A week after revealing a huge first quarter loss and the need to raise cash, Tesla is doing just that with CEO Elon Musk buying $10 million in new shares being offered as part of a stock and debt offering that could raise more than $2 billion.
Tesla said Thursday that it’s selling $650 million of common stock and $1.35 billion in convertible senior notes due in 2024 in two separate offerings. The company is giving the underwriters a 30-day option to purchase up to an additional 15% of each offering.
That would add up to about $2.3 billion before discounts and expenses and if the underwriters fully exercise their options.
Last week, Tesla reported its cash balance at the end of the first quarter shrunk by $1.5 billion since December, to $2.2 billion. Musk said during a conference call that Tesla might need to raise capital again.
The offering will give it enough liquidity to pay $566 million in notes that mature in November, plus provide cash to expand distribution of Tesla’s Model 3 in Europe and cover any spending needed from softening demand for all three of Tesla’s models in the U.S., Moody’s Senior Vice President Bruce Clark said Thursday in a statement.
Still, Moody’s kept a negative outlook and B3 rating on Tesla debt. That is six notches below investment grade.
In a March 30 note, the ratings agency wrote that the Model 3, Tesla’s lowest-price model, currently sells for an average of $55,000. To increase sales, the price has to drop toward $42,000, and to make enough money to pay the bills, Tesla has targeted a 25% gross profit margin on the Model 3, Moody’s said. Currently gross profits on a $42,000 Model 3 are “materially” below 25%, according to Moody’s.
“In order to achieve this margin target the company will have to undertake significant reductions in fixed and variable costs associated with the vehicle,” Moody’s wrote. “We expect that it will be a major challenge for Tesla to aggressively increase production/deliveries, shift the product mix toward the $42,000 price level, and simultaneously lower costs enough to achieve the 25% gross margin target.”
The Palo Alto, California-based Tesla lost $702.1 million in the first quarter, among its worst quarters in two years. Sales tumbled 31% in the period. Musk predicted another loss in the second quarter but said Tesla would be profitable again by the third quarter.
The surprisingly large loss followed the company’s first back to back quarters of profitability.
Tesla has lost more than $6 billion since setting out to revolutionize the auto industry. Musk expects that future profits will be driven by rising sales and the arrival of autonomous vehicles dedicated to a new ride-hailing service.
Shares of Tesla Inc. closed Thursday up 4.3% at $244.10.