Tesla Model 3
Tesla CEO Elon Musk announced on March 15 that the company will move forward to raise approximately $1.15 billion in order to "play it safe" as the electric automaker forges toward Model 3 production.
Elon Musk didn't anticipate another capital raise this soon, but with Model 3 production nearing, Tesla has opted to "play it safe."
SEC filings show that Tesla will sell about 1 million stock shares, worth around $250 million. The company will also offer a minimum of $750 million in convertible notes, which will come due in 2022. Musk plans to purchase $25 million of the new shares himself. Tesla reported that the funds will:
"Strengthen our balance sheet and further reduce any risks associated with the rapid scaling of our business due to the launch of Model 3, as well as for general corporate purposes."
This is not the first time that Tesla sought additional funding for the Model 3.
Musk sold $600 million worth of his personal holdings back in May 2016, as part of a previous stock sale that amounted to $2 billion. Another sale was expected around the time of the SolarCity deal, or prior to Model 3 production. Back in October, Musk said that he didn't think either would be necessary, but at this point, with the Model 3 looming (and unexpectedly on schedule ... perhaps?), apparently Tesla has reconsidered.
While there has been some expected fluctuation, Tesla shares have gained 20 percent since the opening of 2017. The company anticipates about $2.5 billion in capital expenditures through the end of this year. Barclay's analyst, Brian Johnson, predicted that Tesla would initiate a $2.5 billion capital raise during the first quarter of 2017, so the company may be in better shape than expected. He shared:
“If anything, we would not be surprised to see a $2.5 billion raise instead of the $1.5 billion equity raise currently reflected in our model. This likelihood of a substantial cushion, which given our price target, we have to admit would be at a non-dilutive price, is likely to support the stock for the short term… and indeed, Tesla stock has frequently outperformed post offerings.”
Just before Musk announced the new capital raise, he was in Detroit, meeting with Trump, and other automotive industry leaders, to discuss the new administration's position on the EPA's corporate average fuel economy (CAFE) guidelines. Tesla will have to act swiftly, and assure that all obstacles are addressed in advance, in order to assure that as many of its vehicles as possible still qualify for the $7,500 federal rebate.