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Elon Musk laid out the automaker’s plan when it comes to self-driving, but now the CEO attaches a valuation prediction to it as the company attempts to raise over $2 billion.
Tesla (TSLA) is selling 3.1 million stocks at a price of $243 per share through Goldman Sachs and Citigroup acting as underwriters. That’s more than 2.7 million shares that was previously expected to be sold at the offering. The company also said it was boosting its convertible notes offering to $1.6 billion, according to filings.
Its CEO Elon Musk said that Tesla’s market cap could surge to $500 billion in the coming years. The company currently has 173 million shares outstanding, which means that each share would be worth just under $2,900 when TSLA hit Musks’s valuation.
Nomura Instinet analyst Christopher Eberl said:
“As for the upsize of the deal – it’s usually driven by greater demand. When they shop around the deal and it ends up being larger, it’s usually because there’s significant demand. As for why now? I think a better question is ‘why not now?’
It was pretty well telegraphed after the autonomous driving day that they were going to do a cap raise. Rather than let the rumors dictate the movement of the stock, it’s better to just stop delaying the inevitable and get it done. This buys them some breathing room for the next several quarters in the case of a weaker demand environment.”
News of the increased share sale, revised just one day after Tesla announced that it would turn to capital markets to raise more cash, comes despite its report of a rocky first quarter where they said they’ve lost $702 million.
Geoffrey Dancey, managing partner and portfolio manager at Cutler Capital Management, said:
“With this new bond, you have five years until the bond is supposed to pay off. They don’t have to be successful; they don’t have to hit a home run. They just have to stay in business to refinance this in five years. The terms of the convertible look reasonable, and I don’t think they’ll have any issue selling.”
Senior Vice President Bruce Clark from Moody’s tweeted:
Moody's analyst Bruce Clark weighs in on #Tesla's $2 billion offering pic.twitter.com/2BRGvTwbNP
— Moody's Investors Service (@MoodysInvSvc) May 2, 2019
Reality or Just a Delusion?
Recently Musk said that he believes that the value of existing Tesla cars will increase to $250,000 within the next three years. He also confirmed that Tesla would be able to fund its business needs through cash flow, but that it was wise to have a buffer in case of a recession or weak global auto demand.
He also claimed that although Tesla drivers need to keep hands on the wheel today, that will become less necessary over time. Musk said that competitors such as GM’s Cruise and Alphabet’s Waymo can’t catch up because Tesla has a fleet of connected cars on the road today, and a proprietary chip.
Just for a reminder, Tesla began rolling out an Autopilot feature called “Enhanced Summon” in 2019 to members of its early access program. It enables a Tesla vehicle to drive itself to the owner, say, in parking lots as long as the owner holds a finger on the button on their smartphone screen via the Tesla app. Currently, Summon allows you to navigate the car forward and backward slightly and slowly while touching the app screen from nearby.
Tesla expects to have 1 million vehicles on the road next year that are able to function as “robo-taxis,” and each car should be able to do 100 hours of work a week for its owner, making money as a robo-taxi Musk told investors.
However, there are some people that don’t have full confidence in Musk’s acts saying he’s being delusional. Some analysts are concluding that revenue fell short of expectations thanks to weak delivery numbers, affirming the company’s habit of over-promising and under-delivering.
Cash reserves were wasted at three-year lows after a $920 million debt repayment that was the largest on record. The introduction of the Model Y also hasn’t done much to increase customer deposits.
Another $566 million in convertible bonds is due in November, and the company still faces serious logistical challenges uprising worries that they might miss the delivery targets set for this year.