Tesla Inc. shares are down 2.4% in Tuesday’s pre-market trading after the electric carmaker announced a plan to raise up to $5 billion through a share offering in a move to shore up its balance sheet.
The stock, which declined to $626.44 in pre-market after closing 7% higher on Monday, recently zoomed past the $600 billion market cap mark following its 668% rally this year. Meanwhile, Tesla (TSLA) announced that it has entered into an equity distribution agreement with a number of investment banks including Goldman Sachs, who will act as sales agents to sell shares, par value $0.001 per share, of its common stock.
The electric carmaker said it plans to raise an aggregate of up to $5 billion, from the “time to time” sale of shares via an “at-the-market offering”, without providing any further details on the timing for its completion.
“We intend to use the net proceeds, if any, from this offering to further strengthen our balance sheet, as well as for general corporate purposes,” Tesla stated in an SEC filing.
The offering comes ahead of TSLA’s inclusion in the S&P 500 Index scheduled for Dec. 21 and as the stock spiked 52% over the past month. Today’s announcement follows the $5 billion Tesla raised back in September through a share sale. (See TSLA stock analysis on TipRanks)
Commenting on the share offering, Wedbush analyst Daniel Ives called the capital raise a “smart move at the right time for Musk & Co. after the parabolic rally in shares with the appetite strong among investors to play the transformational EV trend through pure play Tesla over the coming years.”
“Now in a clear position of strength and out of the red ink with major factory build outs on the horizon (Austin and Berlin), Musk and his red cape are 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,” Ives wrote in a note to investors.
“We believe this capital raise is a clear positive and further solidifies our bull case price target scenario of $1,000 with our base target $560,” he summed up, while keeping a Hold rating on the stock.
This year’s stellar rally has left the rest of Wall Street analysts mostly sidelined on the stock. The Hold analyst consensus shows 8 Holds, 7 Sells and 10 Buys. That’s with an average price target of $ 403.24, implying 37% downside potential lies ahead over the coming 12 months.