By Allison Prang and Tim Higgins
Tesla Inc. is looking to raise as much as $2.3 billion through a
bond and stock sale after the electric-car maker reported a steep
quarterly loss last week that heightened concerns about its
dwindling reserves of cash.
Tesla shares, which have been under pressure, rose Thursday as
investors said they welcomed the fresh injection of capital.
Fidelity Investments, T. Rowe Price Group Inc. and other fund
managers have sold millions of shares in 2019 amid concerns about
the firm'sfinances and performance.
Chief Executive Elon Musk had said Tesla didn't need to seek new
financing as the Silicon Valley company wrestled with manufacturing
and logistic challenges in bringing its mass-market Model 3 sedan
That message shifted last week after Tesla reported one of its
worst quarterly losses in history, and its cash fell by more than
40% to $2.2 billion from three months earlier. Mr. Musk said then
that Tesla was operating more efficiently, but that there was
"merit to the idea" of raising money.
Tesla said Thursday that it expects to bring in about $642.3
million in net proceeds from a public offering of about 2.7 million
shares. Mr. Musk signaled his intent to buy about $10 million of
Tesla also said it is offering $1.35 billion in convertible
senior notes, due in five years. If the underwriters exercise their
full options, Tesla could bring in $738.7 million in net proceeds
from the stock offering and $1.55 billion from the debt issuance --
about $2.3 billion in total.
Shares of Tesla jumped 4.3% to $244.10 on Thursday, an unusual
response as shares in firms raising capital through stock sales
often decline, reflecting the increased quantity of securities
available in the market.
"This is an upside-down reaction," said Joseph Osha, an analyst
at JMP Securities LLC, who rates the stock as a buy. "But it tells
you the issue of liquidity has been on people's minds, and this
capital raise puts that issue to bed."
The timing of the stock sale comes after a brutal stretch for
the company. Even with the gains Thursday, the stock is down 15%
over the past month and 27% in 2019, according to FactSet.
T. Rowe Price sold nearly half of the Tesla shares it owned
across several of its funds in the six months ended in March,
according to FactSet's data, with its remaining shares valued at
about $2.09 billion. More than a million of those shares were sold
by T. Rowe's blue-chip growth fund.
Fidelity Investments sold roughly $50 million worth of Tesla
stock over that period, with the biggest drawdown in Fidelity's
blue-chip growth fund. The investor continued to own about $2.03
billion worth of Tesla stock across its funds, according to
FactSet. Other sellers include Allianz Global Investors and TD
Asset Management Inc., as well as wealth-management shops like BMO
Family Officer LLC, which sold about $700 million worth of
"Tesla isn't going to get out of its trading range unless Elon
succeeds in cracking the code of ramping up production," said Rob
Lutts, chief investment officer of Cabot Wealth Management, a
money-management firm that owns about $2 million worth of Tesla
shares and has no immediate plans to buy more.
It wasn't clear why all those money managers reduced their
stakes in recent months. Tesla representatives didn't immediately
respond to a request to comment.
Questions about whether Tesla has enough money to fund its
ambitious plans have lingered since the company's founding 15 years
ago. The lengthy development process for new vehicles, tooling
required to build them, and logistics to deliver them around the
world can easily eat through money.
Since production of the Model 3 began in 2017, Mr. Musk's plan
has been to churn out enough compact cars to generate the revenue
needed to pay for the company's growth. But as Tesla struggled to
increase production, it burned through cash at an alarming rate,
placing its limited reserve under greater scrutiny. Mr. Musk has
said the company nearly died last year.
Finally reaching a sustained rate of production in the second
half of 2018, along with a subsequent increase in sales, helped
Tesla turn its first back-to-back quarters of profit. That gave
credibility to Mr. Musk's claims that the auto maker had entered a
new era of continued profitabilityand cash generation.
Several analysts had called for Tesla to raise new money in last
year's second half to build off the excitement. Mr. Musk refused,
saying he didn't need to raise cash anymore to support growth.
Tesla's stock approached a record high in mid-December, reaching
about $376 a share.
Issuing new stock will dilute Mr. Musk's ownership stake. Mr.
Musk is Tesla's largest shareholder, owning nearly 22% of the
company as of Dec. 31, but unlike other leaders of big Silicon
Valley companies, he doesn't have a controlling vote. He has been
able to exercise control through a company provision that requires
holders of a supermajority of shares to approve changes.
Guidance from banks on Thursday was that the bonds, which are
expected to price before week's end, will carry an interest rate
between 1.5% and 2%, investors said. The so-called conversion
price, determining whether the bonds convert to shares when they
mature, is expected to fall in a range of a 27.5% to 32.5% premium
to where Tesla's new shares are sold. Those terms are in the
vicinity of Tesla's previous convertible-bond offerings. The
company last sold convertible bonds in March 2017 with a 2.375%
coupon and a conversion price 25% above the stock price at the
Many investors have liked Tesla convertible bonds because they
offer some of the safety of debt with the higher potential returns
of equity. There are also hedge funds that specialize in buying
convertible bonds while shorting, or betting against, the stock of
the same companies, another factor in driving demand for Tesla's
Tesla has $10.3 billion in debt with $1.92 billion maturing this
year and next.
Sam Goldfarb contributed to this article.
Write to Allison Prang at email@example.com and Tim Higgins
(END) Dow Jones Newswires
May 02, 2019 23:47 ET (03:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.