Tesla: Selling shares to build up a war chest

Tesla: Selling shares to build up a war chest

A surging stock price and $14.5 billion in the bank were apparently not enough to satisfy Elon Musk, said Dana Hull in Fortune.com. Tesla’s CEO decided last week to raise another $5 billion through a sale of the company’s stock, which has “soared 670 percent this year.” It marked the third return to the capital markets in 10 months for the electric-car maker as it builds on five consecutive quarters of profitability and gets ready to enter the S&P 500 with “a much richer valuation than any other auto manufacturer in the world.” That has “led Musk to worry about employees taking their eye off the ball,” and he has urged staff to keep down costs. “If you have a product for which the market is willing to pay virtually anything, you sell more of it,” said Liam Denning in Bloomberg.com. And Tesla’s most valuable product is its stock. A year ago, issuing $5 billion in new shares would have meant selling 8 percent of the company. 

Today, it’s less than 1 percent. At the same time, “companies don’t generally carry around $20 billion on their balance sheet on a whim.” Musk might know that his company’s free cash flow— much of which is created by selling regulatory credits—can’t finance the pace of growth it needs to justify its $600 billion market cap, especially as more overseas competitors emerge.

 

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