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Tesla said on Thursday that it would be looking to raise as much as US$2.3 billion through offering common stock and convertible bonds in a move that analysts describe as “net positive” and probably long overdue.
Tesla’s chief executive Elon Musk had insisted in recent years that the electric vehicle (EV) maker didn’t need capital injections despite burning cash fast and rarely posting profits.
Many analysts, on the other hand, have been saying for several quarters that Tesla needs to raise capital—in the region of US$2 billion to US$4 billion—to start delivering on its bold promises, or as Tesla bears have claimed, simply to keep the company afloat.
After disappointing deliveries and a big loss in the first quarter of this year, Musk suggested last week that “There is some merit to raising capital,” and said that the time may be about right to raise capital.
In its earnings release last week, Tesla said that it ended Q1 2019 with US$2.2 billion of cash and cash equivalents, down by US$1.5 billion from the end of 2018. The reduction was the result of a US$920-million convertible bond repayment and an increase in the number of vehicles in transit to customers at the end of Q1.
So Tesla announced on Thursday offerings of US$650 million of common stock and US$1.35 billion aggregate principal amount of convertible senior notes due in 2024. Musk will take part in the offering by buying US$10 million of Tesla’s common stock, the company said, noting that it “intends to use the net proceeds from the offerings to further strengthen its balance sheet, as well as for general corporate purposes.”
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Tesla “needed to rip the bandaid off” and the raising of capital is a “net positive” move, Dan Ives, managing director at Wedbush, told Bloomberg on Thursday, commenting on Tesla’s capital raising plan.
According to Wedbush, Tesla may need US$3-4 billion, but the US$2.3 billion capital raise is a good start, which would lead to a “near-term relief rally” on this news.
Tesla’s (NASDAQ: TSLA) shares were indeed rallying 4.27 percent at 2:12 EDT on Thursday.
By Tsvetana Paraskova for Oilpricecom
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.