Tesla Files To Sell 2.1 Million Shares To Raise $500 Million

Innovative electric carmaker Tesla Motors has announced it hopes to raise approximately $500 million in a stock offering that comes as it prepares to roll out its highly anticipated new SUV.

The company said the proceeds, which may reach $566.5 million if underwriters fully exercise their option to purchase additional shares, will be used to expand Tesla’s retail operations, charging network and energy storage business, as well as to develop the world’s largest battery factory and a more affordable electric car called the Model 3.

“They are raising capital to fund growth, which is a good thing,” said Dan Dolev, an analyst with Jefferies LLC.

Tesla will offer 2.1 million shares and expects net proceeds of $492.6 million, with the company’s CEO Elon Musk intending to purchase $20 million worth of stock. Tesla’s shares rose 1 percent to $240.94 in late afternoon trading after the announcement.

Wall Street had been expecting the move. Last week, Musk was asked during the company’s second quarter earnings call if Tesla planned to raise capital, and he said that there might be value in doing so “as a risk reduction measure.”

“I don’t think that there’s not a need to raise equity capital,” said Musk. He said that the company should have at least $1 billion cash on hand, and that it ended the quarter with $1.2 billion in cash and cash equivalents.

In Tesla’s filing with the Securities and Exchange Commission, the company wrote, “We intend to use the net proceeds from this offering to accelerate the growth of our business in the U.S. and internationally.”

“The cash infusion has been expected for some time, and is necessary to keep Tesla solvent,” said Karl Brauer, a senior analyst with Irvine-based Kelley Blue Book, which conducts research on cars. “Between the $500 million from the stock offering and $750 million in credit, the company will substantially extend its financial lifeline.”

In the prospectus for the stock sale, Tesla warned investors of an array of risk factors, many of them boilerplate items. The company took note of its ongoing quarterly financial losses.

“The volatility of our stock may be exacerbated by our history of losses,” Tesla stated in the prospectus. “We have had net losses in each quarter since our inception, except for the first quarter of 2013, and as of June 30, 2015, our accumulated deficit was approximately $1.8 billion.”

The company’s decision to float the shares may be just what it needs to allow for effective operations in the future.

“We believe that Tesla’s plan to issue the shares, combined with existing credit lines, will provide the company with more than enough cash for operational purposes into 2016,” said Efraim Levy, an analyst at S&P Capital IQ.

Regardless, the stock sale is a sign of the intense competition that Tesla and any other startup vehicle maker face.

“Tesla Motors’ desire for a new cash infusion demonstrates just how difficult it is to sustain a startup automobile company in the face of so many well-entrenched global competitors,” said Jack Nerad, a Kelley Blue Book analyst. “Successful car companies must keep their vehicle offerings fresh. It is not enough to simply have one vehicle that is popular for a short span of time. It is critical to put into place an ongoing product plan, develop those products in proper cadence and market them successfully. This is not an easy process.”