Tesla Inc. hopes to raise upwards of $2 billion from a secondary common stock offering on the NASDAQ Composite to bolster its balance sheet. The offering astounded Wall Street analysts who were previously told Tesla has no need for an immediate and massive cash infusion.
Tesla priced its secondary common stock offering at $767 on Friday and will sell 2.65 million shares at that price, which is a 4.6% discount to its Thursday close. Tesla announced its CEO, Elon Musk, will buy $10 million while Oracle Corporation co-founder, executive chairman and CTO Larry Ellison will purchase $1 million. Goldman Sachs and Morgan Stanley, the lead underwriters, have the option to buy an additional 397,500 shares.
Money from the offering will help fund Tesla's future investment plans, which include up to $3 billion of annual capital expenditures through 2022, believes Ben Kallo, technology analyst for Robert W. Baird & Co., an American multinational independent investment bank and financial service company.
"Importantly, we think the announcement could provide an opportunity for analysts to close out sell ratings and expect shares to trade up in the short term."
Tesla's offering "will be a bit of a shock to some given the company talked about no need to raise capital on its recent conference call," said analyst Dan Ives with private investment firm Wedbush Securities, Inc. Ives said the offering "rips the Band-Aid off and takes the doomsday cash crunch scenario some predicted down the road now off the table."
Analysts previously weren't expecting the offering to boost Tesla's capital since Musk two weeks ago said Tesla doesn't plan to or needs to raise any more capital -- which some analysts now doubt given the suddenness of this stock offering. Musk claims Tesla is spending its money efficiently and suggests raising funds (like this offering) will artificially limit the company's progress.
"It doesn't make sense to raise money because we expect to generate cash despite this growth level," claims Musk. "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."
Garrett Nelson, an analyst with CFRA Research, an investment research firm based in New York City, said they're not surprised by the capital raise considering Tesla's ambitious growth plans, including a new factory in Germany and a possible factory in Texas.
