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Tesla Sells Stock to Brace for Model 3

Written by Alexandra Perry
Posted March 16, 2017 at 5:53PM

Tesla is bracing for the release of its Model 3.

The company’s first “commercial” vehicle will enter production in July. Tesla expects to churn out 5,000 vehicles a week. That means finally — after all of Musk’s speeches and showboating — one of the most anticipated cars in history is becoming a reality.

And customer demand is soaring.

Tesla has a pack of viciously loyal customers. Whether they are in love with Elon Musk or actually want electric cars, I can’t really say. Either way, last year thousands of Tesla fanatics eagerly forked over $1,000 to reserve their $35,000 vehicle.

By the end of 2016, Tesla had padded its pockets with $700 million in customer deposits.

But recent moves by Tesla make it look like it is bracing for the worst. The company announced plans to raise $1.15 billion from common stock and convertible senior notes before the release of the Model 3.

According to the SEC, Tesla plans to issue offerings of $250 million of common stock. It has granted underwriters a 30-day option to purchase 15% of each offering.

Hmm... that sounds a lot like a safety net. Is Tesla worried the Model 3 is going to crash and burn?

If you look at Tesla's previous behavior, this announcement shouldn't be concerning. Elon Musk’s uncanny ability to charter turbulent waters is what makes Tesla great. He is preparing for the worst — which is a lot better than a founder who only hopes for the best.

The money will be used to protect Tesla as it moves into production of the Model 3. It will accommodate the financial needs of producing a new vehicle. It will also cushion the business as it rapidly scales to accommodate a new product.

Currently, Tesla could produce a Model 3 without raising additional funds. But the Model 3 — which is expected to cost upwards of billions — will push Tesla close to the breaking point. The company can afford its goals, but it also acknowledges the need to protect itself from dynamic growth.

And, like a good company dad, Elon Musk is helping out. He plans to buy $25 million in Tesla stock to help build the financial cushion.

Tesla had a stock run-up on Tuesday, meaning now is a good time to raise funds. It is about to enter an expensive phase, funneling money into the Model 3 and building Gigafactories. But it is also an exciting time for investors who have waited for Tesla to expand outside of its expensive luxury electric vehicles.

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