It’s been a busy few months for California automaker Tesla Motors [NASDAQ:TSLA]. Not only did it unveil the Tesla 3 electric car at the end of March, netting it more than 400,000 pre-reservation deposits of $1,000 each from excited customers, but it also launched a facelifted Tesla Model S with optional 75 kilowatt-hour lithium-ion battery pack, as well as report Q1 2016 earnings that were far better than many analysts had predicted.
But while all three pieces of news have been generally well-received by Wall Street, Tesla’s Model 3 pre-order success — an order of magnitude higher than even Tesla had expected — has meant that Tesla has been forced to rethink its production ramp-up plans, pushing forward its goal of producing half a million cars per year by 2020 to 2018. And that means, as Tesla noted in its Q1 2016 earnings report, that its capital expenditure will rise significantly in the coming months as it accelerates its expansion plans.
For Tesla, much of the money to fund that rapid expansion has come in the form of more than $1.5 billion in asset-backed credit line facilities made avialable to it by some of the world’s biggest lending institutions. Historically, Tesla has made use of this credit line multiple times, usually borrowing and then paying back any monies in fairly short order. But just like borrowing on your credit card, such credit lines are best for short-term use, not long-term financial crutches, which is why Tesla has just announced a secondary common stock offering designed to help it raise an additional $1.4 billion in funds.
The announcement, made shortly after the close of Wall Street, will see Tesla make around $2 billion of publicly-traded shares available to Wall Street, with $1.4 billion of the shares destined to help Tesla accelerate Model 3 development and production. The rest of the shares — worth $600 million — will be sole by Tesla CEO Elon Musk in order to “cover tax obligations associated with his concurrent exercise of more than 5.5 million stock options.”
The sale, hardly a surprise to Wall Street, follows a note written earlier today by Goldman Sachs analyst Patrick Archambault, who told Goldman Sachs clients that he believed Tesla only needed to raise $1 billion in order to ensure it could accelerate its development and production plans for Model 3. At the same time, Goldman Sachs upgraded Tesla stocks to ‘Buy,’ upgrading its six-month target price for TSLA to $250.
This proclamation, combined with generally bullish feelings towards the automaker, caused the price of Tesla to rise to a high of $215.02 during this morning’s trading, before settling down to $211.17 at the closing bell. Following the announcement TSLA would be issuing $2 billion in underwritten registered stock however, after-hours trading caused TSLA stock to fall below $204 per share before recovering to $209.50 at the time of writing.
Given Tesla’s most recent quarterly report and the massive demand for Model 3, we’ve no doubt that its secondary stock offering will be snapped up quickly, making the California automaker its desired income. And while we’re not financial experts, we’re guessing too that Tesla stock will, after a brief adjustment period, continue to be one which investors will clamor after.
As for Model 3? This latest stock offering will give Tesla the much-needed cash injection to accelerate Model 3 development and pre-production processes. But given Tesla’s past reputation for missing targets — Model X was nearly two years late to market — we’d not hold our breath just yet.
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