Tesla Inc. has completed a $2.35 billion stock and bond sale, giving the company a much-needed boost of liquidity as it continues its quest to become the first mass producer of electric cars.
Meeting solid demand from investors, Tesla was able to increase the size of its convertible bond offering by $250 million to $1.6 billion. It also raised roughly $750 million from its sale of nearly 3.1 million common shares at $243 a share—around $100 million more than originally anticipated, not including expenses related to the sale.
The company could ultimately raise as much as $2.7 billion if underwriters exercise options to purchase additional shares and bonds, the company said in a filing with the Securities and Exchange Commission.
Shares of Tesla rose 4.3% on Thursday to $244.10 a share after the company began marketing its stock and bonds, an unusual response as shares in firms raising capital through stock sales often decline, reflecting the increased quantity of securities available in the market. Shares were up another 4.7% Friday at $255.57, according to FactSet.
Tesla’s capital raise comes after a difficult stretch for the company, which has struggled with manufacturing and logistic challenges as it tries to scale production of its mass-market Model 3 sedan and deliver cars to customers in Europe and China.
Even so, the terms of Tesla’s new convertible bonds, a hybrid of debt and equity, are slightly more favorable to the company than its last convertible bond sale. Carrying a 2% coupon, the bonds will convert to equity if Tesla’s stock rises approximately 27.5% to around $309.83 near their maturity in 2024. By comparison, the company last sold convertible bonds in March 2017 with a 2.375% coupon and a conversion price 25% above the stock price at the time.
Some investors said Tesla was helped this time by the lower cost of borrowing its shares in the stock-loan market since its last convertible bond sale. That potentially made the deal more enticing to hedge funds who specialize in buying convertible bonds and shorting, or betting against, the stock of the same companies, a strategy that requires borrowing shares.
Many investors have also liked Tesla convertible bonds because they offer some of the safety of debt with the higher potential returns of equity.
Overall, Tesla’s capital raise “does alleviate near-term balance sheet and liquidity concerns,” said Garrett Nelson, senior equity analyst at CFRA Research. It also, though, puts the company in “a deeper hole with the additional debt,” he added.
Tesla’s chief executive Elon Musk had expressed interest in buying $25 million of its new shares, Tesla said in a filing Friday. He was previously expected to invest $10 million.
Debating the investing merits of Tesla is a popular sport on Wall Street and in Silicon Valley, where the firm’s supporters project a future in which Tesla has revolutionized green energy technology and its skeptics predict its imminent demise with great conviction. Because of that debate and the high profile of Mr. Musk, Tesla shares frequently respond to major news events in ways that don’t necessarily fulfill investor expectations.
“It’s a situation where you have a strong stockholder base,” said Louis Albanese, managing partner of Catamount Wealth Management, a Westport, Conn., money management firm that owns several thousand shares of Tesla for clients. “I’m in the camp of it doing well the next five years.”
Still, Mr. Albanese’s firm has sold shares of Tesla in recent months to insulate clients from the stock’s steep decline this year. Following the fundraising, he says he is considering adding to that position again now that Tesla’s balance sheet is more secure. If the stock starts sliding again, he says they will move to sell further. “We got to protect our capital,” he added.
In 2018, new shares were on average sold at a price 8% below where existing shares traded when the sale was announced, according to data from Dealogic. That discount has widened to 13% so far this year, Dealogic data show. Because the offer price is typically discounted to where the stock was trading, shares sold in these deals usually have a positive return in the aftermarket. In 2018, at the end of their first week of trading after completing a follow-on, shares sold in these deals have an average upside return of 1.9% from their offer prices, Dealogic data show. This year, shares were worth 3.2% more a week following their deals.
For Tesla, boosting the size of its capital-raise marked a further reversal from Mr. Musk’s old stance that the company didn’t need more cash.
The CEO’s message shifted last week after Tesla reported one of its worst quarterly losses in history, and its cash fell by more than 40% to $2.2 billion from three months earlier. Mr. Musk said then that Tesla was operating more efficiently, but that there was “merit to the idea” of raising money.
Several analysts had called for Tesla to raise new money in last year’s second half, as momentum in the company’s production rates and car sales lifted the stock to about $376 a share in December. The stock’s decline in recent months meant that the company had to sell more shares to reach its fundraising goal.
- China's Tencent raises US$6 billion in bond sale; proceeds for general purposes
- Chinese tech giant Tencent plans US$5 billion dollar bond sale
- Chinese tech giant Tencent plans US$5 billion dollar bond sale: Sources
- No refuge for investors as 2018 rout sends stocks, bonds, oil lower
- News BPI prices inaugural P25 billion peso bonds
- News US launches P1.35 billion Marawi response project
- News PSBank says P8 billion stock offer oversubscribed
- Tesla shareholders just approved a $2.6 billion stock option plan for Elon Musk — here’s how he spends his $20 billion fortune
- US bond sales could spell troubles