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Tesla Inc. shares fell Thursday, after the electric-car maker surprised the market with the news that it’s planning to offer about $2 billion of common stock in an underwritten deal, but pared losses as some on Wall Street applauded the move.
Chief Executive Elon Musk will participate in the offering by purchasing up to $10 million in new shares, Tesla TSLA, -0.36% said in a statement. Board member Larry Ellison will also participate by buying up to $1 million in stock.
Proceeds of the deal are slated to be used to bolster the company’s balance sheet and for general corporate purposes. Goldman Sachs and Morgan Stanley are underwriting the deal and have a 30-day option to acquire another $300 million in stock.
Baird analyst Ben Kallo said the equity raise is about 2% dilutive to existing shareholders, but that the move was prudent given the recent run-up in the stock price. Tesla shares have been on a tear, more than doubling in just three months, repeatedly setting fresh records as analysts turn more bullish on the company.
The stock was down as much as 4.2% in early trading — it fell as much as 7.2% in premarket trading — before recovering to trade down 1% in morning trading.
Kallo acknowledged. however, that issuing stock clashes with recent comments from the company, including from Musk on its last earnings call on Jan. 29.
“We’re spending money, I think, efficiently, and we’re not artificially limiting our progress,” Musk told analysts, according to a FactSet transcript. “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.”
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The money will help fund Tesla’s future investment plans which include up to $3 billion of annual capital expenditures through 2022, said Kallo.
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“Importantly, we think the announcement could provide an opportunity for analysts to close out sell ratings and expect shares to trade up in the short term,” Kallo wrote in a note to clients. The analyst rates the stock as neutral with a $650 price target, that is below its current price of about $750.
Separately, Tesla released its audited 2019 annual report early Thursday, and disclosed that on Dec. 4, the Securities and Exchange Commission issued a subpoena seeking information concerning “certain financial data and contracts including Tesla’s regular financing arrangements.”
Tesla said the Department of Justice had also asked to voluntarily provide information regarding financing arrangements.
Also on Dec. 4, the electric car maker said the SEC closed its investigation into the projections and other public statements regarding Model 3 production rates. In the 2018 10-K filing, the SEC had issued subpoenas to Tesla in connection with Chief Executive Elon Musk’s statement regarding consideration of taking Tesla private and certain projections made for Model 3 production rates.
Shares have gained 147% in the last 12 months, while the S&P 500 SPX, -0.47% has gained 22%.
Read all of MarketWatch’s recent coverage of Tesla and CEO Elon Musk
