Tesla (TSLA)’s new common stock offering

the motivation

TSLA has been surprised and pleased by the public response to its proposed new Model 3 (the company has reservations–and deposits of $1,000 each–nearly 400,000 units for a car slated to appear in limited numbers next year or the year after).  …so much so that it has junked its plan to become cashflow breakeven this year (meaning operations would no longer consume cash and might generate it).  It has decided instead to accelerate its factory building to speed the debut of the Model 3.

To do so, it needs fresh capital.

the offering

So, for the third time in three years TSLA is having a public offering.  In a preliminary prospectus revision filed today, TSLA indicates it intends to sell 9.3 million new common shares at a price of $215.  Of that number, 2.8 million are being sold by Elon Musk to pay taxes due on exercise of options on 5.5 million new TSLA shares. The underwriters have the right to sell an extra 1.4 million shares in what is called an “overallotment.”

When the dust clears, TSLA will have raised between $1.4 billion and $1.7 billion and will have about 145 million shares outstanding.

Press reports indicate the offering has occurred today, even though the prospectus says underwriters expect the offering to happen next Wednesday.

my thoughts

–the prospectus contains the most up-to-date data on the company

–the new money will allow TSLA to being volume production of the Model 3 in 2018 instead of 2020

–I’d be a little miffed at the offering price if I had participated in the 2015 stock offering at $242 a share, or bought convertible bonds in 2014 with a conversion price of $350.  Neither, of course, makes any difference for new buyers

–if the press reports are correct, that hasn’t mattered too much to the investing public, either

–I wonder how much retail participation in the offering there is.  Lack of institutional support is usually a bad sign, although I’m not so sure that rule holds true here

–TSLA could barely get off a stock offering half this size last year

–achieving a stock sale like this almost always marks a near-tern bottom for the stock price

–dilution of existing shareholders is minimal and bringing forward the volume launch of the Model 3 by two years is probably a very big positive thing.  So, if the Model 3 is the success it appears to be, the offering will have been good for everyone.







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