Using your position of strength

Tesla continues to add chapters to the investment banking playbook. Using the inflated currency of the company’s common stock, it will sell $5 billion worth of shares to fund its spending plans.

And why not…..The stock price has risen 670% this year. It “only” has net debt of $1 billion which is not a stretch against its $4 billion of EBITDA. Its market cap is $616 billion. The secondary offering is barely 1% of its market cap and it’s not dilutive at all.

Valuations on the company aside, they are classically raising money when (figuratively speaking) they don’t need it and it is far better to sell stock, or borrow money, from a position of strength.

Throw in a recent stock split and an upcoming inclusion into the S&P 500 Index, Tesla will be able to sell another $5 billion worth of shares in the next few months again and even re-finance its debt at lower rates than the 5.3% coupon its paying bondholders for its 2025 maturity.

Incidentally, their timing isn’t too bad either.

Circles in the chart below denote when Tesla’s previous secondary offerings were announced. A $5bn raise on September 1, 2020 and a $2bn share sale on February 13, 2020.

December 9, 2020
by Rob Zdravevski
rob@karriasset.com.au