NEW YORK, May 2 — Tesla Inc announced plans to raise up to US$2.3 billion (RM9.5 billion) in new capital today, easing Wall Street concerns over the electric carmaker’s ability to see through its ambitious investment plans while it works to deliver a steady profit.
Analysts have been saying for months that Tesla would need more money for projects that include the construction of a factory in Shanghai, the upcoming Model Y SUV and the crucial ramp up of production of its Model 3 sedan.
After the company lost another US$700 million in the first quarter, several Wall Street brokerages said last week it would seek up to US$3 billion more in backing soon and today’s announcement spurred a three per cent rise in the company’s shares.
“It’s a good thing they are finally raising cash,” said Roth Capital analyst Craig Irwin.
“The market seems to be breathing a sigh of relief. Now they need to get back to work, and start selling more cars.”
Tesla said in a filing that it would seek to raise US$650 million in new shares and US$1.35 billion in debt, with underwriters having the option to buy an additional 15 per cent of each offering, potentially raising the proceeds to US$2.3 billion.
Chief Executive Officer Elon Musk would also pitch in US$10 million of his own money, it said.
Musk has been in the limelight since US Securities and Exchange Commission sued the billionaire last year for fraudulent statements after he claimed he had funding to take Tesla private at US$420 per share.
Tesla has struggled to deliver on Musk’s promises on production and, while he said last week that the company would deliver a profit again by the third quarter of this year, the scale of its investments means it is still leaking cash.
“The latest delivery and earning numbers were more than disappointing,” said Nord LB analyst Frank Schwope.
“The group still has to prove that it can earn money sustainably and that the vehicles are of high quality. By 2020 at the latest, we will see whether the Tesla business model will work. We do not expect the annual result will be in the black before.”
The company expects capital expenditures of US$2 billion to US$2.5 billion this year and about US$2.5 billion to US$3 billion annually for the next two fiscal years. It ended its first quarter with US$2.2 billion in cash.
After Musk’s hints last week, analysts said the capital raise would cost significantly more now than it would have a year ago, when some on Wall Street were already calling for a capital raise.
Tesla has raised funds through bank loans, several rounds of equity sales, issued convertible notes, a junk bond sale, securitisation of its vehicle leases and solar asset-backed notes.
A previous issue of shares in 2017 went at US$262 a share, compared to the company’s current price of US$246. The yield on its existing US$1.8 billion junk bond rose to 8.42 per cent on Friday in anticipation of the new issuance, more than three percentage points above its 5.3 per cent coupon.
Goldman Sachs and Citigroup will manage the offering. BofA Merrill Lynch, Deutsche Bank Securities, Morgan Stanley and Credit Suisse are the additional book-running managers. — Reuters
