Wall Street Gobbles Up Tesla Securities
After the latest Tesla earnings call, certain stock analysts and short sellers began singing from the “Ain’t it awful” song book. “We were right all along. Tesla is on the edge of bankruptcy. Tesla and Elon Musk will finally get the comeuppance they so richly deserve!” That’s how the now familiar refrain goes. When Tesla said it might raise as much as $2 billion in new money, the shrieks of doom and gloom reached a crescendo of near hysteria.
Back in the real world, where real investors make decisions based on real facts and not emotions, things went swimmingly last week. Tesla offered a mix of stock and convertible notes and Wall Street gobbled them up and asked for more. According to ArsTechnica, it sold $737 million worth of stock and another $1.6 billion worth of convertible notes worth a total of $2.34 billion. Underwriters will have the option to buy an additional $350 million in stock and debt over the next month.
In another sign that the investment community at large is not overly worried about Tesla’s viability, Tesla stock rose 4% on Thursday and another 4.5% on Friday following the capital raise announcement. Typically, when a company sells more shares of stock, the price goes down, as there is now a bigger pie for all investors to share.
The convertible notes give lenders the option of taking stock in the company rather than cash when the loan matures in May of 2024. The new convertible notes come with a strike price of $309.83, which is 27% above the $243 official sale price and have a modest 2% interest rate. The last convertible notes the company sold in 2017 came with an 2.375% interest rate.
With the sale of new shares and convertible notes now complete, Tesla has nearly $4 billion in cash on hand, money it can use to move forward with its plan to get the Model Y and Tesla Semi into production. “The show of confidence from Wall Street may also give Tesla breathing room in another way,” says ArsTechnica.
“Over the last year, some critics warned that Tesla was becoming such a basket case that it might struggle to raise money at all and be forced into bankruptcy. This week’s strong fundraising makes it clear that this thesis was wrong. Tesla may or may not ultimately become the large and profitable car company that Elon Musk is trying to create. But if Tesla falls short, it won’t be because of short-term cash flow concerns.”
Whew! Now that Tesla has avoided bankwuptcy one again, it’s time to get back to the important work of weaning the world off fossil fuels. There’s no time to lose.
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