To Keep Cash Flowing Tesla Announces Plans To Raise Money Through Equity or Debt Offering in SEC Merger Filing

This summer has been a busy one for California-based Tesla Motors. Not only has it officially opened its massive lithium-ion manufacturing and reprocessing facility just outside of Reno, Nevada, but it has also begun (and almost completed) the process of acquiring California energy firm SolarCity to become a vertical energy company selling everything from photovoltaic solar panels through to grid-tied energy storage and of course, electric cars.

Tesla will likely sell more stock (and maybe some debt) to keep itself funded.

Tesla will likely sell more stock (and maybe some debt) to keep itself funded.

While the merger isn’t yet official, the U.S. Securities and Exchanges Commission has already deemed the merger legal and in compliance with U.S. antitrust laws, leaving only official votes form shareholders of both companies standing in the way of the two companies becoming one in a deal worth an estimated $2.4 billion.

And this morning in an official Form S-4 filing made by Tesla to the SEC, the two firms laid out the specifics of the deal that shareholders will be voting on, as well as how Tesla intends to keep itself well-funded during a period of time which nessesitates it spending a massive amount of money on multiple projects ranging from Model 3 pre-production validation through to expansion at its Fremont production facility and of course, continued construction at the Gigafactory site outside Reno, Nevada.

Tesla says it has funds needed to execute the acquisition -- but it needs more for Gigafactory and Model 3 development.

Tesla says it has funds needed to execute the acquisition — but it needs more for Gigafactory and Model 3 development.

This includes the news that Tesla will likely make another public stock offering some time before the end of the year to raise additional equity alongside a debt offering that will help it keep its balance sheet healthy.

Tesla CEO Elon Musk, who is urging shareholders to vote for the deal but won’t be voting himself due to majority shareholdings in both Tesla [NASDAQ:TSLA] and SolarCity [NASDAQ:SCTY], has said multiple times in the past that the merger will remove some road blocks to Tesla becoming a one-stop shop for all of a customer’s energy needs. It will also allow both companies to operate far more efficiently, he has said, pooling resources and capital to enable a post-merger Tesla to become a stronger and more robust company.

But in order to keep growing and to fund the merger — as well as fund the paying of $422 million by the end of September to holders of convertible notes — Tesla finds itself in need of additional capital. Consequentially, its SEC filing today includes details of gaining additional financing through a combination of secondary public offerings and debt offerings.

In the official filing, Tesla reports having $3.25 billion in principal sources of liquidity as of June 30, 2016, and says that figure includes $2.76 billion of money market funds. On paper, adding in revenue from sale of vehicles, sales of regulatory credits and sales from its energy products, Tesla says it will have “adequate liquidity to see it through at least the end of the current fiscal year.”

In addition to a secondary public offering, Tesla may sell its debts too.

In addition to a secondary public offering, Tesla may sell its debts too.

Looking further, it appears the decision to make an additional secondary public offering and potentially make debt offerings — which are the equivalent of a private loan in which investors ‘loan’ Tesla funds over a predetermined period at an agreed interest rate — makes sense to ensure the company doesn’t have financial trouble further down the road.

While some Tesla shareholders will welcome the news as a smart choice for the rapidly-expanding, cash-strained company, others — investors and analysts alike — are sounding the alarm bells, worrying that Tesla is metaphorically spreading itself too thinly or biting off more than it can chew. And while we’re still expecting the merger between Tesla and SolarCity to go ahead, we’re guessing more shareholders will find themselves expressing concerns than previously on hearing this news.

Assessing Wall Street’s attitude to the news is a little harder: looking at current share prices, it’s tough to see if the news has dramatically affected TSLA shares, although we note that TSLA share prices are continuing the gradual downward march they have been on since the start of the month.

Here at Transport Evolved we can’t lay claim to being financial experts or investors, but we’re keen to know what you make of this latest Tesla financial news. Are you a TSLA or SCTY investor? Do you think the merger should go ahead or not? And does Tesla’s insatiable consumption of cash leave you worried about its future?

Leave your thoughts in the Comments below.



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  • Martin Lacey

    The markets don’t like this at all, their share value is being hammered as all the short sellers make their profits.

  • Chris O

    The Tesla-SC merger seems like a cashdrain on Tesla to buy a company of questionable and decreasing value. Wait a bit longer and maybe SC could have been bought for far less but….one of the people receiving far less would be Elon Musk it appears.

    At least that’s what the whole deal seems like to me based on what info I have and my limited insight in any potential benefit of this deal. Hopefully Tesla can bear the extra cashdrain its getting burdened with and won’t it hurt it in achieving its main mission at this point: bringing the game changing Model 3 to the market.

  • Duncan Armour

    I’d love to buy Tesla shares – unfortunately, the share-dealing and holding costs are much too high.