Tesla Motors Inc. said it will sell about $1.4 billion in stock to help pay for an expansion that includes its forthcoming Model 3 electric car and boosting annual production to 500,000 vehicles in 2018.
The total sale will be about $2 billion, with the rest of the shares to be sold by Chief Executive Officer Elon Musk to cover tax obligations on stock options he’s exercising, the company said Wednesday in a statement. Tesla plans to sell 6.8 million shares in the offering, or 8.24 million if the underwriters use an option to buy additional stock from the company, according to a prospectus. Musk plans to sell 2.78 million shares.
Tesla had been planning to raise more cash to prepare for the launch of its Model 3 sedan, which will start at $35,000. The electric-car maker needs to add production because it has received more interest than expected in its Model 3 sedan, which is supposed to go on sale late next year.
“The capital raise was expected. Sooner is better than later and the amount is just right,” said analyst Ben Kallo of Robert W. Baird & Co. “It removes an overhang on the stock.”
The company also said in the filing that it had about 373,000 pre-orders for the Model 3 as of the beginning of this week. Consumers had lined up at stores around the U.S. to order the car, which was unveiled March 31. Tesla said in the filing that about 8,000 customers canceled orders and that it scrapped about 4,200 reservations because they appeared to be duplicates from speculators.
Kallo said Tesla’s latest figure is “still a very solid number for Model 3 reservations” and that some churn in the pre-orders was expected.
The shares rose less than 1 percent to $211.60 in extended trading at 6:28 p.m. in New York. They had closed up 3.2 percent to $211.17, for a decline of 12 percent this year.
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Tesla faces a sharp rise in spending for its accelerated production plan, which includes making as many as 200,000 of its Model 3 cars by the second half of next year. Tesla is also ramping up its battery factory east of Reno, Nevada, expanding sales and service globally and adding more charging stations for use by customers. For this year, capital expenditures will increase by about 50 percent, or $750 million, from the company’s original budget, Musk said on a first-quarter earnings conference call on May 4.
“It’s going to make sense for us to raise some amount of money, some combination of equity and debt and make sure the company has a good buffer of cash on hand,” Musk said on the call.
Tesla had $1.44 billion in cash and equivalents at the end of the first quarter, up from $1.2 billion at the beginning of this year. As of April 29, the Palo Alto, California-based company had 133.9 million shares outstanding.
Morgan Stanley and Goldman Sachs Group Inc. are leading the stock offering, Tesla said in the prospectus.
Goldman analyst Patrick Archambault upgraded the stock to buy from neutral in a report that contributed to the shares’ gain Wednesday, before the Tesla offering. Goldman has also served as an underwriter on previous other Tesla share sales, including its 2010 initial public offering.
Wall Street banks are supposed to have firewall between their research department and their investment banking work. When asked about the timing of Archambault’s report and the latest Tesla stock offering, Leslie Shribman, a Goldman spokeswoman, said: “Our research is independent. We followed all of our standard policies and procedures with respect to our research publication today.”