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Will A Capital Raise Cause The Stock To Go Up Or Down?

What will a capital raise do to the stock?

  • Up significantly

    Votes: 1 4.2%
  • Down significantly

    Votes: 12 50.0%
  • Neutral

    Votes: 11 45.8%

  • Total voters
    24
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tander

Active Member
Jul 23, 2012
1,556
1,581
From the last conference call it sounded like they were seriously considering doing a capital raise this year, which I think is a good idea whether it's 30M or 150M. I automatically assume that would cause the stock to go down because of dilution concerns etc., but for for me it actually makes me more confident in the company. I see it as a positive because looking at their balance sheet, it's pretty reasonable to think that they might need cash relatively soon to get through the next year or whatever, so I would be happy to see them have more of a buffer. As an investor, I'd rather see some dilution than a financial problem, but I think most people might not see it that way. So anyway, I think it might be interesting to take a poll of what other investors think on the matter. Consider that this is the TMC, I'm guessing everyone leans toward the bullish, so maybe try to be unbiased if you can.
 
No, they were not seriously considering one. They said it was either "none at all" or very minor, and they didn't have a need to raise cash. Some 'journalists' made it sound like Tesla needed more cash now. Elon also tried to make it clear that even if they did at some point raise cash it would not be in the near future. It sounded like he was trying to phrase things carefully.
 
It sounded to me like they were considering one. The way Deepak said they shouldn't comment on it, then Elon said "not in the immediate future," but then couldn't explain what that meant. They did say it wasn't needed according to their plan, and that it would be to have a larger buffer.

All of which tells me that they're not going do anything desperate that would make the stock tank. They might be talking to their original investors to see if they want to pony up some more money to get more, or they might be talking to new investors - but in any case I do think it would be something of a private placement rather than just issuing new shares on the open market. But, there will be some dilution and some concern over it, and so I think the stock will go down when it happens.
 
Here was my interpretation:

Q: Capital raise needed?
A: Not really.

Q: Capital raise wanted?
A: Not really.

Q: We investor types really think you should keep your options open for capital raise? It's only prudent...
A: Yah, we'll keep the door open but don't really need it.

Q: Oh, so you guys want to capital raise? Does that mean the sky is falling?
A: We're keeping the door open but don't see a need for it, other than as an opportunity to speed up future development or offer comfort/cushion.

Q: OMG, you're doing a capital raise?
A (Deepak): We might consider a capital raise.
<Elon's wheels are turning.>
A (Elon): We don't need it. All is well. You guys are just digging. Will we keep the option open? Sure. But calm the hell down. We've got cars to focus on, and no longer have any financial concerns in doing so.
 
Here are the relevant sections from theQ2 CC (available here: http://seekingalpha.com/article/750201-tesla-motors-ceo-discusses-q2-2012-results-earnings-call-transcript?page=2&p=qanda&l=last:


Elon Musk

Yeah. Actually, I think that there is arguably some merit to raising incremental funding just to protect against an unforeseen event. I do want to emphasize that our cash flow projections require no funding raise at all. If we do not raise any funding, we can reach cash flow positive with decent margin. That’s not to say that there isn’t some merit in raising a little bit funding maybe, just to increase the cushion. That’s something that we’re debating internally, and something that we may do. But I do want to emphasize it’s not something we have to do.

Adam Jonas – Morgan Stanley

Right. So it’s a cushion, it would be for risk management, and more opportunistic, to kind of fuel even greater growth opportunity. Is that how you’d pitch it?

Elon Musk

Yeah, exactly. And in order for us to not raise any funding, we would probably spend at a suboptimal rate on future programs. I believe we’d want to spend at the optimal rate.

Adam Jonas – Morgan Stanley

Would you say that it would be more the early feedback and opportunity on the Model X that would potentially drive that opportunity? Or is it the timing and opportunity on the Gen III? Or is it a bit of both, or all of the above?

Elon Musk

Well, the only two things we’re considering are raising zero money or a small amount. There’s not some third option. Then if we raised a small amount of money, it would be probably half of it for cushion value and then half of it for future projects which would be the Model X and the Gen III. We’ve got to come up with a better name than Gen III by the way. [laughter]

Amir Rozwadowski – Barclays

So in terms of the demands on your cash, that’s factored into your expectations for where you will end fourth quarter cash in terms of a relatively okay position?

Deepak Ahuja

Yes.

Ben Kallo - Robert W. Baird

Going back to the capital raise question, Bloomberg is already reporting that you guys might do a small capital raise. Can you talk about price sensitivity since the stock’s trading near where your last secondary was done, and you’ve created significant value since then in the company? And also around timing, a lot of the questions here are focused on the ramp, so would you do a capital raise after that ramp was proved out?

Deepak Ahuja

I think it’s best we don’t comment on any of these. I think as Elon said, we’ll just opportunistically pursue at the right time, and I think that’s probably the best way.

Elon Musk

But I’d like to exclude the very near future. We will not be raising money in the very near future.

Ben Kallo - Robert W. Baird

And can you give me any color on what that means?

Elon Musk

No. [laughter] I might get some color from the SEC if I gave you that.
 
There's going to be a capital raise, no doubt in my mind. Probably 1Q 2013.

Elon seems to think that the technology to put BlueStar on the road is coming faster than originally anticipated, but he needs more capital to build out Tesla's production ability. They'll raise more cash to make that happen, rather than sit on the sidelines while a bigger car company jumps on the opportunity ahead of them.
 
As far as a capital raise affecting the stock price....that depends entirely on the terms and price of any new issue.

Also note: Tesla refusing to comment or discuss should not be taken as a secret plan to raise capital. As a company executive, even denying a plan can get you in big trouble with the SEC.
 
There's going to be a capital raise, no doubt in my mind. Probably 1Q 2013.

Elon seems to think that the technology to put BlueStar on the road is coming faster than originally anticipated, but he needs more capital to build out Tesla's production ability. They'll raise more cash to make that happen, rather than sit on the sidelines while a bigger car company jumps on the opportunity ahead of them.

I'm wondering if they might pair a cap raise with the supercharger network announcement in Sept. What is BlueStar?
 
It will go up, but obviously not in the short term. If they need to raise more capital it will be to invest in the Gen III. If they are successful in launching Gen III Tesla could become a much larger company.

Agree. Timeframe makes a big difference here.

1. The day they announce it the stock will drop significantly.
2. In the month or two after the offering is announced, it will seem to have little affect (assuming all is well and still on track)
3. In the long-term, TSLA will be up significantly more than it otherwise would have been because the extra capital allowed them to take advantage of some opportunities earlier than they could have otherwise.