Tesla shows rare modesty with $5 bn share sale
The share sale is also being structured as a so-called at-the-market transaction, which means the 10 investment banks involved can sell shares at their discretion
NEW YORK: Elon Musk is not known for being humble. Tesla’s chief executive routinely makes grand promises about the $464 billion electric-car maker’s technological prowess and pace of manufacturing, and is often found wanting. But Musk is showing some modesty in his capital-markets ambitions, at least for now.
Tesla on Tuesday said that it intends to sell up to $5 billion of new shares. If consummated, that’ll equate to just 1% of outstanding stock, less than half the dilution of several past deals, even though it will also be more than the company has ever raised in one shot. That math is the result of an eye-watering near-sixfold increase in the company’s market capitalization this year, with the most recent boost coming from a stock split.
The share sale is also being structured as a so-called at-the-market transaction, which means the 10 investment banks involved can sell shares at their discretion. That’s indicative of how much more relaxed Musk and his team can afford to be: Sometimes in the past, Tesla needed cash with absolute certainty, making the more traditional, underwritten secondary offering more appealing.
Given Tesla’s valuation, Musk could easily aim to raise more. And it’s possible he should. The planned share sale will only just tip the firm’s balance sheet into a net-cash position.
Sure, the company managed to post a surprise second-quarter profit, despite lockdowns which kept its Fremont, California factory closed and made people wary of making big purchases. But free cash flow more than halved to $418 million from a record in last year’s fourth quarter. And further waves of the pandemic could make car sales more erratic than usual.
Tesla also has plenty of projects to fund, from its Semi to its Cybertruck to its solar-panel and storage business. Musk could rely on cash continuing to flow in. But he also has bigger ambitions for Tesla in reducing global carbon emissions. Investors might want Musk to focus on the existing business. But Tesla’s rocketing share price has given him the means to make big bets elsewhere, if he chooses.
Source: reuters
