Tesla's Unexpected Capital Raise Leads To Surprising Stock Surge

Tesla Inc TSLA shares ripped higher on Thursday after the company surprised Wall Street by announcing a $2 billion dilutive common stock offering just days after CEO Elon Musk said raising money "doesn’t make sense."

Tesla shares, which are up 255.2% in the past six months, initially plunged more than 7% in pre-market trading after the company issued a 10-K filing indicating the SEC issued a subpoena seeking info related to certain financial data, but shares whiplashed back into positive territory within an hour of the market opening.

Ross Gerber, co-founder and CEO of Gerber Kawasaki Wealth and Investment Management, told Benzinga that the way Tesla is reacting to news has changed during its recent run-up.

"Normally that would have sunk Tesla 50 points or 100 points. This is not normal anymore. This is about a company proving to people that they're going to accomplish their long-term goals, and the market likes it," Gerber said.

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The decision to raise additional capital was surprising given Musk was adamantly opposed to it on Tesla’s fourth-quarter earnings call on Jan. 29. “Diluting the company to pay down debt doesn’t sound like a wise move,” Musk told investors.

A source familiar with the matter told Benzinga Tesla will offer 2.65 million shares of stock, and the offering is expected to price after Thursday's close.

Sentiment related to Tesla on StockTwits was up slightly on Thursday following the offering news, with 67.5% of Tesla messages bullish. Bullish Tesla sentiment dropped to 60.9% on Tuesday, its lowest level in more than three months.

Several analysts and experts have weighed in on the offering on Thursday.

Cash Is Critical For Tesla

Morningstar analyst David Whiston believes the capital raise is a good move, but he is frustrated with Tesla’s poor communication and inconsistent plan.

“This is at least the second time Musk has said on an earnings call that raising capital is not happening and then shortly thereafter Tesla raises capital,” Whiston wrote in a note.

Morningstar has a Sell rating and $326 fair value estimate for Tesla stock.

ARK Invest founder and CEO Cathie Wood said the offering makes sense and she wouldn’t be surprised if the company announces plans for another China gigafactory.

Wood has a $7,000 price target for Tesla.

Uncertainties Ahead

CNBC's Jim Cramer said Tesla is being opportunistic in raising capital after its big run given the uncertainties the coronavirus outbreak has created in the near-term.

“You could argue what Elon’s doing is saying, ‘Look, the stock’s much higher now. I need the money. Maybe you don’t know how quickly China is going to come online,” Cramer said.

CFRA analyst Garrett Nelson said coronavirus-related delays in China vehicle deliveries and a Model X recall likely played a role in Tesla’s decision to raise capital.

“We are not surprised by the capital raise considering co.'s ambitious growth plans, including a new factory in Germany and possible factory in Texas, in light of the stock's run-up and the fact it issued equity last May at $243/share,” Nelson wrote in a note.

CFRA has a Sell rating and $440 price target for Tesla.

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Loup Ventures' Gene Munster said cash is critical for any high-growth tech company, and Tesla will eventually be worth more than its current $144 billion market cap.

“The stock initially traded down because 1) issuing new shares dilutes current owners and earnings (in this case by ~1.9%), and 2) it sends a signal that management believes the stock is fairly (or richly) valued,” Munster wrote in a blog post.

Benzinga’s Take

It’s common for companies with high debt levels and stock prices that have skyrocketed in short amounts of time to take the opportunity to lock in some cash at high share prices. By selling shares at high prices, companies like Tesla are able to raise the maximum amount of cash for the minimum amount of shareholder dilution.

Tesla's stock traded around $804 per share at time of publication.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.