Last week TSLA announced that it is raising $1 billion in new capital, $750 million in convertible notes due in 2022 + $250 million in common stock.
The offering itself isn’t a surprise. TSLA has been chronically in the situation where analysts can see a point on the near-term future where the company could easily run out of funds. This is partly the lot of any startup. In TSLA’s case, it’s also a function of the firms continuingly expanding ambitions. Elon Musk has been saying for some time that TSLA will will need new capital, too.
What is surprising, to me at least, is that the offering is not bigger …and, more significantly, that the stock went up on the announcement.
To the first point, why wouldn’t TSLA give itself some breathing room by raising more money? Of course, it’s possible that the small size is a marketing tactic and that the underwriters will soon announce that, “due to overwhelming demand,” it’s raising the size of the offering to, say, $1.5 billion. Otherwise, I don’t get it.
To the second, this is just weird. TSLA shares rose by a tad less than 30% in the first six weeks of 2017 and have been moving more or less sideways since. So the idea that investors are willing to buy the stock can’t be surprising positive news. And I don’t see the plus in some commentators’ claims that the market is relieved the offering isn’t larger. I think the market should be mildly concerned instead.
Something else must be going on.
The only thing I can think of is that Wall Street is beginning to believe that electric vehicles are going to enter the mainstream much sooner than it had previously thought. At the same time, the Trump administration’s intended moves to make it easier for American car makers to sell gas guzzlers for longer may result in Detroit remaining stuck in the past, paying less attention to electric vehicles. So market prospects for TSLA may be improving just as competition from the “Big Three” may be weakening.
However, that alone shouldn’t be enough to propel a well-known stock higher in advance of an offering.