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$1.7 billion in New Stock to be Sold by Tesla to Fund Model 3

$1.7 billion in New Stock to be Sold by Tesla to Fund Model 3
Tesla Motors announced that to finance the accelerated launch of its new Model 3 electric sedan, the electric luxury car maker said that it will offer up to $1.7 billion of new common stock.
The announcement which came after the market closed, Tesla shares fell 2.2 percent following the announcement. Placed well below the $242 a share price at which the company last issued new shares, in August 2015, they were $206.59 in after market trading.
It expected to sell as many as 8.2 million shares at a price of $204.66 a share said Tesla in a prospectus. The company has posted operating losses since its initial public offering in June, 2010.
He might need to raise additional cash after receiving 373,000 reservations for the Model 3, Tesla Chief Executive Officer Elon Musk said last month. By tooling up Tesla's factories to build 500,000 vehicles a year in 2018, two years earlier than planned, Musk said he would respond to demand for the Model 3. The Model 3 will start at $35,000 before tax breaks.
Musk will sell nearly 2.8 million of his own shares which at current prices is worth almost $600 million, in tandem with the sale of shares by Tesla.
Mainly to equip its factories and suppliers to build the Model 3, Tesla must fund as much as $2.25 billion in capital spending Musk has forecast for this year. As of March 31, including borrowing from an asset backed credit line, Tesla had about $1.44 billion in cash and cash equivalents as of March 31.
Tesla noted in its prospectus "we have a history of losses and have to deliver significant cost reductions to achieve sustained, long-term profitability and long-term commercial success" and reported a net loss of $282.3 million for the first quarter.
At roughly 10 times the company's production in 2015, Musk's timetable for reaching production of 500,000 vehicles a year is ambitious, said suppliers and analysts.
The Tesla prospectus highlighted strong demand for the Model 3.
"We have obtained this level of reservations without any advertising or paid endorsements, with only a few social media posts leading up to the March 31st unveiling, without anybody but those who were in attendance on March 31st having had an opportunity to test drive the car, without yet publicly disclosing numerous features about the car," Tesla stated.
"If we wanted to, we believe that we could further increase the number of Model 3 reservations with minimal effort," the company added.
It5 would not be until next month that the final design of the Model 3 will not be completed, Tesla has disclosed.
More than $4.5 billion in debt and equity offerings have been raised by Tesla previously over the past six years. Tesla has gone back to the capital markets several times since it raised $226 million in an initial public offering in June 2010.
Primarily to pay taxes related to the exercise of vested stock options to purchase 5,503,972 Tesla shares, 2.8 million of his own shares would be sold by Musk. according to the company's latest proxy statement, Musk already controls a 26.7 percent stake in Tesla. The exercise will increase Musk's stake in the company, Tesla said.

Christopher J. Mitchell

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