Tesla To Raise Almost $2 Billion To Pay For New Gigafactory, 3rd Gen Car + More

FEB 26 2014 BY JAY COLE 33

Tesla Gigafactory Rendering - Tesla Will Invest $2 Billion Into Its Development

Tesla Gigafactory Rendering – Tesla Will Invest $2 Billion Into Its Development

After the market closed on Tuesday, Tesla made a couple pretty big announcements.

With This Transaction, Tesla Has Pretty Much Fully Funded All Aspects Of Their Upcoming 3rd Generation Car

With This Transaction, Tesla Has Pretty Much Fully Funded All Aspects Of Their Upcoming 3rd Generation Car

Depending on your prospective, the first was the ‘big reveal’ of plans for their US-based Gigafactory, capable of supplying enough cells to produce 500,000 cars per year as soon as 2020, with production kicking off in 2017.

But how to pay for it all?

It has been no secret that Tesla’s soaring market cap and respect in the market has been a thing of wonder the past couple years, and to no one’s surprise today Tesla also announced that it was planning to raise between $1.6 billion and $1.84 billion in a new offering of convertible senior notes.

The new capital will also cover development of Tesla’s 3rd generation car, which is expected to retail between $35,000 and $40,000 with a range of 200 miles when it arrives in 2017.

Tesla closed Wednesday with a market cap of $31.07 billion dollars, and traded higher in early after hours action (real time quote can be found here)

Tesla's Market Cap Crested $31 Billion On Wednesday

Tesla’s Market Cap Crested $31 Billion On Wednesday

Tesla said in a statement what their plans were for the new capital:

“Tesla intends to use the net proceeds from the offering to accelerate the growth of its business in the U.S. and internationally, for the development and production of its “Gen III” mass market vehicle, the development of the Tesla Gigafactory and other general corporate purposes.”

Goldman, Sachs & Co., Morgan Stanley, J.P. Morgan and Deutsche Bank Securities are acting as joint book-running managers for the offering.

Tesla’s full statement can be found below:

Tesla Announces $1.6 Billion Convertible Notes Offering

Wednesday, February 26, 2014
PALO ALTO, Calif., February 26, 2014 – Tesla announced today an offering of $1.6 billion aggregate principal amount of convertible senior notes in an underwritten registered public offering. Of the total offering, Tesla will offer $800 million aggregate principal amount of convertible senior notes due 2019 and $800 million aggregate principal amount of convertible senior notes due 2021. In addition, Tesla intends to grant the underwriters a 30-day option to purchase up to an additional $120 million in aggregate principal amount of convertible senior notes due 2019 and an additional $120 million in aggregate principal amount of convertible senior notes due 2021, for a total potential offering size of up to $1.84 billion.

Tesla intends to use the net proceeds from the offering to accelerate the growth of its business in the U.S. and internationally, for the development and production of its “Gen III” mass market vehicle, the development of the Tesla Gigafactory and other general corporate purposes.

The convertible senior notes due 2019 will be convertible into cash, shares of Tesla’s common stock, or a combination thereof, at Tesla’s election. The convertible senior notes due 2021 will be convertible into cash and, if applicable, shares of Tesla’s common stock (subject to Tesla’s right to deliver cash in lieu of such shares of common stock). The interest rate, conversion rate and other terms of the notes are to be determined.

In connection with the offering of the notes, Tesla intends to enter into convertible note hedge transactions and warrant transactions, which are generally expected to prevent dilution up to approximately 100% over the common stock price at the time of pricing of the notes due 2019 and 120% over the common stock price at the time of pricing of the notes due 2021. Tesla intends to use a portion of the proceeds from the offering to pay the net cost of the convertible note hedge transactions. In connection with establishing their initial hedge of the convertible note hedge and warrant transactions, the hedge counterparties or their affiliates expect to enter into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the notes, including with certain investors in the notes.

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33 Comments on "Tesla To Raise Almost $2 Billion To Pay For New Gigafactory, 3rd Gen Car + More"

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ffbj

Why are they going to sell convertible notes? I thought that was Nissan product. j/k

EV

best car company ever

Spec9

And their stock went up after hours. Amazing. Any other company with a big offering like this would have the stock go down.

Andrew K

Your mistake was applying logic to the valuation. At this point it has become a very emotional thing. A valuation built on “maybes” and “somedays” if Tesla pulls this off then buying at 250 will have been a bargain. But that’s a pretty big bet, this far out.

Anthony Fiti

Right now you’re not investing in Tesla the car company (e.g. current valuations, profit/loss) they way you would value GE or Ford.

You’re investing in whether or not EVs succeed. (they will)
You’re investing in whether Elon Musk is the man to make that happen. (he is)
You’re investing in whether Tesla can execute and bring about a change in our transportation infrastructure and the business of selling cars over the next 5-10 years. (highly likely)

Nix

Under the structure of this offering, current shareholders won’t actually have their ownership diluted until 2019 at the earliest, and perhaps never (at Tesla’s discretion).

So there is no reason for the shares to drop today on fears of possible dilution years from now. The stock is up on the profit potential that the Giga Factory may offer in the future.

Bonaire

The terms of the new offering have not been announced. Since they are convertible notes, they could be convertible soon. The notes floated by scty were convertible in the low $60s per share. Tesla will now have last year’s 166.88 priced conversion available again now into Q2 for $660M of last years notes that should convert during Q2. They may even hold the details of this latest offering until Q2. This is just an announcement now but we need to see the convertible details before claiming when they are dillutive.

Dr. Kenneth Noisewater

Depends on a number of factors, I assume they’ll keep the conversion price fairly high since interest rates are so low they don’t have to offer a whole lot to get attention.

This is a perfect environment to get FREE BERNANKE^H^H^H^H^H^H^H^HYELLENBUX to fund productive expansion.

Mikael

It’s so amazing to be a part of history when following Tesla closely. I’m sure it will be something to tell the grandkids, just like if you were there when the T-Ford was developed and getting to follow Henry Ford.

ffbj

The supposed battery supply constraint problem was the main reason the stock fell back in December. The fires had an effect too. Investors love a winner that thinks big, and now with the ball rolling on the battery giga-factory those supply constraints worries will be removed.
Even though it will be years before any batteries roll off the line there, they are effectively blunting that criticism of their business development plan..
Tesla actually seems to respond to criticism by trying to fix a problem if they find it amenable to their time line, or important enough to address quickly.

Jesse Gurr

Stock is already up to $260 in after hours trading. CRAZY!

evnow

Atleast no-one can accuse Musk of not trying to think BIG, now 😉

Anon

Yeah… Man, things are getting SERIOUS now. *blinks*

I wish Tesla the very best of success.

Open-Mind

I wonder if this is what Tesla and Apple met about. Both companies consume lots of batteries, and Apple has $140 billion in cash reserves.

Nix

This represents the launch of the proverbial rocket for the future of EV cars. And investors know it.

kdawg

Gentlemen, we can build it. We have the technology. We have the capability to make the world’s first Gigafactory. Behold.. the Six Billion Dollar Plant.

Anon

😀

ffbj

haha. I was wondering when someone would tumble that way.

Koz

Didn’t one of those firms just significantly raise their target price for the stock to $320 two days ago. Probably put themselves and their big boys into beforehand too. Is this kosher?

Bonaire

Yeah. morgan stanley raised the pps target to $320, through Adam Jonas. They are also underwriting the new debt instrument funding this. The new Sr. notes.

Bonaire

By the way, MS had over 3.5 million shares of Tesla stock at the end of 2013. Value went up $150M this week.

pjwood

I agree, Bonaire. Seeing MS involved in the underwriting, after Jonas price target. Ewww.

Bonaire
GM forcast a Volt sales estimate of 45,000 US and 15,000 ROW back in 2010. That was for something like 2013 sales. This 500,000 number stated was that the plant could be sized to produce enough cells for 500,000 cars. The media is now saying Tesla “will” produce 500,000 in 2020. We don’t know the price of the Model X. We surely don’t know the price of the Model E. This is some irresponsible activities by all parties involved. The goal? To produce an intangible mindshare that draws some hazy picture of future reality while ignoring current day situational models. Many said Tesla would double sales in 2014 over 2013 and they will strugle to sell 35,000. We now see that a large battery plant will take Tesla to producing/selling 500,000 in seven years for a car price yet unknown, perhaps base $37,000 USD? The Volt now is 35,000 USD and is constrained by so many reasons. Yet it is not production constrained due to parts nor range constrained due to charging infrastructure. This may play out to be a near term financial success with a long term sales number failure and just as the forward looking statement reads, nothing… Read more »
Zach

Solyndra was just a bunch of noise, did not hamper the solar industry at all. Record PV installations worldwide and in the US every year thereafter.

Bonaire

It called into question the Federal Government incentive involvement in all things renewables and whether DoE loans should be tied to closer monitoring or lower valuations for such companies. Plus it may have triggered mindset to inevitably remove solar incentives such as Fed Tax Credits of 30% for installs. It was not a non-issue.

pjwood

Solyndra was ~500,000,000. Where were the critics when the federal government made Goldman Sachs, and a bunch of foreign banks whole on 12,000,000,000, in bad swaps? One side of the political spectrum came close to returning to the century-old ban on those instruments. The other echos “Solyndra”, to this day.

Mark Hovis

+1 Also people do not realize that Solyndra and a few other bad picks make up less than 3% of bad renewable loans. If any investment company had such a track record it would be incredible. Now I am not saying Solyndra did not do many things that caused them to fail but the concept of a cylindrical photvoltaic still could be a winning technology. Just as Fisker and A123 could be winners under better management.

To your point, Anybody want to calculate the ratio of money lost on bailing out GM + the 3% bad renewable loans combined compared to the banking bailout that never gets mentioned.

arne-nl

“Many said Tesla would double sales in 2014 over 2013 and they will strugle to sell 35,000. ”

Many said Tesla would be out of business by the end of 2013.

They struggle indeed. They can’t build them fast enough to satisfy demand.

ffbj

That’s true since it gave recalcitrant Republicans ammunition to point to the waste of federal dollars. Although McCain’s (might have been Romney) grouping of Tesla with Solindra was an example of how entrenched in old ways of thinking Republicans are, and out of touch with the new. Another example of their general approach of parroting think thank talking points. Regarding the Tesla hype and where they are going , it is true that it will take time to get there.

ffbj

It was Romney but I guess they all pretty much said the same thing:
“But don’t forget, you put $90 billion, like 50 years’ worth of breaks, into—into solar and wind, to Solyndra and Fisker and Tesla and Ener1. I mean, I had a friend who said you don’t just pick the winners and losers, you pick the losers.”– Romney
And one winner!
There are blatant, concerted, fallacious, attacks against Tesla, Musk, everyday.
Essentially a campaign to discredit the company and sow fear and distrust. It’s just the old
standard dirty tricks campaign they, the Republicans, and other old guard entrenched interests, big oil, car companies, have relied upon for years.
They are not interested in moving America forward they want to maintain the status quo, and will lie, obfuscate, break into Democratic headquarters, buy up old street car companies, burn the cars and tear up the tracks, and things of that nature. That’s their idea of progress, keeping things the way they are.

pjwood

I didn’t see any elaboration on the solar city storage. They only refered to lithium ion production, which isn’t (yet?) recognized as a cheap way to go, for that. Barron’s is forwarding conversion prices of 350-360, as likely. There’s a gap to get there, but any multiple you had on TSLA’s future earnings will effectivly double, if there’s enough conversion (@~$350). To get the interest rate down on the notes, the incentive Tesla has is to lower the conversion price. I’m feeling less lucky.

Bonaire

Last years notes should be converting now with the high pps. During Q2 it looks like they may have to handle $660M in conversions. Perhaps needing part of the new notes’ value to do so unless they crank up the Goldman and MS Trading desks to knock the price down again for part of March to below 161.88. That conversion will be dilution at about 122 per share and lots of cash.

Scott Franco

Time for the rouge river plant eh?