Tesla Is Raising $1.15 Billion to Fund Its Model 3
Tesla plans to raise $1.15 billion through a sale of common stock and convertible senior notes in an effort to raise enough cash to support the launch of its new mass market Model 3 vehicle.
The company will issue offerings of $250 million of common stock and $750 million in debt, according to a Securities and Exchange Commission filing on Wednesday. Tesla has granted the underwriters a 30-day option to purchase up to an additional 15% of each offering. If underwriters exercise their option to purchase additional shares in full, the total raise would be $1.15 billion.
Tesla CEO Elon Musk will purchase $25 million of common stock, according to the SEC filing.
Tesla says in the SEC filing it will use the net proceeds to “strengthen its balance sheet and further reduce any risks associated with the rapid scaling of its business due to the launch of Model 3, as well as for general corporate purposes.”
Tesla is expected to begin limited vehicle production of the Model 3 in July. It plans to ramp up production to more than 5,000 vehicles per week in the fourth quarter and to 10,000 vehicles per week at some point in 2018, according to a shareholder letter released in February.
A recent run-up in Tesla stock—including a nearly 5% bump on Tuesday—created ideal conditions for the company to raise more money by selling more shares. Analysts and industry watchers have been predicting that Tesla would go to market to raise cash. Some were forecasting a capital raise closer to $2.5 billion.
Musk even alluded to a capital raise during a quarterly earnings call with analysts in February. When asked if the run up to the Model 3 would lead to a capital raise, Musk noted that raising capital could reduce risk for shareholders.
Tesla is facing some expensive months ahead as it prepares to produce the Model 3, continues to scale its massive battery factory outside of Reno, and integrate SolarCity into its business. The less robust the cash flow, the more likely that a publicly traded company—in this case, Tesla—will need to raise more shares.
Preparing to produce the Model 3 is expected to cost billions. The company said in its shareholder letter in February that it expects “to invest between $2 billion and $2.5 billion in capital expenditures ahead of the start of Model 3 production.” Tesla CFO Jason Wheeler later clarified that this capital expenditure is an estimate for the first half of the year, not a full-year estimate.
The company reported $3.39 billion in cash and cash equivalents at the end of 2016.
Tesla is also on the brink of another building spree. The automaker and energy company said in its shareholder letter that it will finalize locations for as many as three more massive factories, which it calls gigafactories, a term that aims to discourage any attempts to compare these to the typical manufacturing facility.
The common stock and debt offering comes less than a month since Tesla reported its quarterly earnings and announced that its Wheeler, who joined the company in 2015, will leave in April for a job in public policy.
Tesla’s first CFO, Deepak Ahuja, who held the position for seven years until retiring in 2015, has returned to take over the position.
Goldman, Sachs & Co., Deutsche Bank Securities, Citigroup and Morgan Stanley are acting as lead joint book-running managers for the offering, with Barclays, BofA Merrill Lynch, and Credit Suisse acting as additional book-running managers.