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Tesla plans US$2-B offering as Elon Musk seizes on stock surge

Tesla Inc is selling about US$2 billion of common stock, taking advantage of its surging shares just two weeks after Elon Musk said raising capital didn’t make sense.

Assuming underwriters exercise their option to purchase additional securities, the offering could bring in about US$2.3 billion in proceeds, Tesla said in a statement. That will help fund as much as US$3.5 billion in capital expenditures this year, a plan the company disclosed less than an hour earlier in a regulatory filing.

Tesla shares climbed as much as 3.8 per cent as of midday Thursday after analysts said the offering will both shore up the company’s balance sheet and support Musk’s plans for growth. The stock has more than tripled since the company released the first of two straight positive earnings reports in October.

Elon Musk, founder of Tesla Motors (Photo: inc.com)

The offering is a sudden turnabout for Musk, 48, who said during an earnings call two weeks ago that Tesla could fund itself without Wall Street’s help. The company had been spending sensibly and not holding back on expenditures in ways that would limit progress, he said.

“So, in light of that, it doesn’t make sense to raise money because we expect to generate cash despite this growth level,” Musk said January 29. Tesla will use proceeds from the offering to strengthen its balance sheet and for general corporate purposes. The expected trading date for the shares is said to be Friday.

But while the offering is “somewhat contrary to management’s recent commentary”, it’s also prudent, said Ben Kallo, an analyst at Robert W Baird. Some investors will argue the company should be raising more, he wrote in a report to clients.

“It’s the smart thing to do,” said Joe Osha, a JMP Securities analyst with the equivalent of a hold rating on Tesla. “This allows them to accelerate this pace of capacity they have planned, so it’s good news.”

“Some investors will argue [Tesla] should be raising more”

— Ben Kallo, analyst, Robert W Baird

The high end of Tesla’s 2020 expenditures projection, disclosed for the first time in its 10-K filing, represents a 164 per cent increase from 2019, when stingy spending helped conserve cash. Last year’s US$1.33-billion expenditures were well below its initial plan for as much as US$2.5 billion.

In the filing, Tesla disclosed that the US Securities and Exchange Commission closed its investigations into statements that Musk made in 2018 about taking the company private, as well as his prior predictions about Model 3 production rates.

But on December 4, the same day it closed those investigations, the SEC also issued a subpoena seeking information from Tesla “concerning certain financial data and contracts”, including regular financing arrangements.

A Tesla charging station (Photo: Bloomberg)

What Bloomberg Intelligence Says

“Tesla’s planned US$2-billion stock offering is a logical option to shore up the balance sheet considering the 200 per cent increase in market cap since October and negative beta in 2020. The company’s US$1.3 billion in capital expenditure in 2019 fell short of the US$2.5-billion guidance and a step up is needed to fund the roster of announced projects that have no facilities to house the production or target dates for launch.”

Tesla doesn’t report sales by region or breakdown of revenue by country until regulatory filings that follow its earnings reports. On Thursday, the company said revenue rose 70 per cent in China, 65 per cent in the Netherlands, and 48 per cent in Norway last year. But in the US — by far its largest market — revenue fell 15 per cent to US$12.65 billion.

— Bloomberg