- The company plans on raising $2.3 billion approximately
- They plan on selling $1.35 billion in convertible notes and $650 million in shares
- CEO Elon Musk is also said to be purchasing $10 million of the company’s stocks
Tesla has recently been in the news after it suffered a record-breaking first-quarter loss of $702 million courtesy of not being able to deliver their vehicles in time. This wasn’t all for the automobile giant. The electric vehicle manufacturer announced this Thursday that they’ll be selling $1.35 billion in convertible notes and $650 million in shares as well. The company stocks – down 30 percent this year – rose 2 percent to $238.65 after the company revealed the above plans.
Elon Musk, CEO of Tesla, is also said to be purchasing about $10 million of the company’s stocks as stated in the report. Musk previously owned 20 percent of the company’s shares and the present purchase would for 41,896 shares. Musk had previously stated that the company would no longer need to raise capital as its first mass-manufactured vehicle was in production last year, but his tone changed recently. The CEO on the company’s quarterly conference call said:
“I don’t think raising capital should be a substitute for making the company operate more effectively, I do think there is some merit to raising capital, but this is sort of probably about the right timing.”
The company has hired Goldman Sachs Group Inc., Citigroup Inc., Bank of America Corp., Deutsche Bank AG, Morgan Stanley, Credit Suisse Group AG, Societe Generale S, and Wells Fargo & Co. to underwrite the share offering according to reports.
The majority of the offering is said to be in the form of convertible bonds due 2024. The securities are being said to be marketed between 1.5% and 2%, the conversion premium is said to be around 27.5% to 32.5% according to sources who wanted to remain anonymous. The automaker said the total proceedings are estimated to be about $2.3 billion if the banks fully exercise their option to purchase the additional securities.
The company’s 5.3 percent bonds due 2025 were amongst the top performers in the United States high-yield market this Thursday morning rising almost 2 cents per dollar up to 87.5 cents as reported by Trace. The cost to insure $10 million of Tesla bonds against a default for five years went down from $1.7 million to $1.5 million upfront.
Dan Ives, managing director of equity research at Wedbush Securities, said:
“There were growing fears that this company was going to need incremental cash going to the second half of the year. For the first time, they listened to investors and the math doesn’t lie in terms of what they needed to do, Now there’s a relief because the liquidity issue and the finance concern could be put to rest in the near term.”
Also, Kevin Tynan, Senior autos analyst, said:
“This indicates Tesla can’t yet rely on cash from operations to fund its deeper penetration into autonomous-driving technology, advanced chips, insurance, and China. Tesla’s 31% delivery decline in 1Q vs. 4Q signaled that U.S. demand isn’t sustainable at the elevated 2H levels, while its international rollout is just beginning.”