Tesla selling $2B of new stock after frenzied price gains

How is Tesla impacting the market?

Canaccord Genuity managing director Jed Dorshetmer and Miller Tabak chief market strategist Matt Maley discuss their outlook for the electric-car maker.

Tesla, the electric-car maker fighting to turn a consistent profit, is planning to sell $2 billion of new stock after a frenzied run-up in prices.

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CEO Elon Musk will buy as much as $10 million of the shares and board member Larry Ellison, the founder of software giant Oracle, will take another $1 million of them, according to a regulatory filing.

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Proceeds from the new shares, which may be as many as 3 million if underwriters take advantage of their option to purchase additional stock, will be used to shore up the Palo Alto, Calif.-based company's balance sheet. The automaker, which is fighting to deliver consistent profits, has $13.4 billion in debt compared with about $6.5 billion in cash.

Musk, a billionaire entrepreneur who reached a regulatory settlement with the SEC in 2018, had brushed off questions as recently as late January about whether Tesla should take advantage of the higher stock prices to raise new capital and expand more rapidly.

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"We're spending money, I think, efficiently, and we're not artificially limiting our progress," he told Wall Street analysts. "We are still generating positive cash, so in light of that, it doesn't make sense to raise money because we expect to generate cash despite this growth level."

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While Tesla stock dipped on Thursday as investors anticipated the new shares would drive down prices, they are still up 83 percent so far this year after a string of positive developments, including higher price targets from Wall Street analysts and Panasonic's announcement that its battery partnership with the company posted its first quarterly profit.

Tesla’s enterprise value topped that of rivals GM and Ford earlier this year and remained higher than GM's even after Thursday's decline. Its profit and revenue in the last three months of 2019 topped estimates and the company said 2020 deliveries should comfortably beat projections amid demand from new customers.

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Goldman Sachs and Morgan Stanley are lead joint book-running managers for the offering, while Barclays, Bank of America, Citigroup, Credit Suisse, Deutsche Bank and Wells Fargo are additional book-running managers. Societe Generale is co-manager.

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