Tesla has announced that it will sell $2 billion of common stock in a new public offering, just days after CEO Elon Musk said it wouldn’t “make sense” to raise more cash. The company says it plans to use the proceeds from the offering “to further strengthen its balance sheet, as well as for general corporate purposes.”
Musk will buy up to $10 million worth of stock in the offering, while billionaire Oracle founder Larry Ellison — who was appointed to Tesla’s board of directors in late 2018 — will buy up to $1 million, the company said.
On a January 29th call with investors, Musk and Tesla CFO Zach Kirkhorn were asked whether, given the recent jump in the company’s stock price, Tesla would consider raising more money now to “substantially accelerate the growth in production (i.e. Gigafactories), investments in supercharger and customer service.”
Musk said in response that Tesla is “spending money as quickly as we can spend it, sensibly,” and that the company is generating positive cash flow (meaning there’s more money coming into Tesla than going out). That same day, Tesla announced it generated $1.1 billion in free cash flow in the fourth quarter of 2019 alone, and it finished the year with $6.3 billion in the bank. Tesla also said it expects that positive cash flow to continue going forward. “So in light of that, it doesn’t make sense to raise money because we expect to generate cash despite this growth level,” Musk said.
Later in the call, Credit Suisse analyst Dan Levy asked if Musk and Kirkhorn thought it might make sense to raise cash to help pay off Tesla’s massive $10 billion debt pile or to buy up other companies.
Musk jokingly asked Levy who Tesla should acquire but then went on to say that “diluting the company to pay down debt doesn’t sound like a wise move.” Kirkhorn reiterated Musk’s earlier point, saying, “We are not [cash] constrained.”
There is certainly no shortage of places where Tesla could use the new cash it raises — or any of its existing cash, for that matter. The company recently started Model 3 production at its newly opened Gigafactory in China, but it has not completed building out the facility. It’s also started work on a new factory in Germany. The company’s compact SUV, the Model Y, is ahead of schedule and will start shipping to customers this spring, meaning Tesla has to once again ramp up production of what will likely be a popular product. Tesla said on January 29th that it intends to start a small production run of its electric big rig, the Tesla Semi, this year. The company is also trying to put some new energy products into mass production, like its long-teased solar glass roof. And, of course, it is in the thick of developing the Cybertruck, which is supposed to go on sale in late 2021.
This is not the first time Tesla’s raised cash through secondary stock offerings. Last year, the company sold nearly $900 million in stock and $1.8 billion in debt that can be converted to stock. In 2017, Tesla sold $250 million in common stock in 2017 to help get Model 3 production off the ground (alongside a $750 million loan that could be converted to stock in 2022). Tesla also sold $1.4 billion of stock to fund the Model 3 program in 2016 and $500 million back in 2015.