and Goldman Sachs. The overall gross proceeds from the released shares are expected to reach $2.3 billion, not including discounts and expenses.
According to Tesla, the proceeds from the common stock offering will be used to strengthen its balance sheet and for other general corporate purposes. Analyst has stated that the decision to offer more stocks at the current price point was the smart thing to do as it essentially erases the possibility of a cash crunch in the short-term.
Over the past few months, Tesla's stocks have rallied to unprecedented heights, fueled by the company's massive steps in expanding its operations. Late last year, Tesla's announcement of the near completion of its new Gigafactory in China boosted its stocks further up. In the past three months, Tesla's stock prices have climbed by more than 120 percent, reaching a peak of $968.99 per share.
On the other side of the spectrum, some analysts have raised concerns that the recent rally has become a speculative bubble that is no longer driven by solid fundamentals. Tesla's decision to sell more shares could put further strain on that bubble, which may end up blowing up in the faces of investors.
Analysts have argued that the selling of additional shares did not make sense as the company's balance sheets are already strong. Warren Buffett's parent Charlie Munger expressed the same sentiment and added that it didn't make sense for investors to buy the stock at such an elevated rate. Although Munger did clarify that he would not sell the stock short either as Musk has proven time and time again that his decisions may not make sense at first but they more often than not turn out to be right.
