Tesla’s next model: a $450 million convertible (debt) offering
“Well, we don’t have any plans right now to raise funding.”
– Elon Musk, investor conference call, May 8, 2013.
“Supercharger announcement pushed to next week. Something else this week.”
– Elon Musk via Twitter, May 14
“Tesla Motors, Inc. announced today offerings of 2,703,027 shares of common stock and $450 million aggregate principal amount of convertible senior notes due 2018 in concurrent underwritten registered public offerings.”
– Tesla press release, May 15
So that was the something else. What a difference a week makes. Tesla Motors’ announcement yesterday that it would seek to raise nearly a billion dollars through a stock sale and debt offering may well be a make-or-break moment for the high-flying electric carmaker as it tries to springboard from a niche player selling a single model to an electron-age Ford.
Tesla chief executive Elon Musk will also pony up $100 million to buy his company’s stock in a private placement. All in all, Tesla could raise as much as $830 million to pay off the remaining $452.4 million balance on a federal government loan that helped financed the production of its Model S luxury sports sedan.
What’s left would be used for “general corporate purposes,” according to Tesla. That would provide a comfortable cash cushion for the upcoming production of the company’s Model X sport utility vehicle as well as for it to develop a cheaper third-generation electric car.
And a healthy bank balance would help insulate Tesla from the wild swings in its share price as short-sellers bet that Tesla will go the way of DeLorean and other failed car startups. That hasn’t been working out too well for the shorts (who borrow stocks to sell and then buy back later in the hope that their price will have dropped in the meantime). Tesla’s stock has been on a tear in the wake of its first profitable quarter and news that Consumer Reports awarded the Model S its highest-ever automobile rating. The stock offering has only added to the shorts’ misery: Tesla shares were up nearly 8% this morning to $91.26, giving the company a market cap of $10.4 billion.
But Tesla will be trading debt to the government for debt to the market, which may be well less forgiving should the automaker falter. The company faces twice-yearly interest payments on the $450 million in convertible notes, which come due in 2018. It will then have to pay the notes off or convert them to stock, which will dilute existing shareholders.
One thing is for sure. What’s good for Tesla is good for Goldman Sachs. The Wall Street firm is the lead underwriter for Tesla’s debt offerings and its bank is lending Musk the money for his $100 million purchase of company stock, according to the prospectus. Goldman Sachs is also profiting from another of Musk’s ventures—today it said it would finance $500 million in new solar projects for SolarCity, an installer of rooftop solar panels, where he serves as chairman.
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