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Tesla shares slide after $2bn stock offering is announced

By Lawrence Gash

Electric-vehicle manufacturer also discloses SEC subpoena and DOJ request

Tesla CEO Elon Musk

Shares in Tesla (TSLA) fell by more than 4 per cent in pre-market trading after the electric vehicle manufacturer announced that it would offer $2bn (€1.8bn, £1.5bn) of common stock. Within five minutes of normal trading the company's share price stands at $750.30, down 2.21 per cent.

This development has come as a surprise to some as the company’s founder and CEO Elon Musk had recently stated that Tesla had no plans to raise any more capital in the near future.

However, with Tesla’s share price gaining by more than 75 per cent since the start of the year, the temptation to raise further funds appears to have proved too great.

The firm will offer 2.65 million Tesla shares through underwriters Morgan Stanley and Goldman Sachs and hopes to use the funds raised “to further strengthen its balance sheet, as well as for general corporate purposes”.

Musk himself will purchase as much as $10m of stock with Tesla board member Larry Ellison buying up to $1m. With a combined net-worth of $100bn this figure is comparatively infinitesimal but is hoped to demonstrate the confidence executives have in Tesla.

Musk had said in late January: “It doesn’t make sense to raise money because we expect to generate cash despite this growth level.” Although Musk has vanquished naysayers on multiple occasions in the past 12 months, with short sellers losing billions in the process, concerns still remain that Tesla’s share price has become detached from its fundamentals.

Tesla’s share price could extend its losses when trading actually gets underway with a number of other controversies engulfing the manufacturer in the hours since Wednesday’s close.

The company discreetly announced a recall on 15,000 Model X SUVs after concerns of a technical fault affecting power steering. More worryingly the company disclosed that it had been subpoenaed by the Securities and Exchange Commission (SEC) for issues relating to “certain financial data and contracts, including Tesla’s regular financing arrangements”.

In addition, Tesla admitted: “The DOJ had also asked us to voluntarily provide it with information about the above matters related to taking Tesla private and Model 3 production rates.”

Debate still rages as to the future direction of Tesla. While the company only turned over its first annual profit in 2019 and had lost on average $1bn every year in the preceding five years, it is now the second most valuable automaker in the world. With the company dominating the increasingly popular electric vehicle market further heights could yet be achieved.

Speculation grew this week that Elon Musk could become the richest man on Earth. Through a pay package approved by shareholders in 2018, should Tesla maintain a market capitalisation of $100bn for six months then Musk will be offered the option of buying 1.7 million shares in the company.

With Tesla breaking $100bn late last month, these speculators will have to wait until late July to see if Musk does in fact surpass the likes of Bill Gates and Carlos Slim. However, with the coronavirus epidemic devastating much of Chinese auto production and demand, Tesla's value could well suffer.

FURTHER READING: Tesla short-sellers hit as stocks surge by 20 per cent

FURTHER READING: Chinese auto sector faces February ‘havoc’

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