Tesla seeks to raise up to $5bn through share sale

Tesla will raise up to £5bn by selling stock as the electric carmaker capitalises on the six-fold surge in its valuation this year. The company will raise the money by selling shares on the open market, giving it flexibility to lock in an attractive price compared with a formal secondary offering, in which an investment bank sets the terms. Tesla shares have repeatedly hit new highs in 2020, catapulting the group's market value beyond established carmakers such as Toyota and overtaking some of the US's best-known companies, including ExxonMobil and Walmart.

Tesla's shares closed on Friday at £2,213 and opened at £496 on Tuesday as a result of a stock split -- the first since the Palo Alto-based company went public. Old shares were split into five new shares, in part to make buying into the company more affordable for retail investors. Shares rallied 12.6 per cent on Monday and were down 1 per cent in pre-market trade on Tuesday, following an initial advance.

The soaring run of Tesla's valuation has drawn scepticism that it is fuelled by retail investors who have rushed to the market through the rally that began in March. Tesla's stock now trades at more than 300 times the group's expected earnings this year, compared with 27 for companies in the S&P 500 index. Chief executive Elon Musk has frequently used the company's buoyant share price as a means of raising money.

In February, when the shares reached a new high before the coronavirus pandemic upended financial markets, Tesla sold £2.3bn of its stock to strengthen its balance sheet. The latest capital raise was a "smart move at the right time", said Dan Ives, an analyst at Wedbush. The company was "raising enough capital to get the balance sheet and capital structure to further firm up its growing cash position and slowly get out of its debt situation, which throws the 'lingering bear' thesis for Tesla out the window for now," he added.

The amount Tesla intends to raise through the stock sale represents just over 1 per cent of its market capitalisation. Tesla needs more capital to invest in a product pipeline that includes the "Cybertruck" pick-up model and a semi haulage truck. The group is also busy expanding its international operations, with a new factory recently opening in China, and plans for a European manufacturing and battery centre in Germany.

In July, Tesla reported a fourth straight quarterly profit, which was helped by selling zero-emission credits to rival carmakers. Enthusiasm for the stock, which historically has also drawn a large number of short-sellers, has been led by several different types of investor. Some believe Tesla can crystallise its lead over established carmakers in software and electric technology and make good on its ambition to revolutionise transport.

But there is also an army of enthusiastic retail shareholders who are often fans of Mr Musk and his business ventures, which stretch from space rockets to artificial intelligence.

Tesla named Goldman Sachs, BofA Securities, Barclays Capital, Morgan Stanley and Citigroup Global Markets among its sales agents.

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