Tesla selling over $2 billion worth of additional stock

Tesla said that is selling US$2 billion worth of additional stock, that its US revenue fell last year and that securities regulators are scrutinising its finances.

Tesla CEO Elon Musk. Source: Associated Press

All of the developments were disclosed in filings with US Securities and Exchange Commission, which in December subpoenaed financial data and contracts, including the company’s financing arrangements.

The Palo Alto, California, company's shares jumped 3.7% despite the disclosures and the additional 2.65 million shares that could dilute the value of the 180 million shares now on the market.

The surprise sale taps into Tesla's rocketing stock price over the past eight months, but comes just two weeks after CEO Elon Musk said the company had enough cash to fund its capital programs and it didn't need to raise any more money.

In a prepared statement, Tesla said Musk will buy US$10 million worth of the stock while billionaire board member and Oracle co-founder Larry Ellison will buy shares worth US$1 million.

The electric car and solar panel maker will use the proceeds to strengthen its balance sheet and for general corporate purposes.

In the filing today, Tesla Inc. said underwriters of the share sale have a 30-day option to buy another US$300 million in common stock. The company estimated that the net proceeds from the sale would be US$2.31 billion if the underwriters exercise the options.

The numbers assume that the shares would be sold for US$767.29 each, the closing price of the stock on Wednesday. Each additional dollar on the share price would add about US$2.6 million to the proceeds, the filing said.

Since June of last year the stock has more than quadrupled in value and was trading at US$795.49 today.

On the company’s fourth-quarter earnings conference call on January 29, Musk was asked about raising capital since the stock had gone up so dramatically.

He replied that the company was spending money as fast as it could spend sensibly, yet it’s still generating cash. “So in light of that, it doesn’t make sense to raise money because we expect to generate cash despite this growth level,” he told analysts.

In a note to investors, Wedbush analyst Daniel Ives called the stock sale a smart move because the shares are in a strong position as electric vehicle demand is starting to reach an inflection point, with China as the main driver.

He also wrote that the sale removes a potential cash shortage down the road. “The bulls (which we agree with) will say this essentially rips the Band-Aid off and takes the doomsday cash crunch scenario some predicted down the road now off the table," Ives wrote.

Tesla also disclosed on today in its annual report that the SEC subpoenaed information in December about the company's financing arrangements but gave no further details. Tesla also said the US Justice Department has asked for information about Musk’s statements that he had funding secured to take the company private, and about production rates for the Model 3 sedan. The funding had not been lined up.

The SEC probe into statements about taking the company private was closed with a US$40 million settlement, Tesla said. The securities agency also closed its probe last year into projections of Model 3 production rates, the annual report stated.

“To our knowledge no government agency in any ongoing investigation has concluded that any wrongdoing occurred,” the filing said.

Also in the annual report, Tesla disclosed that its U.S. revenue fell 15% last year to US$12.65 billion, despite record vehicle sales. The US is by far its largest market. But overall revenue rose nearly 15% to US$24.58 billion on increases in China, the Netherlands and Norway.

The company said that at the end of last year it had 48,016 employees, 801 fewer than in 2018.

Tesla lost US$862 million last year and has never posted an annual profit. But it made US$105 million in the fourth quarter. At the end of last year, it had US$6.27 billion in cash and equivalents on hand, almost 70% better than at the close of 2018. But its debt grew from US$9.4 billion at the end of 2018 to US$11.6 billion in December of 2019.