In a bid to beef up Tesla’s balance sheet and capitalize on huge stock gains this year, the company plans to raise up to $5 billion in a new stock offering.
Dec. 9, 2020
On Tuesday, Tesla (NASDAQ: TSLA) announced in a regulatory filing that it would issue up to 7.8 million new shares based on Monday’s closing stock price, bringing the total number of floated shares to around 955.6 million. This sale is expected to raise up to $5 billion, less than 1% of the company’s value, and is the second time in three months that Tesla has raised money by issuing new shares.
The firm plans to use the offerings to strengthen its balance sheet by way of investing cash equivalents, U.S. securities, and bonds. Tesla also confirmed in the filing with the Securities and Exchange Commission that the new shares will be sold at market prices ‘from time to time’ giving the company more flexibility with the pricings.
Tesla’s global expansion
The capital raise comes at a very important time for the company as it plans to spend $2.5 billion over the next two years on factories in Germany and Texas, as well as on new vehicles and battery production. As building new plants is very capital intensive for auto manufactures, Tesla warned investors of the upcoming spending back in October.
Tesla’s CEO Elon Musk explained his ideas for the proposed spending during the company’s third-quarter earnings call in October, stating: “we’re trying to spend money at the fastest rate that we can possibly spend it and not waste it.” During the call, Tesla also reported a 33% jump in operating expenses to $1.25 billion for the third quarter.
Analysts stated that the capital raise is a clear positive for the company and further strengthens the bull case for Tesla. By raising enough capital to get the balance sheet in order and capital structure in place to build up its growing cash position, Tesla is slowly getting out of the debt situation that has long been the basis for any bear case made against the company.
Following the news, Tesla shares hit a record high on Tuesday, closing at $649.88, and bringing its total gains in 2020 to 670%. The jump was driven mainly by the announcement of its inclusion in the S&P 500, beginning December 21st. Since the news broke, shares are up more than 57% as Tesla’s debut will represent the largest addition to the market index in history.
All eyes on Tesla
The California-based company’s market capitalization currently sits at $616 billion, further solidifying its position as the most valuable auto company in the world. Tesla is now nearly three times more valuable than the world’s second-most profitable automaker, Toyota.
Now that Tesla is turning profitability and has new factories on the horizon, it seems the sky’s the limit for Musk.
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