Tesla announces $2bn stock offering

Electric car maker Tesla has announced plans to offer around $2bn of common stock.

The underwriters of the offering will also have a 30-day option to buy up to approximately $300m of additional common stock.

Tesla’s chief executive, Elon Musk, will participate by buying up to $10m of common stock in the offering. In addition, Larry Ellison, a member of the board of directors, will purchase up to $1m.

The company said it plans to use the net proceeds "to further strengthen its balance sheet, as well as for general corporate purposes".

At 1515 GMT, the shares were down 0.5% at $763.28.

RBC Capital Markets said: "Notably, this comes about two weeks after CEO Elon Musk stated on the 4Q19 earnings call that 'it doesn’t make sense to raise money because we expect to generate cash despite this growth level'.

"Despite this comment, we believe this is the correct thing for TSLA to do taking advantage of the recent surge in the stock price. The potential circa 2.65m shares is only around 1.5% dilutive to the share count. As such, we would argue that TSLA should try to take even greater advantage of the stock price, raise a larger amount of equity to enable more of 're-capitalisation of the company and have enough to fund their growth ambition."

It added: "We’d also point out that this is a good reminder of why we believe it will be difficult for TSLA, which is a manufacturer in an inherently cyclical business, to be able to post a 30% free cash flow growth compound annual growth rate for a 10+ year period - something we believe is needed to support the current stock price levels. That financial feat is something only three companies have accomplished since 2005 (Apple/Amazon/Google)."