Tesla Motors (TSLA: $215, up $10 since Tuesday’s close) raised $1.45 billion in new capital from the sale of 6.8 million new shares. The company said it needs the cash to finance the expansion of production of its electric vehicles to 500,000 a year by 2018. We feel this to be an impossible task but with the existing $1.4 billion it has in the bank, the total of $2.8 billion in cash will go a long way to increasing production. We think a target of 2020 or 2021 is more realistic. After all, they only sold 33,000 cars in 2014 and 51,000 in 2015.
The shares were priced at $215 by Morgan Stanley, Goldman Sachs, Deutsche Bank, Citigroup, and Merrill Lynch, a sweet deal for these firms. Elon Musk sold 2.8 million of his own shares, raising a cool $630 million. He got a slug of new options just before this, so his ownership wasn’t really diluted. Between his ownership in SpaceX (private), Solar City (SCTY: $21) and Tesla, Musk is worth $12.5 billion according to Forbes, give or take a billion. What’s a billion anymore when you think about it?
BMR Take: We are believers in Elon Musk and his three companies. But Tesla is not without risk. It is a new car company and there haven’t been any successful car companies started in multiple decades. He’s got a big head start here though, especially with the 400,000+ orders he got for the new Model 3 announced this year. With $1000 deposits from these folks the company has over $400 million in cash that they can use as well.
Where will the stock go? No one knows, but we have it in the Special Opportunities Portfolio because we think it will go higher over the years. But be careful with this one. It’s not like investing in Ma Bell in the 50s and 60s. Perhaps you might consider selling calls on your investment to lower your cost. Ask your financial advisor how to do this or write us here: Info@BullMarket.com.
Â