Cash-strapped Tesla wants to raise $3 billion

Tesla CEO Elon Musk is looking to bolster the balance sheet of his car company. Photo/Getty Images.

Tesla plans to raise about US$2 billion (NZ$3 billion) through debt and stock offerings, after Elon Musk overestimated the ability of the Model 3 sedan to generate enough cash for the company to be self-sustaining.

The electric-car maker filed Thursday to sell US$1.35 billion in notes and about $650 million in shares. Tesla stock, which had plunged 30 per cent this year, rallied 4.1 per cent to $243.61 at 9:39 am in New York, and its bonds advanced.

"We view this as a clear net positive for Tesla," Dan Ives, an analyst at Wedbush Securities, said in a note. The electric-car maker needed to "take its medicine and clear the air of the very real investor worries."

Tesla's chief executive officer said on several occasions last year that Tesla would no longer need to raise capital as its first mass-manufactured car ramped up. Musk changed his tune after the first quarter, when a record decline in vehicle deliveries and the company's biggest-ever debt payment depleted its cash balance to a three-year low of US$2.2 billion.

Musk, 47, will participate in the offering by buying as much as $10 million in stock. Tesla hired Goldman Sachs, Citigroup, Bank of America, Deutsche Bank, Morgan Stanley, Credit Suisse Group, Societe Generale and Wells Fargo to underwrite the share offering, according to the filing.

It's not yet known how many shares the banks plan to purchase. Tesla said the total proceeds of the offerings could be about US$2.3 billion if underwriters fully exercise their option to purchase additional securities. The offering is expected to price after the market close.

Tesla's 5.3 per cent bonds due 2025 were among the best performers in the U.S. high-yield market Thursday morning in New York, rising almost 2 cents on the dollar to 87.5 cents, according to Trace. Credit default swaps tied to the debt rallied the most since October. It now costs about US$1.5 million upfront to insure $10 million of Tesla bonds against a default for five years, down from US$1.7 million Wednesday.

After reporting a loss per share that was double what Wall Street expected, Musk sought to assure investors on Tesla's April 24 earnings call that the company would return to profitability in the third quarter. He told analysts there was "merit to the idea of raising capital" to expand.

A raise of around US$2 billion is in line with what several Tesla analysts were expecting. An infusion of that amount would get Tesla closer to a ratio of 15 per cent of cash to sales, a historical level among traditional auto manufacturers and suppliers, according to Bloomberg Intelligence analyst Joel Levington. Tesla has stayed at around half that level, he said.

What Bloomberg Intelligence Says

"This indicates Tesla can't yet rely on cash from operations to fund its deeper penetration into autonomous-driving technology, advanced chips, insurance and China. Tesla's 31% delivery decline in 1Q vs. 4Q signaled that US demand isn't sustainable at the elevated 2H levels, while its international rollout is just beginning."-- Kevin Tynan, senior autos analyst Click here to read the research

Tesla is planning as much as US$2.5 billion in capital expenditures this year as it develops new vehicles including the Model Y crossover, Semi truck and Roadster sports car. It's also building a battery and vehicle factory near Shanghai where it plans to begin producing Model 3s later this year.

- Bloomberg