Tesla Plans to Sell Additional Stock Valued $5 Billion

Tesla Inc. (Tesla) announced on Tuesday, September 1, 2020, that it planned to sell new shares, which is worth $5 billion to raise its balance sheet and cash reserve. The electric car manufacturer, founded by the current CEO Elon Musk, made its initial public offering (IPO) in June 2010 but the latest move represents one of the biggest fundraising events for the company in a span of a decade.

Recently, the electric vehicle (EV) producer has implemented a 5-for-1 stock split of the company after the market value of Tesla rose to six-fold this year from the value it held at its initial offering. The EV maker recorded a significant surge of its share price due to the company reporting its fourth straight quarter of profits in its July 22 report, which qualifies the electric automaker for inclusion in the S&P 500.

Tesla also posted better-than-expected second-quarter vehicle deliveries. With this development, Tesla became the world’s biggest car company by value in July as it reached a market capitalization of around $465 billion and this has led to Musk’s personal fortune crossing $100 billion recently.

New Stock Sale

Amid the harsh impacts of the COVID-19 outbreak, Tesla witnessed a remarkable surge of its shares to new high and made its latest move simply to reserve abundant cash for future expansion of its business. Over the past year, Musk has repeatedly assured investors that Tesla would not need to raise more money for costly expansion initiatives or to pay down debt, which are the key strategies for raising funds by companies.

Tesla said in a filing with the Securities and Exchange Commission that the additional shares would be sold “from time to time” and “at-the-market” prices by banks under the directives from the company. It added, “We intend to use the net proceeds, if any, from this offering to further strengthen our balance sheet, as well as for general corporate purposes.”

Wedbush analyst Dan Ives called the capital raise a “smart move,” citing strong appetite among investors to “play the transformational EV trend through pure-play Tesla over the coming years.” Closing on Monday, Tesla has gained its share value by nearly 500% in 2020.

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Overrated Values

Following the news, RBC responded that the stock value of the EV maker was “fundamentally overvalued,” due to underperformance rating on the stock. In addition, Miller Tabak chief market strategist Matt Maley warned that those “who buy stock in TSLA on the new $5 billion equity distribution they announced this morning are going to get burned.” He added, “Even if this stock rallies a bit more over the next week or two, it’s going to be trading at least 30% below today’s level before the end of the year in our opinion.”

Craig Irwin, a Roth Capital Partners analyst, who has the equivalent of a ‘hold’ rating on the stock, on Tuesday said the capital raise did not come as a surprise. Irwin stated, “They will need cash for all the facilities they are building, and new growth initiatives.”

Tesla is currently seeking to massively expand the production of its existing vehicles and build new factories near Berlin, Germany, and Austin, Texas. Moreover, it also plans to launch new lines of vehicles, including a semi-truck called the Tesla Semi and its futuristic Cybertruck.