Tesla Raises $2 Billion: Did Elon Musk Lie to Investors?

Tesla Model X

Tesla's shares fell as much as seven percent in premarket trading after having tripled since October when the company posted a rare quarterly profit.

Co-founder and CEO Elon Musk will add to his Tesla stake by buying up to $10 million in shares from the offering, for which Goldman Sachs and Morgan Stanley will serve as the lead joint book-running managers, Tesla said in a news release.

Tesla bulls, like Musk and Ellison, see the huge increase in the share price as a ideal time to offer more equity in the company.

The move to sell new shares flies in the face of what Musk himself has repeatedly said about the company's need to raise money or to take advantage of the jump in pricing. "We are still generating positive cash, so in light of that, it doesn't make sense to raise money because we expect to generate cash despite this growth level".

Tesla shifted gears Thursday and said it would issue new shares to raise fresh cash, as the electric carmaker responded to the coronavirus epidemic impact on its Shanghai factory and the China auto market.

Tesla Inc CEO Elon Musk walks next to a screen showing an image of Tesla Model 3 auto during an opening ceremony for Tesla China-made Model Y program in Shanghai, China Jan. 7, 2020. Board member and Oracle cofounder Larry Ellison will purchase $1m in Tesla shares. So naturally, the company is now issuing $2 billion in new shares. In fact, they may suggest that even Tesla's management thinks the company is overvalued at current prices. The estimated net proceeds are based on the assumed public offering price of $767.29 per share, which was the last reported sale price of our common stock on February 12, 2020. It said it planned to use the cash to "further strengthen its balance sheet, as well as for general corporate purposes".

Model X Steering Wheel
Tesla Model X steering wheel. | Image Tesla

Some shareholders are understandably upset with Tesla's decision to issue more shares.

CNBC's Jim Cramer said Tesla is being opportunistic in raising capital after its big run given the uncertainties the coronavirus outbreak has created in the near-term.

Tyler Winklevoss, the co-founder of the Gemini cryptocurrency exchange, had this to say on Twitter.

Tesla didn't cross the $100 billion market cap threshold until a few weeks ago, on January 22, but Musk could qualify for this first batch of options later this spring.

This article was edited by Sam Bourgi.

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