Tesla just announced a five billion dollar capital raise to strengthen its balance sheet further. This will be the third time that Tesla has done a capital raise this year.
If you add them all up, that comes to around 12 billion dollars for the year raised by Tesla.
Let’s Talk about this announcement and what it means for Tesla as a company.
If you go to Tesla’s investor relations page, you can currently pull up this filing with the sec.
Talking about this common stock, offering the beginning of this filing talks about the equity distribution agreement they’ve reached with a number of these banks, and then it says quote under which we may offer and sell from time to time our common stock.
Having an aggregate offering price of up to five billion dollars and the reason for this capital raise, Tesla said it was to strengthen our balance sheet in a wall street journal interview today.
Elon Musk was asked about the reason behind Tesla’s recent 5 billion raise. He talked about how this was something that they debated in the company, and ultimately it was for debt retirement, and he said, I guess, to have a bit more of a war chest.
Let’s dive into the implications of this announcement and talk about it here at the beginning. Why? I think this is such an excellent time for Tesla to raise and sell more stock.
The first reason is that Tesla’s stock price is so high, and when your stock price is high, it allows you as a company to raise more capital more cash without significantly diluting your stock.
When you look at where Tesla’s price was roughly one year ago, you can see just how much the stock has risen since then, almost 10x.
This allows Tesla to offer over 7 million shares of Tesla stock, and raise around 5 billion dollars and dilute the stock by less than one percent.
This is excellent news for investors because Tesla can use this cash to further their mission and accelerate their growth while not diluting the stock very much.
Tesla is growing at an extremely fast rate, and they have learned how to be very efficient with their capital expenditures.
They’re a much more efficient company than they were just a couple of years ago. So this five billion dollar raise should prove to grow further.
Tesla’s lead in the EV space and the value created by this cash could potentially be magnitudes more significant than the actual dilution itself. In the q3 2020 conference call, Elon musk talked about how they’re spending.
Cash quote. We’re, trying to spend money at the fastest rate to spend it and not waste it possibly.
Another reason beyond the stock price and the low dilution number is that Tesla will need a lot of this cash to grow as quickly as they want to.
With this extra five billion dollar of cash, Tesla’s cash or cash equivalents on hand will reach around 19.5 billion dollars, while Tesla is generating quite a bit of cash from their operations, and they are now a profitable company.
I do believe that these capital raises are essential to accelerate this progress further and not slow down their success right now.
Elon musk has some very ambitious goals for Tesla, including the one he outlined in this tweet, where he said we do see Tesla reaching 20 million vehicles per year, probably before 2030.
Tesla’s, going to need this 19.5 billion and more to reach this 20 million vehicle per year goal. Tesla is going to need quite a few new factories to be able to produce these 20 million vehicle per year.
Tesla currently has a factory in Fremont and Shanghai pumping out vehicles.
They’re building out the factory in Berlin and Texas, and, as you can see on this basic projection chart, you can see how this might play out in the coming decade.
I believe this is a good time for Tesla because they are currently ramping up several new vehicles and several new vehicle projects, and those take a lot of cash as well.
One of the most exciting product ramps that are coming very soon is, of course, the tesla cyber truck, as Elon Musk said on Twitter.
Talking about the metal, that’s going to make the body of the cyber truck quote, but we’ll need to develop new body manufacturing methods.
It can’t be manufactured using standard methods. Tesla went out of the box when it came to the design and the actual material to build the cyber truck.
While, overall, it’s going to reduce the complexity of manufacturing, they’re not going to need a paint shop.
For instance, it will require a lot of work beforehand to figure out the manufacturing techniques, and that requires capital.
Tesla is also currently launching the semi-truck, and the tesla roadster should be coming shortly. We also know that Tesla’s, working on less expensive, smaller EV’s for various markets throughout the world.
This cache will also come in handy right now as they ramp out their new batteries’ production lines.
Their 4680 cells, as Elon Musk said on Twitter, talking about scaling the production of their new technology, explicitly talking about batteries here, but this applies to other things.
The extreme difficulty of scaling the production of new technology is not well understood. It’s.
One thousand percent to ten thousand percent harder than making a few prototypes, the machine that makes the machine is vastly more challenging than the machine itself.
I believe this is a perfect time for Tesla to raise cash because there is a lot of economic uncertainty at the moment.
Tesla has done very well right now when other auto manufacturers have been struggling.
However, we don’t know what the future holds, and it’s never going to be a bad idea for Tesla to have more cash on hand.
More cash on hand gives Tesla the flexibility and the ability to go through even a terrible downturn in the economy.
I also feel that this capital raise might have something to do with Teslas—inclusion in the SP 500.
In just a little bit more than a week from now, this inclusion will require many fund managers to purchase and hold tesla stock, which could help alleviate the pressure caused by this sizeable looming purchase.
So, overall, I think this is a brilliant move for Tesla and will give them more cash to accelerate the world’s transition to sustainable energy and transportation.
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