Published: Fri, February 14, 2020
Economy | By

Tesla slumps as it announces $2bn stock offering

Tesla slumps as it announces $2bn stock offering

So in light of that, it doesn't make sense to raise money because we expect to generate cash despite this growth level.

Musk has repeatedly assured investors that Tesla will not need to raise more money for costly initiatives including production of a new vehicle model, the ramp-up of its China production and the construction of its first European factory. While shares were down as much as 6% in the pre-market, the stock recovered its losses in early market trading.

Larry Ellison, a Tesla board member and the co-founder of software giant Oracle, will buy as much as $1 million in shares, the automaker said.

Tesla Inc made an about-turn on Thursday by announcing plans to raise $2bn in a stock offering as the electric auto maker taps into an astronomical jump in its share price in the past few months.

"Diluting the company to pay down debt doesn't sound like a wise move", Musk said on the same call. However, it's not as if the company doesn't have some pretty big expenses to deal with and extra $2 billion might come in handy. Additionally, the company is in the process of building a new Gigafactory in Germany, outside of Berlin.

Musk also said Tesla needed to produce more batteries to increase vehicle production, adding that some projects like its electric semi-trailer truck program could not proceed without battery improvements. The stock had more than tripled since the company released the first of two straight positive earnings reports in October.

Model X Steering Wheel
Tesla Model X steering wheel. | Image Tesla

The company said it plans to use the net proceeds "to further strengthen its balance sheet, as well as for general corporate purposes".

"Despite this comment, we believe this is the correct thing for TSLA to do taking advantage of the recent surge in the stock price".

Tesla, which started delivering cars in December from its $2 billion Shanghai factory, also sells longer range imported Model 3s with all-wheel drive in China. The current iteration can travel about 250 miles on a single charge.

CFRA analyst Garrett Nelson said coronavirus-related delays in China vehicle deliveries and a Model X recall likely played a role in Tesla's decision to raise capital.

The National Highway Traffic Safety Administration (NHTSA) and Transport Canada said aluminum bolts that attach the electric power steering gear assist motor to the gear housing may corrode and break causing a reduction or complete loss of power steering assist.

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