Tesla’s decision to raise $2.3 billion in new capital should provide a confidence boost for investors.
After all, the electric-car maker burned through $2 billion in cash in the first quarter of 2019 as it struggled with delivering its Model 3 to overseas customers for the first time. It also lost $700 million in the quarter.
“It’s a sign that maybe [CEO Elon Musk] is maturing a little bit, maybe being a bit more grown-up on being a manager instead of just an innovator,” Matt Maley, manager director of Miller Tabak, tells Yahoo Finance’s The First Trade.
Musk’s change of heart
It was just a week ago that Musk deferred analysts’ questions about raising capital.
“I don’t think raising capital should be a substitute for making the company operate more effectively,” Musk told shareholders on the company’s earnings call. “I do think there is some merit to raising capital, but this is sort of probably about the right timing.”
Musk has said in the past that the electric car maker would no longer need to raise capital as its first mass-manufactured car ramped up.
Tesla plans to raise $650 million in the form of new equity and $1.35 billion in convertible notes. The total equity offering is for about 3 million shares of Tesla.
Musk indicated he wants to buy about $10 million of the company’s stock in the new offering.
Staying on the sidelines
“On a technical basis, Tesla was breaking down,” says Maley. “That $250 level was a key support for the stock and it couldn’t hold that level.”
The idea of more cash on hand sent Tesla’s stock higher in early trading on Thursday – shares were up more than 2% – but analysts believe it won’t do much more than help the company pay its bills, at least in the short term.
“The fundamentals just aren’t there, but there are a lot of long-term believers,” says Maley. “Until things play out over a longer-term basis, I’m on the sidelines. Tesla is a tough name to really call.”
Alexis Christoforous is a New York-based Anchor and Reporter for Yahoo Finance. Follow her on Twitter at @AlexisTVNews