The Palo Alto, California, company's shares jumped 3.7% despite the disclosures and the additional 2.65 million shares that could dilute the value of the 180 million shares now on the market. The surprise sale taps into Tesla's rocketing stock price over the past eight months, but comes just two weeks after CEO Elon Musk said the company had enough cash to fund its capital programs and it didn't need to raise any more money.
In a prepared statement, Tesla said Musk will buy $10 million worth of the stock while billionaire board member and Oracle co-founder Larry Ellison will buy shares worth $1 million. The electric car and solar panel maker will use the proceeds to strengthen its balance sheet and for general corporate purposes.
In the Thursday filing, Tesla Inc. said underwriters of the share sale have a 30-day option to buy another $300 million in common stock. The company estimated that the net proceeds from the sale would be $2.31 billion if the underwriters exercise the options.
The numbers assume that the shares would be sold for $767.29 each, the closing price of the stock on Wednesday. Each additional dollar on the share price would add about $2.6 million to the proceeds, the filing said.
Since June of last year the stock has more than quadrupled in value and was trading at $795.49 Thursday. On the company’s fourth-quarter earnings conference call on Jan. 29, Musk was asked about raising capital since the stock had gone up so dramatically.
He replied that the company was spending money as fast as it could spend sensibly, yet it’s still generating cash. “So in light of that, it doesn’t make sense to raise money because we expect to generate cash despite this growth level,” he told analysts.
In a note to investors, Wedbush analyst Daniel Ives called the stock sale a smart move because the shares are in a strong position as electric vehicle demand is starting to reach an inflection point, with China as the main driver.
He also wrote that the sale removes a potential cash shortage down the road. “The bulls (which we agree with) will say this essentially rips the Band-Aid off and takes the doomsday cash crunch scenario some predicted down the road now off the table," Ives wrote.
Tesla also disclosed on Thursday in its annual report that the SEC subpoenaed information in December about the company's financing arrangements but gave no further details. Tesla also said the U.S. Justice Department has asked for information about Musk’s statements that he had funding secured to take the company private, and about production rates for the Model 3 sedan. The funding had not been lined up.
The SEC probe into statements about taking the company private was closed with a $40 million settlement, Tesla said. The securities agency also closed its probe last year into projections of Model 3 production rates, the annual report stated.
“To our knowledge no government agency in any ongoing investigation has concluded that any wrongdoing occurred,” the filing said. Also in the annual report, Tesla disclosed that its U.S. revenue fell 15% last year to $12.65 billion, despite record vehicle sales. The U.S. is by far its largest market. But overall revenue rose nearly 15% to $24.58 billion on increases in China, the Netherlands and Norway.
The company said that at the end of last year it had 48,016 employees, 801 fewer than in 2018. Tesla lost $862 million last year and has never posted an annual profit. But it made $105 million in the fourth quarter. At the end of last year, it had $6.27 billion in cash and equivalents on hand, almost 70% better than at the close of 2018. But its debt grew from $9.4 billion at the end of 2018 to $11.6 billion in December of 2019.
This story was corrected to show that Tesla made a $105 million net profit in the fourth quarter, not $140 million.