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Quick Update on Tesla


Chief Strategist at Interactive Brokers

This morning Tesla (TSLA) announced a spot secondary offering of up to $2.3 billion in new stock.  At the time I write this, the shares are roughly unchanged on the news.  In light of my recent video on this company, I thought it best to update my opinions on a stock that fascinates all sorts of investors.

  • TSLA remains a “faith-based” stock, with a core group of holders who are almost evangelical zeal for the company and its products.  That limits the downside even as dilution looms. While $2.3 billion is indeed a significant capital raise, it is only mildly dilutive for a company with a market capitalization of nearly $140 billion.
  • My original video was taped shortly after Elon Musk denied the need for a secondary offering, and I questioned why a company with significant cash flow needs would forego the opportunity to fund that cash flow with highly valued shares.  I was also concerned that the failure to issue stock could be a conflict of interest, since Mr. Musk receives a significant award if TSLA shares remain highly valued.  It is encouraging that Tesla’s board decided to seize the day on behalf of the firm’s balance sheet.
  • Although it is encouraging that Mr. Musk has committed to purchasing $10 million worth of the offering and that fellow TSLA board member Larry Ellison committed to a $1 million purchase, these buys are relatively insignificant compared to both the size of the offering and net worth of each man.
  • In general, sentiment on the stock seemed to have turned more positive when Musk tweeted less and acted more like a responsible corporate executive.  I believe that one reason for the market’s ability to take this issuance in stride stems from its understanding that fits within that general trend

Since it is always good practice to do your own research, here are the links to the filings that TSLA made in relation to this offer:

Form 10-K

Form 424B5

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