Tesla is preparing a $ 5 billion capital increase

Posted on Sep 1, 2020 at 7:30 p.m.Updated Sep 2, 2020, 12:36 PM

Tesla wants to capitalize on the exceptional surge in its stock market price. The automaker founded by billionaire Elon Musk presented on Tuesday to the regulator of the American markets, the SEC, a vast program of sale of shares, intended to raise up to 5 billion dollars.

This new fundraising is on track to be a record for the Palo Alto firm: it suffices for the operation to exceed $ 2.34 billion, Bloomberg recalls. In ten years, Tesla has managed to raise some $ 14 billion, including $ 2 billion in February.

Recourse to markets is a necessity for Tesla, which has, since its inception, constantly needed new money: in its quest to become the first manufacturer of mass electric vehicles, Elon Musk's group is forced to burn cash at high speed in order to accelerate the construction of its new factories in Germany and Texas – after having completed the construction of the one based in Shanghai -, as well as the production of its new models. The group's new American factory is supposed to be operational as of next year.

Exceptional increase

Still, the operation takes place in a very specific context: since the beginning of the year, investors have been snapping up the shares of the electric car manufacturer, which has made analysts lie by recording a fourth consecutive quarter of gain despite the covid-19 and the closure of some of its factories.

Result: its share price has climbed by more than 500% in eight months. To the point that Tesla is now valued at $ 280 billion on Wall Street. Much more than the three giants of the American automotive sector combined: General Motors (40 billion), Ford (28 billion) and Fiat-Chrysler (18 billion).

Benefit from the appetite of retail investors

To carry out its fundraising, Tesla relies in particular on the appetite of individuals, with whom it is very popular, and who today represent 20% of stock exchanges. But at more than $ 2,000, the title had become difficult to access to small carriers. The Palo Alto firm therefore decided to split its title into five, which dropped the share a little above $ 400.

A level much more accessible to stock marketers of the Robinhood trading application – where Tesla is the eighth most traded security – and which allowed the manufacturer to advance 12.57% on Wall Street on Monday. “This is an important lever so as not to slow down the arrival of new investors and maintain the momentum recorded,” notes Nick Bortot, founder of the online broker BUX. For small investors, this represents the possibility of diversifying a portfolio more easily. “This Tuesday, the title closed at 475 dollars, down 4% from the previous day, in the wake of the announcement of this new fundraising plan. Indeed, current shareholders fear that their current securities will be diluted in a larger flow of shares.

Apple, which has also soared on the stock market this year, had also announced earlier that it wanted to resort to a “split” of its shares. The Cupertino group is also adored by Robinhood users, where it holds the third position. On Monday, after the split came into effect, the apple brand gained 4.2%.

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