Tesla to charge up cash stockpile

Tesla has proposed to sell $US500 million ($677m) worth of shares in a new round of fundraising.

Tesla has proposed to sell $US500 million ($677m) worth of shares in a new round of fundraising that suggests the cost of disrupting the global car industry with its pricey electric vehicles is more expensive than chief executive Elon Musk initially thought.

The stock sale comes on top of more than $US4 billion Tesla has raised since the beginning of 2013. The carmaker has sold convertible notes and obtained lines of credit during that period to fund its ambitious bid to move from niche luxury-vehicle maker to a sizeable force in the car business.

While the carmaker has consistently expanded revenue during that two-year period, its net losses have deepened. And the company continues to burn large sums of cash on capacity expansions and new products.

Before yesterday’s disclosure, the company’s stock was down 12 per cent since reporting a $US184m second-quarter net loss on August 5.

Its shares rose 1.8 per cent to $US242.51 yesterday.

“Tesla is able to very inexpensively raise money through share sales without much dilution,” said Efraim Levy, an equity analyst at researcher S&P Capital IQ. “It demonstrates the power of an expensive stock.”

Mr Levy noted that existing investors would be hit with a 1.6 per cent dilution based on Wednesday’s $US238.17 closing share price. Tesla plans to sell 2.1 million shares, including a $US20m allotment to be bought by Mr Musk and $US75m worth purchased by underwriters.

Mr Musk has said in recent years he did not think Tesla would need to sell new shares to fund its next-generation vehicles. Tesla said yesterday that proceeds from the stock offering would be used for a variety of purposes, including growth of its showrooms, service centres and energy-storage business.

The company’s market capitalisation is $US30.8bn, more than half the value of much larger rivals General Motors and Ford. Detroit’s car giants are richly profitable amid strong sales of trucks and sports-utility vehicles in the US, and they sell millions of vehicles annually.

Like most of its global competitors, Tesla is spending heavily on future products that meet stringent regulations and consumer demand for hi-tech features such as automated-driving.

The company’s 2015 capital expenditures bill is expected to hit $US1.5bn, roughly 15 per cent of GM’s budget. But GM sells nearly 10 million vehicles annually, or about 200 times more than Tesla’s volume.

Tesla was “really getting the benefit of investor optimism and sometimes that’s all you need until it flows into reality,” Mr Levy said.

Mr Musk has said the company will not achieve a profit by standard accounting measures until 2020, although it expects to staunch cash outflows by next year.

Tesla has reported a combined $US1.8bn in net losses since it was founded, including one profitable quarter in 2013.