Tesla ($TSLA) is the most popular electric car manufacturer in America. While they might not sell the most electric cars or offer the cheapest options for purchasing one, the company is more or less synonymous with electric-only vehicles. Their surge in popularity over the last seven years proved that not only could automobile manufactures make electric cars for a semi-reasonable price, but there would be incredible demand and incentives for doing so.
While most major automobile manufacturers try their hand at creating an electric vehicle of their own, Tesla is doing something new. By introducing their Model 3 luxury sedan, the company will finally offer a vehicle that most car buyers could afford. At $35,000 before government tax credits kick in, the Tesla Model 3 is on par with a Prius or other popular hybrids, while using no gasoline and emitting absolutely nothing.
There’s just one problem: building thousands of Model 3 vehicles is expensive, and Tesla doesn’t have all the money they need to satisfy the demand of eager Model 3 customers. To accomplish this momentous task, Tesla’s going to do important things: take out more loans and sell more stock.
Tesla became a public company in June of 2010. They’re now about to sell $250 million in stock.
Tesla went public to sell shares of their stock exchange for money to expand. This plan worked out well for them, as investors are overwhelmingly positive about the company’s growth, expansion, and success. In the last year, Tesla’s stock rose by 26.02%. Since they went public, the company’s stock grew by 1261.98%. Selling more stock will allow the company to raise more money for the production of the Model 3. In turn, this will allow investors to own more of Tesla.
Tesla will also take on $750 million in convertible senior notes, a loan that lets pays big lenders back in cash or stock.
The loans gives Tesla 75% of the money they need to build Model 3 vehicles. By 2022, the lenders will either receive their loan money back in cash, stock, or a combination of the two, depending on how the Tesla board wants to pay it back. If Tesla is profitable and has enough cash on hand to pay lenders back, then they could simply write a few checks and go on with their day. If Tesla still needs to hoard cash for projects like the Model 3, then they’ll likely pay lenders back in stock.
Elon Musk, CEO and Founder of Tesla, is putting $25 million of his own money into Tesla stock.
Not only will this let him own more of Tesla, but it’s a sign that Musk has incredible faith in his own company (as he should). Current and future $TSLA shareholders will also have the chance to own more of the company’s stock as more shares become publicly available. This increases the existing supply of shares, which could have a negative impact on the company’s share price. It could also increase investor demand, which would have a positive impact on $TSLA’s price. After all, the company is plenty popular on the stock market, and offering more shares to eager investors could actually increase the price instead.
Should you invest in $TSLA? You might want to wait a bit. The company is about to offer more shares, which could impact share price. If you think the company’s Model 3 car will be a success, buying those shares at a lower price when new shares are offered could mean a significant increase in share value over time. If you think Tesla will just end up in more debt or won’t be able to sell their $35,000 electric cars to the average American, you might want to invest elsewhere.