TSLA Tesla Inc

By Mike Ramsey and Tess Stynes 

Tesla Motors Inc. said it would sell $2 billion in its stock to help finance production of its Model 3 electric vehicle and to cover tax obligations for an options exercise by Chief Executive Elon Musk.

The Palo Alto, Calif., car manufacturer will offer $1.4 billion in common stock to accelerate production of the coming Model 3. It plans to build a half million vehicles by 2018. Proceeds also could be used for working capital and other corporate purposes, the company said. Tesla expects to raise about $1.7 billion after fees, it said on Wednesday.

The remaining shares will be sold by Mr. Musk to cover tax obligations associated with his exercise of more than 5.5 million in stock options, the company said. Mr. Musk will receive no cash through this sale, the company said.

Shares of Tesla gained less than 1% in after-hours trading after rising $6.51 to $211.17 at 4 p.m. on the Nasdaq Stock Market. It disclosed the share sale after 4 p.m.

Mr. Musk will owe significant taxes on his stock-options exercise because of increases in Tesla's share price since 2009, the company said. He paid $36.5 million to exercise the 5,503,972 options, which were set to expire by the end of the year. Those shares were worth $1.16 billion at Wednesday's closing price.

According to a securities filing, Mr. Musk used a loan from Morgan Stanley, which is secured against his holdings in Tesla, to finance the purchase of the options. His total loan amount to Morgan Stanley stood at $299 million after the share purchase.

Mr. Musk plans to donate 1.2 million shares to charity, the company said. That would be worth $253 million based on Wednesday's closing price.

The options exercise, despite the share sales by Mr. Musk to cover the taxes, will result in Mr. Musk increasing his overall holdings of Tesla stock.

Tesla has more than 400,000 reservations for the Model 3. The car is priced beginning at $35,000, below the price tags of Tesla's other vehicles, the Model S car and Model X sport-utility vehicle. The Model 3 is due out late in 2017, will seat five passengers and is capable of traveling 215 miles on a single charge.

Some analysts have expressed skepticism over Tesla's plans to produce half a million cars during 2018, citing manufacturing complexities.

The company ended the first quarter with $1.4 billion in cash after tapping a credit line. It ditched its forecast for producing positive free cash flow in 2016 and said its capital spending would increase by 50% more than it had earlier predicted.

An infusion of $2 billion should give the company a big enough cushion to finance growth over the next year.

Tesla has had only one profitable quarter since becoming a public company and its losses have grown as it has invested in growth.

Write to Mike Ramsey at michael.ramsey@wsj.com and Tess Stynes at tess.stynes@wsj.com

(END) Dow Jones Newswires

May 18, 2016 18:56 ET (22:56 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.