Tesla will raise up to $US2.3 billion ($A3.3 billion) in new capital, renouncing Elon Musk’s “Spartan diet” and easing Wall Street concerns about the company’s ability to overcome a drop in sales and build new lines.
Tesla’s plan to issue debt and convertible shares comes after the company repeatedly pushed back forecasts for turning a profit.
The company faces expensive challenges, including launching production in China, overhauling US retail and service operations and developing new models like the high-volume Model Y SUV and a semi commercial truck.
Many analysts had calculated Tesla – which burned through $US1.5 billion in the first quarter – would not be able to carry out its growth plans without new cash.
“The market seems to be breathing a sigh of relief. Now they need to get back to work and start selling more cars,” said Roth Capital’s Craig Irwin.
Shares of Tesla rose 4.3 per cent to close at $244.10, while the yield on Tesla’s existing $US1.8 billion junk bond fell to its lowest in over a month.
“This is how they pay for the factory in China, the Model Y, their 2020 goals,” said Ross Gerber, chief executive of investment firm Gerber Kawasaki.
Raising $US650 million in new shares and $US1.35 billion in debt, while giving underwriters the option to buy an additional 15 per cent of each offering, could potentially raise the proceeds to $US2.3 billion.
Chief Executive Officer Musk would also pitch in $US10 million of his own money, Tesla said in a filing.
For over a year, Musk had insisted the money-losing Silicon Valley vehicle maker had no need for a capital raise, saying high Model 3 volume and efficiency would push the company to profit in all quarters of 2019.
That changed with a $US702 million loss in the first quarter and warnings that profit would be delayed until the latter half of the year.
Raising capital should not be a substitute for operating effectively, Musk said last month, suggesting that a capital raise could be near.
“It’s healthy to be on a Spartan diet for a while,” he said.