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Tesla Aims To Raise $2.7B In Capital, CEO Musk Also To Increase His Share

Tesla Aims To Raise $2.7B In Capital, CEO Musk Also To Increase His Share

Tesla announced that it wants to raise as much as $2.7 billion from its planned sale of notes and stock to raise much-needed capital – an announcement which was made by the company just a day ago.
The reason for the increase in offering was because of the high positive response from initial announcement, said the Palo Alto, California based electric car and solar panel maker.
Additionally, the amount of stock that would be bought by the company CEO Elon Musk has also been more than doubled $10 million to $25 million.
$1.84 billion in notes that pay two per cent annual interest and convert to Tesla common stock in 2024 was included in the offer which was submitted to the U.S. Securities and Exchange Commission which was filed by the company on Friday. 3.5 million new shares that is worth as much as $866 million is also part of the filing. Underwriting brokers exercising their full options to buy additional notes and shares are included in the list of new members.
Tesla’s CEO Musk had indicated during a conference call last week that the company could need to raise more capital once again after the company reported a drop in its cash balance at the end of the first quarter by $1.5 billion to $2.2 billion compared to what it had at hand at the end of December. 
The filing says that the company will use the revenue generated to "further strengthen our balance sheet, as well as for general corporate purposes."
While the new offering would help the company to better manage its cash situation, at the same time it would also increase the total debt of the company from to as high as $11.63 billion from $9.79 billion. Tesla also said in its filing that it might not be possible for the company to make all the payments as it might not be able to generate enough cash.
"If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as reducing or delaying investments or capital expenditures, selling assets, refinancing or obtaining additional equity capital on terms that may be onerous or highly dilutive," the company wrote in the part of the filing that discusses risk factors.
In the view of Gartner analyst Michael Ramsey, the decision of Musk to make more purchases as his way of indicating to shareholders that he is taking the same amount of risk as the investors by investing his own money in the company. Ramsey however also said that Musk is also careful of not letting his own stake to get diluted. With about 20 per cent stake, Musk is by far the largest shareholder of Tesla.
IN order for the notes to be converted to stock, the share price of Tesla has to reach $309.83 by May 15, 2024 which would mean an increase of 21 per cent compared to the current share price. But according to the filings, if the shares do not reach that level, Tesla would be required to repay the notes mainly in cash.

Christopher J. Mitchell

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