Tesla, Musk Plan $2 Billion Stock Sale To Build Model 3, 373,000 People Reserved

MAY 18 2016 BY STATIK 43

Tesla Announces $2 Billion Capital Raise To Build The Model 3 For Some ~373,000 Waiting Customers

Tesla Announces $2 Billion Capital Raise To Build The Model 3 For Some ~373,000 Waiting Customers

As expected, Tesla announced a capital raise to fund the building of the upcoming Tesla Model 3.

"Thanks! Have A Good Night!"

Tax man calls for Mr. Musk

Tesla itself said it would offer about $1.4 billion worth of shares, with the remaining shares sold by CEO Musk to “cover tax obligations associated with his concurrent exercise of more than 5.5 million stock options.”  

Of the CEO’s portion, Musk will sell 2.8 million and donate 1.2 million to charity a statement reads, but his share of the company overall will increase.

More than 11 million shares in total could be sold.

As for the Model 3 specifically, Tesla pegged the exact number of persons putting down a deposit on the car (after recently disqualifying some multiple orders and allowing for customer cancellations):

“On March 31, 2016, we unveiled Model 3, a lower priced sedan designed for the mass market, and as of May 15, 2016, we held deposits from about 373,000 customers who had made reservations for this car. This reservation total is a net number after customer cancellations of about 8,000 and after about 4,200 reservations that we canceled on the belief that they could have been duplicates from speculators.”

Tesla had earlier pegged the number around 400,000 and this SEC filing today reinforces that number, however the gross amount of reservations including those customers with 2 orders (the maximum allowed) is still not known.

"We could have more reservations, but we don't really want them..."

“We could have more reservations, but we don’t really want them…”

Tesla added the following statement to Model 3 demand:

“We have obtained this level of reservations without any advertising or paid endorsements, with only a few social media posts leading up to the March 31 st unveiling, without anybody but those who were in attendance on March 31 st having had an opportunity to test drive the car, without yet publicly disclosing numerous features about the car, and with almost no attempt to drive customers to make Model 3 reservations since the week following the March 31 st unveiling.”

Tesla's Fremont Facility Looks To Build Upwards Of 200,000 Model 3s in 2017

Tesla’s Fremont Facility Looks To Build Upwards Of 200,000 Model 3s in 2017

As for pushing the reservation total higher than ~400k, Tesla says they really aren’t interested:

“If we wanted to, we believe that we could further increase the number of Model 3 reservations with minimal effort, but believe it is better to guide customers to purchase products currently in production. We are on track to achieve volume production and deliveries of Model 3 in late 2017. Because of the significant demand that we have seen, we have decided to advance our 500,000 total vehicle build plan (combined for Model S, Model X, and Model 3) to 2018, two years earlier than previously planned.”


Morgan Stanley and Goldman Sachs are bookrunners on the capital raise, the latter of which also just put out a bullish call earlier today on Tesla, upgrading it to a “buy”, saying the shares could be worth up to $250, causing the stock to gain more than $6 (3%).

However, the response to the capital raise after hours (via Goldman) however was (not surprisingly) negative, with shares trading off as much as 3%, before trading sideways in pre-market action, then closing slightly up Thursday (real time quote here).  Where will the day/week/year end?  With TSLA (the stock) who ever really knows?

Maybe it is just us, but the whole stock upgrade/price target bump, just hours ahead of a capital raise underwritten by the same company just doesn’t sit too well with us…above board or not.

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43 Comments on "Tesla, Musk Plan $2 Billion Stock Sale To Build Model 3, 373,000 People Reserved"

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Speculawyer
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Speculawyer

Wall Street acting a bit sleazy? I’m shocked…shocked I tell you.

Brian Rose
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Brian Rose
Goldman’s sort of “double dipping” on Tesla today does SEEM fishy, but it is actually very illegal for the underwriting dept to inform the analysts dept about anything, at all. Goldman Sachs does plenty of shady things to make a profit – like selling Mortgage Backed Securities as AAA investments, and simultaneously, knowing they’re crap, betting on them going bad (covered in the critically acclaimed documentary “Inside Job”), or helping Greece hide their budget deficit with accounting magic… so they can sell them debt… that they know will go bad. However, as odd as it is, none of those actions were illegal. THIS would actually be illegal, and Goldman Sachs is smarter than that. I’d guess it is a genuine coincidence. On a separate note, I find it important to note that Tesla FIRST scouted out battery suppliers to supplement their battery supply 1 DAY before announcing the amount of their capital raise. My hypothesis, Tesla’s accelerated Model 3 ramp-up meant that they will need a large supply of additional batteries as the Gigafactory will not be able to accelerate it’s schedule enough to match the accelerated vehicle production ramp. This also tells me that Tesla is confident enough in… Read more »
Terawatt
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Terawatt

Agree with most of this. But I can’t make sense of the battery tale. Musk stated clearly on the earnings call that the changed plan for Model 3 wouldn’t affect Tesla Energy’s own plans. The implication appeared to be that the factory would easily meet and exceed the demand generated by M3.

evcarnuts
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evcarnuts

Shocked ? A Bit Sleazy? Wall Street ? N0 …It Can’t Be. The biggest Manipulating Scum , Sleaze , Dirt bags On the Planet ? N0 ! I Just Can’t Believe it!

Pushmi-Pullyu
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Pushmi-Pullyu

I, too, am shocked, SHOCKED, that any investment firm would raise its rating on a stock it was getting ready to underwrite.

The system is rigged in favor of the 1%. Not just the stock market, but also the tax structure and the financial system. That’s why the rich are getting richer and the middle-class are joining the ranks of the poor.

Down off my soap box now.

SJC
Guest
SJC

I agree, more people should have “soap boxes”.

DonC
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DonC

What a shock! So unexpected!!! Do you think the unrealistic price target and launch date of the Model 3 might be connected to this?

The Goldman upgrade just makes it more transparent for the particularly obtuse.

TomArt
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TomArt

I do not understand why people keep slamming the price target. Compare it to the Model S, and it seems reasonable. Furthermore, a stock offering has no bearing on the price of the vehicle.

The production ramp is worrying, of course. And, obviously, the stock offering is directly related to it. We all knew that the moment that Musk announced the accelerated ramp to 2018 instead of 2020. During the previous quarter’s call, Musk said that the S and X sales would have been enough to get to their 2020 target. Moving it to 2018 screwed all that up.

Jeffrey Songster
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Jeffrey Songster

So maybe Elon ought to let people bump them selves 10 spots in line for every 10 shares of stock they buy. Watch them fight over it. Frankly I hope they are able to raise it. Can’t wait for him to fully shake up the nearly moribund auto industry.

Texas FFE
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Texas FFE

This news came in after the market closed. Usually when someone dumps a bunch of shares on the market stock prices go down but Tesla share price went up a little today. We will have to wait until tomorrow to see how the market reacts to this news.

Speculawyer
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Speculawyer

Last time they did this, the price went up. Which is pretty surprising. I suspect it will go down but not far. But I wouldn’t be surprised if it does go up.

pjwood1
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pjwood1

They issued convertible bonds which remain bonds today because the conversion price was mever reached This is an equity issue and will be dilutive. How much I don’t know, but for company value, or mkt cap, to remain the same the stock price would have to go down.

Rick (no, not that Rick)
Guest
Rick (no, not that Rick)

So you think the stock with go either down or up. You should work on Wall Street! 😛

Speculawyer
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Speculawyer

And guess what . . . it DID go up AND down! Up in the morning and down in the afternoon. I should work on Wall Street! 🙂

(But I said I suspected it would go down . . . that was my prediction. But that I would not be surprised if it went up . . . I would have been wrong but not surprised to be wrong.)

CDAVIS
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CDAVIS

@OP Jay said: “…Maybe it is just us, but the whole stock upgrade/price target bump, just hours ahead of a capital raise underwritten by the same company just doesn’t sit too well with us…above board or not.”
—-

Jay,
It’s common practice for the underwriter/bookrunner ahead of issuing new stocks or bonds to disclose their internal guidance analysis of price because the underwriter/bookrunner themselves are often taking (or have taken) a position in the security for their own book and so they disclose guidance so to cover themselves from future claims of undisclosed insider knowledge and also to provide to the partaking institutionals access to that guidence analysis. There is somewhat a built-in check against fluffing the guidence in that getting a reputation of doing so hurts credibility on future offerings.

Murrysville EV
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Murrysville EV

The 373,000 reservations is a substantial slowing of the earlier pace.

It’s *very* interesting that 2% of people have already bailed. Cancellations will begin to pile up.

My predictions are amended accordingly, taking into account the cancellation rate:

End of 2016 = 444253
End of March 2017 = 440271
Mid Q4-2017 = 421039

That’s right – I’m predicting a peak in reservations, followed by a decline until Tesla can begin actual shipments.

Nate
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Nate

Also orders drom those with more than 2 purged.

Jychevyvolt
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Jychevyvolt

Actually, we will see a bump after the second unveiled.

Speculawyer
Guest
Speculawyer

They have too many orders as is. They need to raise the money and prove that they can do this.

Murrysville EV
Guest
Murrysville EV

I agree that the second reveal will bump pre-orders, but there is much we don’t know:

1. When will that event happen?
2. What will it reveal?
3. When would that product be available?

If it’s a desirable and affordable CUV, then many reservists may jump to it, effectively nullifying any bump.

If that reveal is done very late, then most people will just stick with their Model 3 rather than waiting another year or two. If it is done too soon, Tesla will go from looking insane to appearing ludicrous in its attempt to too up two cars at the same time.

Pete
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Pete

In October half in Europe will be canceld, Renault Zoe with 180 miles will be presented for half the price.

arne-nl
Guest
arne-nl

Zoe is not half the price of the Model 3. Only if you ignore incentives and battery rent.

And the Zoe will be 180 miles NEDC, which works out to about 288 km, 38 more than the current 30 kWh leaf, which is 250 km NEDC.

And no – the Zoe is definitely NOT a compelling vehicle. It is slow, cramped, and backed by a useless company (Renault).

So your comparison fails on multiple points.

Mr. M
Guest
Mr. M

Zoe (with taxes, without battery) 21.500€
Model 3 (with taxes, estimated) 42.000€

So indeed the zoe is half the price before incentives, if you exclude the battery. Sure the model 3 is a nicer car, but some people just want a cheap BEV!

TomArt
Guest
TomArt

That does not make sense unless both of the following are true:

1) the Model 3 is substantially late (no 2017 deliveries, and no deliveries through Q1 of 2018);

and

2) a significant percentage of the reservation holders had no idea what they were getting into.

People reserving this early – particularly with the substantial monetary requirement of $1k USD – are generally going to know something about Tesla Motors’ past product delays.

I would imagine that the 8k (2%) cancellations are people that either 1) got excited and then realized they needed that $1k for other financial obligations; 2) were scared off by analysts; and/or 3) decided to delay their reservation based on seeing the early issues with Model X production.

wavelet
Guest
wavelet
I got criticized elsewhere for pointing out that reservations for Tesla cars are nothing like orders or pre-orders in the usual sense (e.g., there’s a new product that is fully defined (incl. price!) and has been widely reviewed; Amazon et al. allow you to pre-order before they have it in stock, but there’s no question about the level of customer or manufacturer commitment, and usually it’s just weeks or at most a couple of months until it will be in stock. 2% customer cancellations in a 6-week period since the reveal & reservations were opened up is a _lot_. There have been _no_ hard news in the meantime that would make the Model 3 less desirable as an EV, or indicate that Tesla isn’t serious about trying to go for volume production (if anything, the reverse, since Musk said that their goal is to finalize the production-ready car by July, and (if true) talks with the Korean battery vendors mean they want a backup plan in case the GF doesn’t ramp up as quickly as planned, which is very sensible.) The only conclusion is that pre-orders were significantly driven by hype, and are very soft. Assuming the next stage of… Read more »
agzand
Guest
agzand

This might not be illegal if it is really a coincidence (which is hard to believe, because the analyst could wait since this was anticipated), but it raises serious questions about Goldman’s ethical behavior. It is more suspicious because if not for the upgrade Tesla would have most probably crossed below the important psychological level of $200 today.

Speculawyer
Guest
Speculawyer

How did you type Goldman and ethical behavior in the same sentence without bursting out laughing?

Agzand
Guest
Agzand

Yes my bad. But this is such a blatant move.

William
Guest
William

Buy moar Stawk and help dilute the previous shareholders positions in this Electric Equity Fund Raiser. What will be the market cap after all is said and done by Lloyd Bank Fiend and James P. GoreOldMan? End of 2018 = $40 Billion market cap? Or Moar …?

floydboy
Guest
floydboy

Bastardos!

Alan
Guest
Alan

The minute they announced the massive upgrade in production to 2018 instead of 2020 made this announcement a forgone conclusion and nobody should be surprised.

The trickle of depositors cancelling should also not be a surprise along with a gradual increase closer to production.

angelo festa
Guest
angelo festa

I can hear Doris Day in the back ground singing `Que sera, sera.`

Nix
Guest
Nix

To be a devil’s advocate, any bank’s stock advisories are by their nature long term investment outlooks, not short term trader advice.

It is entirely consistent for any bank to advise investors to accumulate a stock for the long term, even if they absolutely know for fact that there will be a short term down-turn in the stock price.

There is no contradiction in them predicting the stock will go higher WITH the cash infusion, and the increase in business opportunity that comes with putting that cash into selling more product. Even if the stocks suffer a short term drop in value due to dilution.

Nix
Guest
Nix

To expand on my previous post, when there is a known and expected short term drop in a stock price, that is the exact precise moment that long term investors want to get an expert opinion about the outlook of a specific stock over the long term.

That allows long term investors to take advantage of any short-term downturns in a stock in order to buy it “on sale” and hold it.

This bit of advice on this stock came exactly at the time long term and institutional investors needed it.