(Reuters) – Tesla Inc launched issues of new shares and debt worth more than $2 billion on Thursday, with Chief Executive Officer Elon Musk pitching in $10 million as the electric carmaker gave in to Wall Street pressure to bolster its cash reserves.
FILE PHOTO: A visitor inspects a Tesla Model X electric vehicle at Brussels Motor Show, Belgium, January 18, 2019. REUTERS/Francois Lenoir
Analysts have been predicting for months that Tesla would need to raise funds for its expansion plans, which include the construction of a factory in Shanghai, the upcoming Model Y SUV, and the crucial ramp up of Model 3 sedan production.
Shares in the Silicon Valley company rose more than 5 percent on news of the capital raise plan, which follows Musk’s hint last week that a fund-raising was imminent after Tesla lost $700 million in the first quarter..
The company said in the filing that it would seek to raise $650 million in new shares and $1.35 billion in debt, with underwriters having the option to buy an additional 15 percent of each offering, potentially raising the proceeds to $2.3 billion.
“This was a smart move by Musk and Tesla to rip the band-aid off and go to the capital markets,” Dan Ives, an analyst with Wedbush Securities said in a note.
“The growing worries around capital were a black cloud over the stock on the heels of the company’s troubled March results and the choppy path ahead.”
In first-quarter results that disappointed many on Wall Street last week, Musk promised the company would deliver a profit again by the third quarter of this year, but the company’s huge investments mean it is leaking cash swiftly.
Tesla expects capital expenditures of $2 billion to $2.5 billion this year and about $2.5 billion to $3 billion annually for the next two fiscal years. It ended its first quarter with $2.2 billion in cash.
Analysts said last week that the company would probably seek between $1 billion and $3 billion dollars, and that it would cost significantly more than it would have a year ago, when some on Wall Street were already calling for a capital raise.
Tesla has raised funds through bank loans, several rounds of equity sales, issued convertible notes, a junk bond sale, securitization of its vehicle leases and solar asset-backed notes.
A previous issue of shares in 2017 went at $262 a share, compared to the company’s current price of $246. The yield on its existing $1.8 billion junk bond rose to 8.42 percent on Friday in anticipation of the new issuance, more than 3 percentage points above its 5.3 percent coupon.
Goldman Sachs and Citigroup will manage the offering. BofA Merrill Lynch, Deutsche Bank Securities, Morgan Stanley and Credit Suisse are the additional book-running managers.
Reporting by Supantha Mukherjee in Bengaluru; Editing by Saumyadeb Chakrabarty and Patrick Graham