Tesla stock has rallied again in the wake of – and despite – the surprising news that it will offer $US2 billion ($A2.98 billion) of common stock, sparking speculation that the electric car and battery storage pioneer may be considering a new gigafactory.
“Tesla, Inc. (“Tesla”) today announced that it intends to offer approximately $US2 billion of common stock in an underwritten registered public offering,” the company wrote in a blog statement regarding the stock offering, adding that it was allowing for up to $US300 million of over-subscriptions.
CEO Elon Musk has committed to buying up to $US10 million ($A15 million) of common stock in the offering, while another director Larry Ellison has put his hand up for up to $US1 million.
Tesla shares have skyrocketed 255.2% in the past six months, achieving a February 4 high just below $US900 ($A1,340) before it settled back around $US770 ($A1146).
At first the news of the stock offer, which coincided with revelations of an SEC subpoena seeking information about “certain financial data and contracts including Tesla’s regular financing arrangements”, resulted in a 7% slump.
The stock offer may also have caught the market off-guard because only two weeks ago Musk said that he didn’t think Tesla needed to seek additional funding.
“We’re spending money, I think, efficiently, and we’re not artificially limiting our progress,” Musk told analysts at the Q4 earnings call.
“And then, despite all that, we are still generating positive cash. So in light of that, it doesn’t make sense to raise money because we expect to generate cash despite this growth level.”
But the initial shock boomeranged back within an hour of the market opening, and the stock closed 6% higher than the previous day at $US818 ($A1,217), with bullish analysts pointing out that the additional cash flow could fund further growth.
Ross Gerber, co-founder and CEO of Gerber Kawasaki Wealth and Investment Management, was quoted by Benzinga as saying that the stock jump showed how differently the market is reacting to Tesla.
“Normally that would have sunk Tesla 50 points or 100 points. This is not normal anymore. This is about a company proving to people that they’re going to accomplish their long-term goals, and the market likes it,” Gerber said.
Leading Tesla Bull Cathie Wood, an analyst for Ark Invest which thinks Tesla’s shares could be worth $US7,000 ($A10,420) in five years, or even more, says that she would not be surprised if another Gigafactory announcement is in the offing.
.@ARKInvest included $15B of equity dilution in its 5 year forecast for $TSLA, so $2 billion+ now makes sense. We wouldn’t be surprised if Elon announces plans for another #Gigafactory in China, a vote of confidence in the resilience of that country.
— Cathie Wood (@CathieDWood) February 13, 2020
If so, it would not be a complete surprise.
In early February, Musk mused – on typical fashion via social media platform Twitter – about whether Texas might make a good location for another Gigafactory, asking followers to weigh in on a poll with a “Hell yeah” or a “Nope”.
Garrett Nelson, an analyst with CFRA agrees that growth is behind the latest stock offering, given the recent growth in stock value and noting that it last issued equity in May at $243 a share.
“We are not surprised by the capital raise considering (Tesla’s) ambitious growth plans, including a new factory in Germany and a possible factory in Texas,” Nelson was quoted as saying by Market Watch.
But other factors may have also contributed to the company’s decision, says Nelson.
“Recent speed bumps including a coronavirus-related delay in vehicle deliveries from its new China factory and the Model X recall likely factored into management’s decision to proceed with the offering,” he was quoted as saying.