Tesla provided a $2 billion common stock offering this week, creating capital for the company to ensure its ongoing success. This $2 billion dilutive common stock offering shocked and surprised many analysts on Wall Street.
Ross Gerber, CEO of Gerber-Kawasaki, told Benzinga, “Normally that would have sunk Tesla 50 points or 100 points. This is not normal anymore. This is about a company proving to people that they’re going to accomplish their long-term goals, and the market likes it.
This decision took many by surprise, since Elon Musk on the last Tesla conference call with shareholders stated, “Diluting the company to pay down debt doesn’t sound like a wise move.” However, one notable difference is that the stock price was considerably lower at that time. With the stock price rising so much in recent weeks, the financial sensibility of such a cash raise became more appealing, and it gives Tesla a solid cushion of money in case anything negative and unexpected arises.
Tesla is a volatile stock, and also typically the #1 most shorted stock on the market. This means that there are many people who make money off of Tesla’s stock if the share price falls in value. In fact, many short sellers are heavily invested in the myth that Tesla will go bankrupt, as they believe it’s a gigantic fraud. The cash raise puts such a cushion of cash into Tesla’s bank account that it becomes that much harder to believe that Tesla has bankruptcy looming.
Alternatively, some have noted that the fresh money might be used to pay down some of its other debt. Or it could be used to quickly fund another gigafactory. Whatever Tesla plans to do with the money, this just shows that Tesla isn’t about to slow down.