Tesla is aiming to raise up to $5bn (£3.7bn) in its biggest issue of new stock in a decade, as the electric carmaker takes advantage of an almost 1,000% surge in its share price over the past year.
The move comes a day after the company completed a 5-for-1 stock split, which sparked a share price rise that propelled co-founder Elon Musk past Facebook’s Mark Zuckerberg to become the world’s third-richest person.
The investor-pleasing stock split, the first since Tesla’s flotation in 2010, pushed Musk’s paper fortune to more than $115bn, making him one of only four “centibillionaires” in the world. The 49-year-old joins the Amazon founder, Jeff Bezos, the Microsoft co-founder, Bill Gates, and Zuckerberg as the only people who have a net worth of more than $100bn. The Facebook founder joined the centibillionaire club just last month.
Tesla gave few details about how it planned to use the $5bn, but in a stock market filing it said: “We currently intend to use the net proceeds from this offering to further strengthen our balance sheet, as well as for general corporate purposes.”
Its shares have climbed to record highs in 2020, making the company more valuable than traditional carmakers such as Toyota, which it passed as the world’s biggest car company by stock market value in July. It has also leapfrogged some of the world’s biggest listed businesses including Visa and Walmart, which is the largest US company by revenue. The share sale represents about 1% of Tesla’s $464bn market capitalisation.
Musk, who is in Germany as part of a multistop European trip that has included a visit to the UK, has used Tesla’s share price as a cheap means of raising money to continue to fund its expansion plans instead of tapping debt markets.
The company has a number of capital intensive projects in train, including the construction of its first European manufacturing and battery centre in Germany and a new factory in Texas, while another production facility recently came online in China.
The stellar share performance over the last year reflects an improving financial performance. Last summer Tesla’s shares tumbled after the company reported a $400m second-quarter loss following a $700m loss in the first three months of the year, despite record car sales.
Investors questioned the future of Tesla, which had lost more than a dozen executives over the previous year. But since then it has recovered and in July it reported a profit for the fourth quarter in a row.
“Now in a clear position of strength and out of the red ink, Musk and his red cape are raising enough capital to get the balance sheet and capital structure to further firm up its growing cash position and slowly get out of its debt situation,” said Dan Ives, an analyst at Wedbush. “This is a smart move at the right time for Musk & Co after the parabolic rally in shares and with the appetite strong among investors.”
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Musk is in line to receive a record $55.8bn (£40bn), the largest corporate pay deal ever stuck between a chief executive and a company’s board, if he can continue to drive Tesla’s performance.
Musk also has a habit of getting into hot water. Last year he was sued for $190m in defamation damages over derogatory tweets about British caver Vernon Unsworth, who was helping to rescue 13 people trapped in a Thai cave. A jury found the tweets did not reach a legal standard for defamation, and Musk was not found liable for damages.
A decision to smoke cannabis on a live web show two years ago resulted in Tesla’s share price falling and the departure of two of its executives. The same year the US Securities and Exchange Commission fined Musk and Tesla $20m over his tweets that he planned to take the company private at a substantial premium, which caused the stock price to surge.
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