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Tesla cashes in on surging stock price with $2 billion stock offering

A man in a suit speaks at a podium.
Enlarge / Elon Musk in 2015.

Tesla will raise $2 billion in a new stock offering, the company announced on Thursday morning.

Tesla’s shares are worth about $780 on Thursday morning—up 2 percent over Wednesday’s closing price. That’s still down from the record high of the more than $940 the stock reached last week.

CNBC notes that as recently as two weeks ago, Musk was saying that Tesla wasn’t planning to raise more cash. But the spectacular performance of Tesla’s stock over the last two weeks may have made this an opportunity too good to pass up.

Tesla’s shares are now worth about three times as much as the last time the company raised money in May 2019. A higher share price means that Tesla can fill its coffers while giving up a much smaller share of the company to new shareholders.

And Tesla has plenty of uses for the money. The company has an ambitious slate of new vehicles planned for the next two years: the Model Y SUV, a new version of the Roadster sports car, a semi truck, and the Tesla Cybertruck. Until now Tesla has launched just four vehicles in its entire 16-year history, so launching four more vehicles over two years is an ambitious goal.

And launching a new vehicle costs a lot of money. As this chart shows, each of Tesla’s past vehicle launches has been accompanied by a major cash drain:

It costs billions of dollars to design a new vehicle and build out the factory to manufacture it. In 2017, as Tesla was ramping up production of the Model 3, Tesla made almost $3.5 billion in capital expenditures, according to Bloomberg.

Tesla incurs a lot of those costs before the first vehicle rolls off the assembly line. So having an extra $2 billion in the bank will be extremely helpful as Tesla tries to roll out multiple vehicles in quick succession.

The new fundraising round is similar to the one Tesla undertook last May. In both cases, Tesla sought to raise at least $2 billion. Both deals gave underwriters an option to sell additional securities. As a result, Tesla wound up raising $2.3 billion last year. Underwriters will have an option to buy up an extra $300 million in Tesla shares this time as well.

A major difference, however, is that Tesla’s new fundraising round will be an all-stock transaction. That’s different from last year’s deal, where the majority of the money was raised using convertible debt. This type of debt give investors an option to convert it to stock if Tesla’s shares go up in value. Tesla’s stock has performed well since last May, so it’s likely that investors will ultimately take stock rather than getting their money back at the end of the loan.

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