Tesla set to sell up to $5 billion in Stock

Tesla’s shares have risen to new highs lately, but despite the rise in its shares, Tesla revealed on Tuesday that it will sell new stock which is over $5 billion. While filing with the Securities and Exchange Commission, Tesla said that the additional shares it is putting up for sale will be sold at the market price and from time to time.

It also said that it is only going to be based on directives from Tesla, that bank will sell shares. Tesla said “We intend to use the net proceeds, if any, from this offering to further strengthen our balance sheet, as well as for general corporate purpose” On Tuesday, the stock rose higher but it later dropped throughout trading in the afternoon, then ended at 4.67% lower. This drop didn’t do much to its shares which have appreciated impressively this year.

Tesla has gained almost 500% in the year 2020, shares have gained 1,004% in the last year, with the S&P 500’s 20% rise. From August 11, when Tesla made an announcement about its five-for-one stock split, there have been some developments. Shares at Tesla have gained 81.3% which includes a 12.6% pop on Monday.

According to FactSet, the market cap for Tesla is about $464 billion, what this means is that the new offering takes about 1% of the value. Dan Ives who is an analyst at Wedbush said the capital raise is a smart move, noting that there was a great desire among the investors to play the transformational EV trend through pure play Tesla over the coming years.

Ives further added that the CEO of Tesla, who happens to be Elon Musk is raising enough capital to get the balance sheet and capital structure to further firm up its growing cash position and slowly get out of its debt situation, which throws the lingering bear thesis for Tesla out the window for now.

One of the reasons why the shares of Tesla have appreciated is because they published their fourth straight quarter of profits in their report in July. This made Tesla qualify to be included in the S&P 500. The vehicle deliveries over the second quarter which was posted by Tesla was also beyond what was expected, being better.

A lot of people are in great shock and surprise, seeing how a lot of investors have rushed into the company with the current level of growth that is being made.

Matt Maley who is a chief market strategist at Miller Tabak gave a warning that the shares of Tesla are due for a pullback, he stated also that those “who buy stock in TSLA on the new $5bn equity distribution they announced this morning are going to get burned… Even if this stock rallies a bit more over the next week or two, it’s going to be trading at least 30% below today’s level before the end of the year in our opinion.”

RBC, on Monday, repeated the rating which it gave the stock, claiming that the company was fundamentally overvalued. But Tesla has raised its price target from $170 to $290.

The last time Tesla tapped the capital market was in February when it made an announcement of a $2 billion common stock offering. The announcement was made two weeks after Elon Musk made it known during the fourth-quarter earnings call of the company that there was no plan for him to raise capital.

On January 29, he said “We’re spending money as quickly as we can spend it sensibly… We are not artificially limiting our progress. Despite all that, we are still generating positive cash. In light of that, it doesn’t make sense to raise money because we expect to generate cash despite this growth level.”