Tesla Reveals $5 Billion Capital Raise to “Strengthen The Balance Sheet” But Disappoints Stock Holders In Doing So

Automaker Tesla has already made two capital increases in 2020: $2 billion in February and $5 billion in September. In a recent announcement, the company has made another $5 billion capital raise.

The announcement came shortly after CEO Elon Musk said that Tesla would not raise money again. However, it seems like the automaker will be taking advantage of Tesla’s spike in its stock price which will allow the company to raise money at lower dilution for current investors. 

Since Tesla’s stock has risen again following the announcement, it may be expected that it will be used in the S&P 500, and the automaker is going back to the well.

Today, Tesla is introducing a major capital raise of up to 5 billion on the market:

“We have entered into an equity distribution agreement, or the equity distribution agreement, with Goldman Sachs & Co. LLC, Citigroup Global Markets Inc., Barclays Capital Inc., BNP Paribas Securities Corp., BofA Securities, Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Morgan Stanley & Co. LLC, SG Americas Securities, LLC and Wells Fargo Securities, LLC, as our sales agents, under which we may offer and sell from time to time our common stock having an aggregate offering price of up to $5,000,000,000. The sales agents may act as agents on our behalf or purchase shares of our common stock as principal.”

Similar to the previous two capitals raised this year, Tesla is making it clear that capital raised is not to fund any particular initiative. 

In defence of the claims, Tesla says again that it will simply boost its capital structure with the funds:

“We currently intend to use the net proceeds from this offering to further strengthen our balance sheet, as well as for general corporate purposes. Pending use of the proceeds as described above, we intend to invest the proceeds in high-grade investments, highly liquid cash equivalents or United States government securities, subject to applicable regulatory restrictions.”

According to Tesla’s recent end of the quarterly report, the company documented an amount of cash and cash equivalent on its balance sheet: $14 billion.

The prospectus of the capital increase is shown below:

While it has been expected that Tesla will raise money again as predicted by many analysts due to its surge in the stock price, many are hopeful that it would be allocated to expedite the company’s plans to improve electric transport and renewable energy.

Instead, the automaker determined the money raised will be to “strengthen the balance sheet.” The decision is ultimately a discouraging one, especially for shareholders.