Tesla Raises $2 Billion: Did Elon Musk Lie to Investors?

  • Tesla will dilute shareholders by issuing $2 billion worth of additional stock.
  • Elon Musk told investors that a capital raise “doesn’t make sense” just two weeks ago.
  • While the stock dipped in pre-market trading, shares have recovered most of the losses.

Tesla (NASDAQ:TSLA) has decided to dilute its investors by raising $2 billion worth of capital through a stock offering along with a $300 million greenshoe option for the deal’s underwriters. The company’s CEO, Elon Musk, plans to purchase $10 million while billionaire board member Larry Ellison will purchase $1 million worth of the new stock.

This decision comes just weeks after Elon Musk suggested that Tesla was not interested in any more capital raises. It looks like the company’s monster rally changed his mind.

Nevertheless, investors are taking the news in stride with shares up slightly in early morning trading.

Tesla’s stock is up despite the bad news. | Source: Ycharts.com

Elon Musk Breaks His Promise

Elon Musk made many projections for the future during Tesla’s fourth-quarter earnings call last month. Perhaps most notably, he claimed that Tesla wouldn’t issue more shares to generate cash.

The controversial CEO stated the following on Jan 30:

Well, we’re actually spending money as quickly as we can spend it sensibly. So if there’s any sensible way to spend money, we’re spending it. And then despite all that, we are still generating positive cash. So in light of that, it doesn’t make sense to raise money because we expect to generate cash despite this growth level.

Just two weeks later, Elon is changing his tune. Perhaps, Tesla’s monster rally convinced even him that the company is overvalued.

Here is how much Tesla’s share price rocketed in the weeks following fourth-quarter earnings:

Tesla’s stock has soared after fourth-quarter earnings. | Source: Ycharts.com

Details of the Dilution

On Thursday, Tesla filed a document with the SEC detailing plans to issue an additional 2,650,000 shares of common stock. The deal’s underwriters will get the option to purchase an additional 397,500 shares from Tesla.

Musk and board member Larry Ellison have expressed interest in purchasing 13,032 and 1,303 shares, respectively. These shares are worth approximately $10 million and $1 million at current prices.

But with Ellison’s net worth estimated at $69.6 billion and Musk’s net worth estimated at $39 billion, these token stock purchases will do little to bolster the faith of Tesla’s now diluted common stockholders. In fact, they may suggest that even Tesla’s management thinks the company is overvalued at current prices.

The filing stated:

We expect to receive net proceeds from this offering of approximately $2.01 billion (or approximately $2.31 billion if the underwriters exercise their option to purchase additional shares in full) after deducting the underwriting discounts and our estimated offering expenses. The estimated net proceeds are based on the assumed public offering price of $767.29 per share, which was the last reported sale price of our common stock on February 12, 2020.

Tesla plans to use the cash to strengthen its balance sheet and for general corporate purposes. The company currently has $6.3 billion in cash on its books.

The Market Takes the Dilution in Stride

Some shareholders are understandably upset with Tesla’s decision to issue more shares. Others are capitalizing on the opportunity to throw jabs at the company.

Tyler Winklevoss, the co-founder of the Gemini cryptocurrency exchange, had this to say on Twitter.

Winklevoss took the opportunity to pump Bitcoin. | Source: Twitter.com

Overall, the market is taking Tesla’s dilution in stride. While shares were down as much as 6% in the pre-market, the stock recovered its losses in early market trading.

Lying CEO or not, investors still have faith in Tesla.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.

This article was edited by Sam Bourgi.