Tesla Motors, Inc. (NYSE:TSLA) announced Thursday that it plans to raise $500 million in cash, following a report showing the company incurs losses on every Model S automobile sold.
The money is intended to help finance production of the company’s upcoming new Model 3 vehicle, along with its battery gigafactory in Nevada.
In a show of confidence, Tesla CEO Elon Musk announced he will invest $20.0 million as part of the automaker’s stock offering, in a period where the company is burning through money.
The announcement caused the company’s stock to rise by three percent Thursday morning, underlining the weight of Musk’s name and how closely markets follow where he invests.
Tesla’s first equity sale in over two years comes at an opportune time, after last week’s quarterly loss report and announcement that the company may seek to raise more cash to offset surging expenses.
At Wednesday’s close, shares had declined by 12% since the August 5th financial loss report. Tesla admitted that it is losing approximately $4,000 on every Model S automobile it sells. Moreover, its cash reserves were at $1.15 billion on June 30th, down from $1.91 billion at the end of 2014.
Musk, who plans to purchase around 84,000 shares in the offering, is the company’s largest shareholder with a 22.3% stake. The move will of course dilute his own shares and reduce his overall holding of the company. If however the share price can sustain its high value or perhaps even increase, the dilution impact on current shareholders should be minimal.
As of July 30, Tesla had 127.1 million shares outstanding, giving the company a market cap of around $30.0 billion.
The offering’s underwriters will have a 30-day option to purchase up to $75.0 million in additional shares, Tesla reported. Morgan Stanley and The Goldman Sachs Group, Inc. are lead joint book-running managers for the offering. Deutsche Bank Securities and JPMorgan are additional book-running managers.
The company spent more than $700 million in inventory and operating lease vehicles in the first six months of 2015, which has had a significant impact on the company’s cash reserves. It will not come as a surprise if Tesla announces the need to acquire further equity, depending on how much the company calculates it will need to fund further production and the capital requirements of the new gigafactory.
The company has stated its upcoming new Model 3 vehicle, set to compete with BMW’s 3 Series sedans and other entry-level luxury vehicles, will be going on sale in 2017.