Tesla Inc. is giving shareholders an opportunity to raise their bets ahead of its push to take on mainstream car makers with the $35,000 Model 3 sedan.
On Wednesday, the company announced plans to put $250 million worth of common shares up for grabs on the stock market along with $750 million in convertible notes. Combined with the anticipated earnings from the options that will be issued to sale’s underwriters, Tesla is poised to raise approximately $1.15 billion. The exact total will depend in large part on its stock price, which can be expected to increase ahead of the offering given that it’s risen 20 percent since the start of the year alone.
Yet Tesla’s haul will probably still end up falling short of some of the higher price estimates that analysts published making after Elon Musk first hinted at his plans on Twitter last October. According to Forbes, Barclays plc expected the company to raise as much as $2.5 billion through the offering to pursue its ambitions development plans. The banking giant’s forecast was based on the steep costs involved in the plan, which have indeed turned out to be the key driver behind the offering.
More specifically, Tesla wants to strengthen its balance sheet as it looks to launch limited production of the Model 3 in July. It had $3.39 billion in cash and cash equivalents at the end of 2016 while total expenditures during the first half of this year are expected to be as high as $2.5 million. The capital from its planned offering will give the company more cushion against unexpected financial difficulties.
Creating such a safety net is particularly important given that Tesla has only recorded two profitable quarters since hitting the stock exchange. The company’s earnings roadmap likely won’t change anytime soon as it keeps aggressively expanding manufacturing operations. Elon Musk not only plans to start delivering Model 3 sedans this year but also open as many as three new gigafactories to supply batteries for the growing number of vehicles.
Tesla intends to ship 500,000 units in 2018 and a million per year by 2020, about 20 times more than the number it produced during 2016. The company will need to start picking up the pace soon if it wants to work through the more than 400,000 Model 3 pre-orders currently outstanding in a reasonable time frame.