5 ms·

I wonder if it would be good time to do another equity raise. They raised 2 billion dollars earlier this year at a price of 767 (1,430 now) to fuel their growt

by mrep 6y ago

I wonder if it would be good time to do another equity raise. They raised 2 billion dollars earlier this year at a price of 767 (1,430 now) to fuel their growth because they thought there share price was high then. Once the inclusion is announced, it seems like a perfect time to me to announce another massive capital raise to further fuel their growth now that their share price is almost double from their previous raise and the index funds are going to have to buy about $35 billion to $40 billion of shares to get to the proper weighting according to the article. Why not do a massive capital raise which the index funds will buy a ton of to help get them to the proper weighting.

yellow_lead 6y ago
It's definitely a good idea. Companies seem to do equity raises when they perceive their stock price as overvalued. Musk has outright said this when their stock price was even lower too. The question will be if they need to do one though.
- an_opabinia 6y ago
  They seem to, but then if you had bought Tesla shares the day they announced the raise, you would be looking at a huge speculative gain in your investment.
  - nine_k 6y ago
    I suppose the day before, because the price would jump in the first few seconds of trading.
- rcMgD2BwE72F 6y ago
  How is that a good idea? They are already building 3 giant factories (Shanghai cont, Berlin, Austin), have enough cash for that and some more. They are profitable, free cash flow continues to increase as Model Y are delivered globally. They couldn't spend their money faster. Why would existing shareholders support a secondary?
rcMgD2BwE72F 6y ago
They don't need to, and it would make no sense to further dilute current shareholders. They have enough cash for operations and investments, free cash flow is increasing fast and will continue to do so, it makes no sense for shareholders to do a secondary to be included in the SP500 (the SP500 board may ask Tesla to offer liquidity but that is the index funds' problem not Tesla's, and such a concession would only benefit front runners instead of long terms investors). Besides, if market cap continue to grows as expected, SP500 will have to add TSLA at any price (otherwise the whole concept of SP 500 Index would be at risk). Also, many are waiting for Batter and Powertrain day to assess Tesla's ability to ramp production to 10+ million EVs in ~2030) so unless those plans disappoint, raising equity before September would be a let down.
- take_a_breath 6y ago
  Of course they don’t need to, that’s not the point at all. They have, essentially, free money sitting there for the taking. A There is no guarantee the stock price will keep climbing, it could very well fall based on the P/E of 740. Borrowing against today’s inflated price in order to make acquisitions and investments actually seems like the fiscally responsible move.
  - rcMgD2BwE72F 6y ago
    Wait, do you support raising equity or borrowing from banks, at today's rate? I'm not sure what you consider being cheaper, and for who.
    - BbzzbB 6y ago
      Not OP but pretty sure he means a raise, at an incredibly cheap price for the company and shareholders.
      - rcMgD2BwE72F 6y ago
        Let's assume that the company has more cash that it can spend now, that its free cash flow grows faster than capex + opex. Then, if an equity raise is "incredibly cheap for shareholders", that would mean shareholders consider the stock price to be higher than what they expect in the future, i.e many would be selling and the stock price would come down. I don't assume the stock market to be rational but this thesis does not hold much, as the company can easily raise debt now, at a much cheaper price for shareholders than equity. Let's wait and see.
justapassenger 6y ago
It's more complex. Basically, you have to be careful when playing with a bubble, or you'll pop it. Their astronomical stock growth, with no underlying business reasons (as in - nothing fundamentally changed about their business, or their competitors), that even CEO says made company overvalued, 50% ago is a bubble. They may grow into it, or slowly deflate it. But big pop of the bubble can be deadly to a company.
- throw0101a 6y ago
  > Their astronomical stock growth Meanwhile, bond holders are asking for 4% more than similarly-size companies: > This is remarkable data, Tesla’s five-year bonds are yielding nearly 400bps more than their possible market capitalization neighbors in the S&P 500. * https://www.thebeartrapsreport.com/blog/2020/07/19/gaming-the-sp-500-inclusion-process/ https://www.thebeartrapsreport.com/blog/2020/07/19/gaming-th...

by mrep 6y ago

yellow_lead 6y ago

It's definitely a good idea. Companies seem to do equity raises when they perceive their stock price as overvalued. Musk has outright said this when their stock price was even lower too. The question will be if they need to do one though.

an_opabinia 6y ago
They seem to, but then if you had bought Tesla shares the day they announced the raise, you would be looking at a huge speculative gain in your investment.
- nine_k 6y ago
  I suppose the day before, because the price would jump in the first few seconds of trading.
rcMgD2BwE72F 6y ago
How is that a good idea? They are already building 3 giant factories (Shanghai cont, Berlin, Austin), have enough cash for that and some more. They are profitable, free cash flow continues to increase as Model Y are delivered globally. They couldn't spend their money faster. Why would existing shareholders support a secondary?

rcMgD2BwE72F 6y ago

They don't need to, and it would make no sense to further dilute current shareholders. They have enough cash for operations and investments, free cash flow is increasing fast and will continue to do so, it makes no sense for shareholders to do a secondary to be included in the SP500 (the SP500 board may ask Tesla to offer liquidity but that is the index funds' problem not Tesla's, and such a concession would only benefit front runners instead of long terms investors). Besides, if market cap continue to grows as expected, SP500 will have to add TSLA at any price (otherwise the whole concept of SP 500 Index would be at risk). Also, many are waiting for Batter and Powertrain day to assess Tesla's ability to ramp production to 10+ million EVs in ~2030) so unless those plans disappoint, raising equity before September would be a let down.

take_a_breath 6y ago
Of course they don’t need to, that’s not the point at all. They have, essentially, free money sitting there for the taking. A There is no guarantee the stock price will keep climbing, it could very well fall based on the P/E of 740. Borrowing against today’s inflated price in order to make acquisitions and investments actually seems like the fiscally responsible move.
- rcMgD2BwE72F 6y ago
  Wait, do you support raising equity or borrowing from banks, at today's rate? I'm not sure what you consider being cheaper, and for who.
  - BbzzbB 6y ago
    Not OP but pretty sure he means a raise, at an incredibly cheap price for the company and shareholders.
    - rcMgD2BwE72F 6y ago
      Let's assume that the company has more cash that it can spend now, that its free cash flow grows faster than capex + opex. Then, if an equity raise is "incredibly cheap for shareholders", that would mean shareholders consider the stock price to be higher than what they expect in the future, i.e many would be selling and the stock price would come down. I don't assume the stock market to be rational but this thesis does not hold much, as the company can easily raise debt now, at a much cheaper price for shareholders than equity. Let's wait and see.

justapassenger 6y ago

It's more complex. Basically, you have to be careful when playing with a bubble, or you'll pop it. Their astronomical stock growth, with no underlying business reasons (as in - nothing fundamentally changed about their business, or their competitors), that even CEO says made company overvalued, 50% ago is a bubble. They may grow into it, or slowly deflate it. But big pop of the bubble can be deadly to a company.

throw0101a 6y ago
> Their astronomical stock growth Meanwhile, bond holders are asking for 4% more than similarly-size companies: > This is remarkable data, Tesla’s five-year bonds are yielding nearly 400bps more than their possible market capitalization neighbors in the S&P 500. * https://www.thebeartrapsreport.com/blog/2020/07/19/gaming-the-sp-500-inclusion-process/ https://www.thebeartrapsreport.com/blog/2020/07/19/gaming-th...