Elon Musk must to raise at least US$1.15 billion more to bring his more affordable Model 3 to market.
His believers, along with investors who buy into the vision of Tesla, could hardly be happier.
After burning through cash late last year and Mr Musk’s warning to Wall Street that the company coffers were “close to the edge”, Tesla has announced it will sell new stock and convertible securities while preparing for volume production and deliveries of its first mass-market car later this year.
News of a big stock sale typically depresses a company’s share price because it dilutes the value of investors’ holdings. But this is Mr Musk, whose clean-energy company has captured imaginations on and off Wall Street even as the California-based company has struggled to be profitable. Instead of falling, Tesla stock is climbing in premarket trading today.
Outside the United States, Dubai is among supporters of the Tesla vision. This month, The National reported that Dubai FDI, part of the Department of Economic Development, will collaborate with the electric vehicle (EV) company to catapult adoption throughout the region. Dubai will be a launchpad for Tesla across new markets while making the UAE its regional hub, said Fahad Al Gergawi, the chief executive of Dubai FDI.
The proceeds from Tesla’s offering of US$250 million in shares and $750m in convertible debt will be used to strengthen its balance sheet and reduce risks associated with introducing the Model 3 saloon, Tesla said in a statement. The Model 3, scheduled to start production in July, will start at about $35,000 before incentives and is smaller than the Model S.
The offering will cushion the balance sheet of the youngest publicly held car maker as it boosts spending to introduce the Model 3. Tesla burned through $970m in the fourth quarter and expects as much as $2.5bn in expenditures during the first half of 2017. If anything, the size of the capital raise is smaller than many analysts had expected.
“We would not be surprised to see the raise upsized as we expect the company could use the capital, especially as it enters full ramp of the Model 3,” said Colin Rusch, an analyst at Oppenheimer & Co. “We would be encouraged to see the company raise closer to $2bn.”
The Model 3 is the key to Mr Musk’s push to reach mainstream consumers. At the last count, Tesla had about 373,000 reservations for the vehicle. The company’s $41bn market value makes it almost as big as Nissan and not far off from Ford, rival car makers that sell millions of cars a year.
Tesla produced almost 84,000 vehicles in 2016 and plans to make half a million in 2018, then 1 million in 2020. It expects to deliver as many as 50,000 vehicles in the first half of this year, before increasing Model 3 production to more than 5,000 a week in the fourth quarter
* Bloomberg with The National
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