Strong investor appetite for Tesla’s stocks and bonds has allowed the company to raise more money than it had original anticipated, Tesla disclosed in Friday financial filings. As we reported yesterday, the electric vehicle maker was planning to sell a mix of debt and equity worth at least $2 billion.
In a Friday filing, Tesla said it had actually raised $2.34 billion in an underwriting deal spearheaded by Goldman Sachs. Tesla sold shares worth $737 million and convertible notes worth $1.6 billion. Underwriters will have the option to buy an additional $350 million in stock and debt over the next month.
In recent months, skeptics have argued that Tesla’s debt-laden balance sheet and disappointing financial results would make it difficult for the company to raise more money. But this week’s results laid those concerns to rest.
Stock prices often fall when a company announces plans to sell more shares, as the sale dilutes the value of the company’s stocks. But Tesla’s shares bucked the trend, rising about four percent on Thursday—the first trading day after the sale was announced—and another four percent on Friday.
Even better, Tesla was able to sell its convertible notes on favorable financial terms. Convertible notes are debt that gives lenders the option to take stock rather than cash when the loan matures. Tesla’s latest convertible notes come with a modest 2 percent interest rate and it will come due in May 2024. For comparison, The Wall Street Journal reports that Tesla’s previous round of convertible notes, sold in 2017, paid investors 2.375 percent.
The new convertible notes come with a strike price of $309.83, 27 percent above the $243 official sale price. Shares rose to $253 in Friday trading, so investors who bought the new shares are already in the black.
Tesla had about $2.2 billion in cash in the bank at the end of March, so the sale roughly doubles Tesla’s cash cushion. The extra cash will be useful as Tesla prepares for the next phase of its growth. Tesla is aiming to begin production of the Model Y SUV, the Tesla Semi, and a new edition of the iconic Roadster—all before the end of 2020.
The show of confidence from Wall Street may also give Tesla breathing room in another way. Over the last year, some critics warned that Tesla was becoming such a basket case that it might struggle to raise money at all and be forced into bankruptcy.
This week’s strong fundraising makes it clear that this thesis was wrong. Tesla may or may not ultimately become the large and profitable car company that Elon Musk is trying to create. But if Tesla falls short, it won’t be because of short-term cash flow concerns.
https://arstechnica.com/?p=1499961