There had been quite a bit of uncertainty over the recent quarters as to whether or not Tesla was going to raise more capital ahead of the Model 3 launch. That said, Tesla has allegedly been able to raise $1.7 billion in its May 2016 secondary offering after underwriters exercised all of their options, which has then put the company in a relatively more stable at least than the previous quarters in terms of their financial disposition. The following month, Tesla has announced its ambitious and controversial proposal of acquiring its sister company, the SolarCity in an all-stock deal, wherein a significant number of experts have already been expecting to generate a cash flow negative, which, in turn, has also raised the idea the company may need to raise capital yet again.
Tesla's Decision On Raising Capital
According to Business Insider, at the moment, Tesla remains confident that their cash position is going strong considering that the company has about $3.5 billion on hand. However, as revealed by some of the company's executives, they will be spending $2 billion-2.5 billion in order to successfully launch their Model 3 mass-market vehicle which is set to take place later this year. In addition, it was also found that the current company shares, which are down by 9 percent since a 52-week year high in February, apparently rose by 2.1 percent amounting to $261.11 in just a span of after-hours trade.
As per The Motley Fool, experts said that Tesla was mostly able to address this concern by aggressively shifting away from solar leases and toward sales, which pulls forward both revenue recognition and cash flow; such as Tesla's solar operations which has already generated $77 million of positive cash flow last quarter. Consequently, the company revealed that the proceeds it would reportedly be used to strengthen its balance sheet and further reduce any risks that has been associated with the rapid scaling of its business that is probably seen to be caused by the launch of Model 3, and for other general corporate purposes. At the time, experts said that Tesla's plan was still unclear, until the company has recently announced concurrent stock and convertible note offerings, expecting to raise $1.15 billion.
Due to the fact that the company still has billions in previously issued convertible debt which will already be due in the next few years, and considering that the $750 million that it will gain this time around doesn't mature until 2022, the company is allegedly giving itself some time and has been set to provide its investors with a way to make a long-term bet, which is seen to shield themselves from the volatility that Tesla's stock has experienced over the past three years. Ultimately, experts believe that all that the company wants to convey is that it doesn't necessarily need the capital, but it would be helpful just in case.