Fundraising of $ 2.34 billion gives Tesla much needed leeway

Investors' strong appetite for Tesla's shares and bonds has allowed the company to raise more funds than expected, revealed Tesla in financial reports on Friday. As we reported yesterday, the electric vehicle manufacturer planned to sell at least $ 2 billion in debt and equity.

In a statement filed Friday, Tesla said it raised $ 2.34 billion under a subscription agreement led by Goldman Sachs. Tesla sold $ 737 million worth of shares and convertible notes worth $ 1.6 billion. The underwriters will have the option of buying $ 350 million of additional stock and debt over the next month.

In recent months, skeptics have said that Tesla's track record, burdened with debt and disappointing financial results, would make it more difficult for the company to raise funds. But this week's results dispelled these concerns.

Stock prices often fall when a company announces its intention to sell more shares because the sale dilutes the value of the company's shares. But Tesla shares have weathered the trend, registering a rise of about 4% on Thursday – the first trading day after the announcement of the sale – and 4% on Friday.

Better still, Tesla was able to sell its convertible notes on favorable financial terms. Convertible Notes are debt securities that offer lenders the option of building up a stock rather than cash at maturity. The latest Tesla convertible notes have a modest interest rate of 2% and it will mature in May 2024. In comparison, the Wall Street Journal reports that the previous series of convertible notes of Tesla, sold in 2017, paid 2.375% to investors.

The new convertible notes have an exercise price of $ 309.83, which is 27% higher than the official selling price of $ 243. Shares climbed to $ 253 on Friday, so investors who bought the new shares are already in the dark.

Tesla had $ 2.2 billion in cash at the bank at the end of March. The sale almost doubled Tesla's cash reserve. The extra money will be useful as Tesla prepares for the next phase of its growth. Tesla intends to begin production of the Model Y SUV, the Tesla Semi and a new edition of the iconic Roadster, all before the end of 2020.

Wall Street's confidence could also give Tesla another leeway. Over the past year, critics have warned that Tesla is becoming so commonplace that it may be hard to raise money and be forced into bankruptcy.

This week's strong fundraising shows clearly that this thesis was false. Tesla may or may not become the big and profitable car company that Elon Musk is trying to create. But if Tesla fails, it will not be because of short-term cash flow problems.