Tesla Motors Announces New Stock Sale Of $500 Million

Tesla Motors, Palo Alto, California

It had to come, and it did: Tesla Motors is selling more stock to bolster its cash position as it prepares to launch its second high-volume electric car.

The California company announced this morning it would offer $500 million in new common stock

And, the company noted, CEO Elon Musk "intends to purchase $20 million of common stock in this offering at the public offering price."

Financial analysts have long suggested that Tesla needed more cash to fund its aggressive plans for expansion.

Chief among those are not only the production launch of its Model X all-electric luxury SUV, but also the construction and equipping of its lithium-ion cell "gigafactory" outside Reno, Nevada.

The total cost of the gigafactory could rise as high as $5 billion, though not all of that will be borne by Tesla.

Rendering of Tesla battery gigafactory outside Reno, Nevada, Sep 2014

Its longtime cell partner Panasonic will be a big part of the project, furnishing the cell fabrication machinery and operating that portion of the plant.

When fully built out, the Tesla gigafactory could become one of the largest structures on the planet.

Its output is targeted largely for the planned Tesla Model 3 third-generation electric car, which the company says it will unveil next year.

With 200 miles of rated range, the Model 3 is ultimately intended to sell in volumes up to 500,000 cars a year, at a stated price of $35,000 before incentives.

But the cells from the gigafactory will also supply Tesla's nascent energy-storage battery business for homes and commercial sites.

Early response to that announcement was overwhelming, Musk said on a May earnings call, and the battery factory's early production may go to supplying that business even before the Model 3 is ready.

Tesla Motors CEO Elon Musk at Motor Trend 'Car of the Year' ceremony in New York City, Nov 2012

At the end of last year, Tesla had $1.905 billion in cash and equivalents; by June 30, that amount had fallen to $1.15 billion.

The company's "burn rate" was $1.12 billion over the first six months of this year, and it has said it does not want its cash reserves to fall below $1 billion.

Several incremental delays in the start of volume Model X production have pushed out the time at which that vehicle's sales could start to contribute noticeable income to Tesla.

Tesla says that more than 20,000 interested parties have put down deposits on the Model X.

Musk's comments on last week's financial-results call seem to indicate that while Tesla will likely deliver at least a handful of Model X vehicles before the end of September, volume production won't commence until December--and possibly later.

Challenges posted by the vehicle include its unique "falcon doors," the need for substantial towing ability, and getting an acceptable range rating from the EPA.

Tesla Model X prototype in Culver City, California [photo by Instagram user jmtibs]

And, Musk added on last week's call, the rear seats have lately proven to be particularly challenging as well.

"I don't want to sort of name specific suppliers," he said, "but our biggest challenges are with the second row seat, which is, it's an amazing seat, like a sculptural work of art, but a very tricky thing to get right."

As for this morning's offering, the company said only that it intends to use the proceeds for a variety of purposes.

Overall, the cash will go toward accelerating its business growth in the U.S. and internationally, including more Tesla Stores, service centers, and Supercharger DC quick-charging sites, as well as expanding the Tesla Energy business.

Also, it said, it will use the proceeds for "development and production of Model 3, the development of the Tesla Gigafactory, and other general corporate purposes."

The banks that underwrite the offering will have a 30-day option to purchase up to $75 million of the offering.

Source: Green Car Reports