UPDATE: Tesla Stock Offering To Raise $500 Million, $20 Million From Musk Himself

Tesla

AUG 13 2015 BY JAY COLE 52

What to do if you need a little more money to finance your expansion plans?

If you are Tesla you simply announce the sale of 2.1 million more shares, worth some $500 million dollars, and you are good to go.   Perhaps trying to add some confidence behind the offering, the CEO himself – Elon Musk, will be picking up $20 million of that total.

UPDATE: Automotive News is reporting that some changes to the Tesla share offering have been made:

Electric automaker Tesla Motors Inc. said today it was looking to raise about $642.5 million through a share sale, above the $500 million it announced on Thursday.

The company said it would offer about 2.7 million shares at $242 per share, a slight discount to Thursday’s close of $242.51. The company’s shares were up 0.7 percent at $244.10 in premarket trading.

CEO Elon Musk will maintain his investment of $20 million in the offering, Tesla said.

The automaker said on Thursday it would sell 2.1 million shares.

Tesla Will Use Some Of The Money To Finance Upcoming Tesla Energy Products From New Gigafactory

Tesla Will Use Some Of The Money To Finance Upcoming Tesla Energy Products From New Gigafactory

Response from the market?  Shares naturally were up $6.25 (2.5%) in early action (real-time quote can be found here)

Tesla’s official filing details the use for the money as follows:

“Tesla intends to use the net proceeds from this offering to accelerate the growth of its business in the United States and internationally, including the growth of its stores, service centers, Supercharger network and the Tesla Energy business, and for the development and production of Model 3, the development of the Tesla Gigafactory, and other general corporate purposes.”

So basically, whatever it wants.

New shares are expected to be issued at Wednesday’s closing price of $238.17.

As for Musk, he is buying 84,000 shares at the close of business, increasing his net stake in the company. However, his new investment is actually about $92.5 million shy of maintaining the same percentage of the company he already owns.   At the end of last year the Tesla CEO owned 22.5% of the company.

“He may make better cars, but what Elon Musk really runs is Tesla the stock. This was a brilliant move to raise $500 million—enough for now—and buy his own stock on the deal. And not a token amount, $20 million. The deal will get done, the liquidity overhang erased—again for now—and the longs will live to play another day.”TheStreet’s Jim Cramer

So, for those wondering what Tesla would do to compensate for its cash burn today (and likely in the future), you have your answer.  Isn’t a $31 billion market cap grand?

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52 Comments on "UPDATE: Tesla Stock Offering To Raise $500 Million, $20 Million From Musk Himself"

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Three Electrics

This gains Tesla an extra quarter of cash at current trends. If those trends continue, look for another offering next year. If the market gets bearish at that point, look for a junk bond offering.

Mike777

One billion dollars in battery orders at the initial introduction of the battery.

There’s nothing to worry about.

See Through

Not if you spend two billion dollars to sell 1 billion worth of batteries. And that, if those orders are really real.

Pushmi-Pullyu

I note your frequency of Tesla-bashing FUD posts here are lately on the rise, “See Through”. Did the recent spike up in Tesla stock price slam you with yet another short squeeze? I certainly hope it did! Tesla supporters really appreciate all the money you “perma-shorters” have involuntarily given the company over the years. 😀

tftf

“what Tesla would do to compensate for its cash burn today (and likely in the future), you have your answer.”

At the moment, they burn $500m in just one quarter, this is only an interim solution.

Looking at the bigger picture:

May/June 2015: Company CFO says cash position is fine. Earlier in February 2015:

“We would have significant positive operating cash flow, obviously as our business, our volume gross and our gross margin continues to improve. We’ll also have some cash used on our direct leasing program. Our expectation is that we will establish shop via warehouse line for leasing cars and that will continue to grow and fund the big portion for leasing funding required. So overall, we feel pretty comfortable where we are in terms of our 2015 look from a cash flow perspective.”

Then:

June 2015: $500m + up to 250m raised (line of credit, $50 already used, lots of small print attached, Tesla pledged assets/collateral on that LOC)

August 2015: $500m + 75m equity offering

I still see a $1-3 bn offering coming within 6-18 months, this was just the appetizer.

tftf

“$50 already used” is of course “$50m already used”

Three Electrics

This article has a nice graph of free cash flow:
http://www.zerohedge.com/news/2015-08-13/tsla-confirms-cash-burn-fears-sells-500-million-stock

Tesla’s story has so far been that you can produce amazing products if, unlike all competitors, you are willing to lose money. In this respect they have evolved Amazon’s model, which is merely to grow without profit.

In one respect this is rational: profits are taxed at a higher rate than capital gains, so why produce profits? However, Tesla may take this game into uncharted territory with the Gigafactory. Specifically, I fear that they are willingly conflating capital expenses with gross margin. If the Gigafactory costs five billion to build and produces batteries for a million cars, that’s five thousand dollars per battery that doesn’t show up in the sticker price. It’s easy to lower battery costs if you hide them in capital expenditures.

tftf

Yes, that graph shows very well why I think today’s raise was just a small appetizer.

The CFO promised operating cash-flows for 2014, yet only Q1 2104 was in the green.

Besides, only about 10% of the massive $2 to 2.3bn capital raise in early 2014 was actually spent on the Gigafactory (GF):

Only $206m in TOTAL was spent on the GF until the end of Q2 2015!

That means 90% of the money will be spent on other items (considering they will only spend up to $190m in Q3 and Q4 combined on the GF and already raised more money!).

Mike777

Zero Hedge, right wing nut site, no info on what there building and booked orders, especially in the battery business.

Answering the question, why the right wing is incompetent at finance. When you completely ignore company info that’s positive, you can’t help but generate an incompetent financial picture.

tftf

Mike777, what is exactly wrong in the graph linked above?

Don’t attack the messenger because you don’t like the message.

As I have written, Tesla also announced raising $2 to 2.3bn back in early 2014 with Gigafactory in the headlines (as one of the primary purposes of the bond issues).

With cash rapidly melting, Tesla only spent about 10% on the battery factory – meanwhile cash on hand will be down to zero within 6 months at current burn rates.

Londo Bell

“When you completely ignore company info that’s positive”

So who’s providing those info?

From what I have seen, mostly from Tesla itself (regarding financials).

The only time I’ve seen a company that’s providing a negative outlook of itself, is when the company is about to go bankrupt. Otherwise, all company will usually spin on how good it really is in, despite all the data pointing to the opposite.

ffbj

Right, like the “Smartest guys in the room.”
Everything was just fine until it collapsed in a heap.
On the contrary Musk said he thought the stock price was too high at one point, and things aren’t going the way we expected. Stuff like that. It has not all been unicorns and rainbows from Tesla, though this seems be a common argument from detractors.

Pushmi-Pullyu
“Three Electrics” said: “I fear that they are willingly conflating capital expenses with gross margin. If the Gigafactory costs five billion to build and produces batteries for a million cars, that’s five thousand dollars per battery that doesn’t show up in the sticker price. It’s easy to lower battery costs if you hide them in capital expenditures.” I rather doubt Tesla’s executives or its accountants are that naive. I’m a long way from being a financial expert, but the overall picture seems pretty clear: Tesla is going to — in the words of Elon Musk — “spend staggering amounts of money” on capital expenditures to ramp up production (including building the Gigafactory) as a method of betting big on future growth. Is that risky? You betcha it is. At every step to date, Tesla’s ongoing policy of risk-taking has paid off, and paid off big. It paid off with the Roadster in establishing Tesla’s reputation and in kick-starting the modern EV revolution. And altho the Roadster program didn’t make an overall profit, it didn’t drive Tesla to bankruptcy either. Doubling down paid off big when Tesla moved to make its own mass produced car, which has turned out to be… Read more »
sven

“If the Gigafactory costs five billion to build and produces batteries for a million cars, that’s five thousand dollars per battery that doesn’t show up in the sticker price. It’s easy to lower battery costs if you hide them in capital expenditures.”

No, you have to divide the $5 billion cost of the Gagafactory by the number of batteries produced over its 30 to 40 year useful life, which should be an order of magnitude or two greater than 1 million batteries. It’s more like 30 or 40 million (1 million times 30 or 40 years).

Heisenberght

Smart move… Take all that dead and useless money and build something using it! Go go go!

pjwood1

Don’t get in the way of Tesla’s ability to raise cheap capital. “Told ya so”. 1, to 2% dilution, and rising share price, says it all. For now, and the medium-term future. The convertibles never hit their strike, and they could ping pong between .5bb in equity, to issues up to the last 2.0bb. The first challenge may be when the bonds need to be rolled over, in, what, 2019/20? GF production numbers should justify what was originally financed.

sven

How much, percentage wise, does this new stock offering dilute the outstanding shares of Tesla stock?

Josh Bryant

2%

Ocean Railroader
The James River and Kanawha Canal did this in the 1840’s and 1850’s when it became stressed for cash when to complete the hundred mile section between Lynchburg va Virginia and Covington VA. But what happened was the canal company raised six million dollars to built the 200 mile section between Richmond VA and Covington Va. But as they started building it they burned though the six million far faster then they expected. At the same time the canal should have had 11 million to build the canal instead of 6 million. At the same time this was going on the canal company was making a proposal to dig a nine mile tunnel under the Appalachian Mountains to the Ohio and Kanawha Rivers. So printed more stock but a lot of investors got very mad when their stock dropped in value due to them printing more of it. So they rebelled and stopped the company from printing more stock. this casued the 27 mile section of Canal being built to Covington to stop construction. As for how this relates to Tesla I really think the Tesla Model Three is starting to turn into Elon Musk’s Nine Mile Tunnel under the… Read more »
Robert Weekley

Ocean – “As for how this relates to Tesla I really think the Tesla Model Three is starting to turn into Elon Musk’s Nine Mile Tunnel under the Appalachian Mountains to the Ohio River.” – Maybe you are thinking of the issues, delays, and holds, on delivering the Model X?

The Model 3 – in various names was always planned to be after the Model S/X volume was built up – and to be built after they could get a solid production base built!
This required base includes – Supply Chains (Gigafactory, Injection Molders, Metal Supplies, Dies, Tires, Wheels, etc., etc.!); A Factory Space, and solid funding in place.

With the fist date on the Model 3 being 1st Presentation in March 2016, and 1st Cars by End of 2017 – I am not quite sure how the current cash burn is all against the Model 3, since there is still the Store Expansion, Supercharger Expansions (+ Destination Charging Locales), and many things to finalize on the Model X (Like – it’s Towing Capacity, Range Performance, and we haven’t even heard about the Crash Testing yet!).

Ocean Railroader

The Tesla Model X is becoming Tesla’s canal extension from Lynchburg to Bechman Virginia in that it took the canal company ten years to extend the canal 50 miles from Lynchburg to Bechman.

Anthony Fiti

The one difference is that Tesla can monetize the GF in sections – starting with the Tesla Energy battery packs. If the GF section 1 can start to produce batteries and packs in H1 2016, Tesla will be able to monetize that asset earlier than the late 2017 introduction of the Model 3. With a canal, you need the whole thing delivered to earn revenue. The GF is built in sections so you can effectively monetize each phase of construction.

By my estimates, batteries coming out of GF section 1 in H1 2016 will be around $200/kWh at the pack level. Tesla is selling them for $250/kWh, or a 20% GM. The 20% is lower than the car’s margin, but that’s OK in that Tesla is limited by their production line, and probably has a lot of must-buy contracts with Panasonic Japan to take the batteries those factories are producing. So until those must-buy clauses go away (2020?), the output of the GF is solely focused on energy storage and Model 3.

If the first phase can build about 5GWh/yr, that’s about 250M in gross profit annually.

Mike777

Exactly. Notice the “right wing” press is not even aware of the battery business for some strange reason. It doesn’t play into their failed mythology.

And Tesla isn’t even a liberal company, it’s building itself out in Red States.

Just don’t understand the right wing “mind”.

RexxSee

The right wing is Big Oil’s puppet.

tftf

With all the Model X delays, do some people really still believe in the official “late 2017” production start date for the Model 3?

Let’s be realistic, the Model 3 is most likely a 2018-2019 car.

TomArt

You’re a little late to that party. A number of us, since last year, have been predicting an actual Model 3 delivery to customers starting in Q2 or Q3 of 2018.

RexxSee

Model X actually was delayed by the huge success of Model S, providing all the necessary cash to take all their sweet time to make another hit with Model X

tftf

“…providing all the necessary cash to take all their sweet time to make another hit with Model X”

Sure.

That’s why Tesla raised $2-2.3bn back in early 2014, entered a line of credit with collaterals pledged at up to $750m in June 2015 and now a first equity dilution of about $650m.

The Model S provided no cash, it consumed cash. Only one quarter was CF-positive (Q1 2014) lately operationally.

Pushmi-Pullyu

tftf said:

“Let’s be realistic, the Model 3 is most likely a 2018-2019 car.”

A lot of people, including at least one or two of the InsideEVs contributors/editors, have said the same. So have I. It’s not exactly sticking our necks out very far to note that Tesla has had repeated delays on every one of its models, including the Roadster, and to predict that the Model ≡ will follow the established trend.

tftf

I mentioned the 2017 date because Anthy mentioned it above,

It amazes me some people still believe in it.

Of course the Model 3 will likely be late, it will most likely also cost (much) more than the promised $35k base price.

sven

“Response from the market? Shares naturally are up $6.25 (2.5%) in early action.”

Huh? Wouldn’t the shares naturally be down? Unlike a stock spit, the announcement of a dilutive stock offering offering usually causes the stock price to drop, since the outstanding shareholders will now own less of the company than before.

Heisenberght

…never underestimate the power of Elon! 😉

Sublime

It depends on how you look at it. If you think of Tesla as burning through money every quarter, by losing money on every car they make. Then that new $500m is just effectively going out the door and into the pockets of the car buyers who are buying a car for less than it costs to produce.
However, if you look at that $500m as going into building the Gigafactory which is an asset, then the company just grew proportionately to the amount the shares got devalued. Let’s say you own 1/4 of a pizza with your friends. More friends show up and they decide to order another pizza. That action doesn’t change the fact that you own 1/4 of the original pizza.

Michael

You have misunderstood. Tesla certainly not lose money on each car sold, its GM (Gross margin) is around 25% – i.e. of the sales price 25% is profit.

Where the misunderstanding comes is Tesla is financing a huge expansion for new models, and the only product being produced is the Model S. Therefore not enough cash is being generated to finance this expansion from the Model S alone.

Tesla can actually get out of this debt situation by selling more cars due to their 25% gross margin. In business, this GM is called a ‘contribution’ because this contributes to the fixed costs a company has.

Jonathan

Ok, so a company that is way overvalued already with a sky high P/E ratio, wants to sell even more shares, and the CEO who is worth billions, is going to invest $20M, which likely equates to less than 1% of his net worth? Why doesn’t this give me the warm fuzzies?

Mike777

“way overvalued” — It’s massive expansion is hiding a highly profitable company from view.

Jag sales have dropped 50% from 2013-2015.

George Bower

all the car companies burn thru cash and borrow money like there is no tomorrow. Why should Tesla be any different?

Pushmi-Pullyu

Tesla’s investors are different. The normal and logical reaction to stock dilution is that the stock price goes down. In Tesla’s case, a 2% dilution is followed by the stock price going up!

Note I didn’t claim that Tesla’s investors are rational. But they certainly are excitable!

Ambulator

Tesla sold a disappointingly small amount of new stock. I was expecting more like double this.

Mike777

If the Gigafactory can produce batteries early then that will fund the expansion.

Mister G

GO TESLA GO

Boris

It seems Elon say many things that are half true. When he raised that $2.2bil last year. It was meant to be for the GF and for development of M3, reality is it’s almost gone now and they’ve probably spent $200 mil on GF only. I am sure he will pull this off at the end, but he’s a good manipulator and uses his manipulating skills to get to his goals somehow. There is more to come for sure, perhaps $3 to $4 bil. if not more in capital still to be raised.

Pushmi-Pullyu

Boris said:

“Elon say many things that are half true. …he’s a good manipulator and uses his manipulating skills to get to his goals somehow.”

That’s a glass-half-empty (negative) way of looking at it. A glass-half-full (positive) way of looking at the same thing is this: Elon Musk is an excellent salesman and promoter. A quick glance at his business history proves the value of that.

Boris

When Elon was raising $2.2 bil. he was mainly talking about GF and on top he mentioned M3 development, so that was the story. He definitely didn’t say something like: we need this money to burn through the next few quarters, 10% of it will go to GF. So he was simply manipulating the markets into giving him money on favorable terms, good for him as it’s for a good cause I suppose, but it’s not straightforward communication

tftf

Exactly what Boris said. I

t is incredible that virtually none of the analysts and financial outlets called out Tesla for this blatant u-turn in using raised funds.

The communication in early 2014 was about financing needs for the GF, yet 90% of the money raised was for other purposes so far.

ffbj

China devaluing the Yuan by 3% will not help sales in China, though the duties are ridiculous already.
They way I look at it they raised $500 million and even more if the underwriters subscribe to the remaining offering, and their stock price went up. Trading in a range $225 (too low)- $285 (too high). Too volatile for me.
Point being is they say they will do something and eventually they do it. Other car companies say they will do something and hardly ever do, at least Tesla is producing awesome vehicles the likes of which have not been seen before.

Anonymous

Why does everyone care or give a crap?
Even if they go belly up, the US would lose too many jobs and jobs from suppliers etc, then the US Gooberment can just bail them out like the other big 3 losers.

Pushmi-Pullyu
I’ve been expecting exactly this for some time. The only surprise is it didn’t happen sooner. I’m no financial expert, but my understanding is that stock dilution (that is, an established company issuing more stock) generally results in the stock price going lower, because the net worth of the company is then divided among more stock shares. Contrariwise, when Tesla issues stock the market price goes up. That shows how highly speculative the price is! But so long as the stock price remains at what nearly all financial experts say is a significantly inflated level compared to what the company is actually worth, Tesla would be foolish not to continue to take advantage of it by selling more. * * * * * Jim Cramer said: “He may make better cars, but what Elon Musk really runs is Tesla the stock.” Pure cabbage. You can point to many times in recent history when Tesla completely ignored the fluctuations of its stock, sticking firmly to its business plan regardless of any temporary effect on its stock price. The current stock issuance shortly follows Tesla reducing its guidance for the year, in a period when Tesla is hemorrhaging money with massive capital… Read more »
arne-nl

Many of the comments posted here were exactly the same as 3 years ago around the launch of the Model S. People were also shouting that Tesla was burning cash at an unsustainable rate and that they would soon collapse.

Only difference were the amounts. Then we were talking 10’s of millions. That looks like pocket change now, it’s 100’s of millions now. Which will be peanuts too a few years from now.

They say ‘penny-wise pound-foolish’. It’s just that if you are in this business, pennies is more like millions. If you can’t stomach that, then don’t play.

And also, everyone talks ‘Elon this, Elon that’, but don’t forget there is a management team making joint decisions. It’s not just Elon Musk that decides these things on a whim all by himself.