Tesla Seeks Non-Bailout Bailout With Capital Raise of $2.3 Billion

Demand has slowed, manufacturing costs have risen, and Q1 was a disaster. Can Tesla survive?

byJonathon Klein|
Electric Vehicles photo

Tesla has had a disastrous few months. The company saw sales plummet, reservations disappear, battles with the Securities and Exchange Commission, store closures that it owes $1.6 billion for, investors flee, and odd battles between the company’s founder Elon Musk and random people on Twitter. Defeat, however, isn’t an option for the electric vehicle giant as it offers a glimmer of hope via an SEC filing affirming it will make public 2.7 million shares—worth $642.3 million—and offer $1.35 billion in convertible senior notes, to buoy the company’s reserves.

Within the SEC filing, Tesla made it known that Musk is interested in purchasing $10 million of the forthcoming public shares. This purchase would enhance his already considerable grip on the company’s shares—he currently owns 19-percent

Along with Musk’s own share purchase plan, Tesla is looking to offer $1.35 billion worth of convertible senior notes that would be then due in five years. Though not the first time Tesla has looked to bring in cash reserves through debt raises, this would be one of the largest in the company’s short history. The market, however, will likely be unsure of how to react to the company’s latest filing and intentions as just last week, Tesla announced that it had lost $702 million during Q1 of 2019. Tesla also released that its cash reserves had fallen to $2.2 billion, which according to the Wall Street Journal, represents a 40-percent loss over the “previous three-month period.”

Tesla’s market turmoil could also be worsened by a massive share sell-off by Fidelity Investments. Yesterday, Bloomberg reported that Fidelity’s many funds had sold off more than 1.4 million shares of Tesla in March and was likely caused by the recent stock price fluctuations. Fidelity Investments, however, still holds 5.24 million shares, but according to Bloomberg’s reporting, “The Fidelity funds have been steadily reducing their stake in Tesla since the end of 2016 when they reported owning a combined 22 million common shares, the equivalent to a 13.7 percent stake.”

Though it pales in comparison to the millions of stock shares being bought and sold respectively by Musk and Fidelity, an SEC filing made by Tesla’s Chief Technical Officer Jeffrey B. (JB) Straubel—JB is Tesla’s second in command behind Musk—indicated that he sold off 20,000 shares of Tesla’s stock on April 26 of this year. Recently, Tesla Board member Brad W. Buss also sold off large portions of his Tesla stock portfolio.

News of Tesla’s forthcoming offering has seen the stock price raise slightly in early trading, giving investors a reason to continue to hope for its financial success. Tesla, however, faces real difficulties and needs to deliver on promised deadlines, deliveries, and the forthcoming Chinese Gigafactory to ensure its continued existence.