Tesla has announced that it will sell $ 2 billion of common stock in a new public offering just days after CEO Elon Musk said it would not be “logical” to raise more money. The company says it plans to use the proceeds from the offering “to further strengthen its balance sheet, as well as for general corporate purposes.”
Musk buys for $ 10 million in shares in the offering, while billionaire Oracle founder Larry Ellison – who was appointed to Tesla’s board of directors in late 2018 – will buy up to $ 1 million, the company said.
During a call with investors to Musk and Tesla CFO Zach Kirkhorn was asked if Tesla, considering the recent jump in the company’s share price, would consider raising more money now to increase production (ie Gigafactories), investments in supercharger and customer service . ”
Musk said in response that Tesla “spends money as quickly as possible, wise”, and that the company generates a positive cash flow (meaning that more money comes to Tesla than goes out). That same day, Tesla announced that it generated $ 1.1 billion in free cash flow in the fourth quarter of 2019 alone and ended the year with $ 6.3 billion with the bank. Tesla also said it expects that positive cash flow will continue. “In light of that, it makes no sense to raise money because we expect to generate cash despite this level of growth,” said Musk.
Later in the phone call, Credit Suisse analyst Dan Levy or Musk and Kirkhorn asked if it would be useful to raise cash to pay off Tesla’s huge $ 10 billion debt or to buy other companies.
Musk jokingly asked Levy who should acquire Tesla, but then said that “diluting the company to pay off debts does not sound like a wise move.” Kirkhorn repeated Musk’s earlier point and said, “We are not [cash] limited.”
There is certainly no shortage of places where Tesla could use the new money it raises – or one of its existing money for that matter. The company recently started producing Model 3 at its recently opened Gigafactory in China, but has not yet completed the construction of the facility. It also started work on a new factory in Germany. The company’s compact SUV, the Model Y, is ahead of schedule and will start shipping to customers this spring, meaning Tesla will have to boost production again of what is likely to be a popular product. Tesla said on January 29 that it plans to launch a small production run of its large electric rig, the Tesla Semi, this year. The company is also trying to bring some new energy products into mass production, such as the elongated solar glass roof. And of course it is in the middle of the development of the Cybertruck, which should go on sale at the end of 2021.
This is not the first time that Tesla has raised money through offers of secondary shares. Last year the company almost sold $ 900 million in stock and $ 1.8 billion in debt which can be converted to stock. In 2017, Tesla sold $ 250 million worth of common stock in 2017 to get Model 3 production off the ground (in addition to a $ 750 million loan that could be converted into stock in 2022). Tesla has also sold $ 1.4 billion in shares to fund the Model 3 program in 2016 and $ 500 million back in 2015.