Tesla’s ‘Surprising’ Plan to Raise Money May Add Fuel to Rally
Tesla’s ‘Surprising’ Plan to Raise Money May Add Fuel to Rally
(Bloomberg) -- Tesla Inc. observers mostly see Thursday’s capital raising as eventually helping long-term investors who are betting on the electric vehicle maker’s success, even if it gave a brief boost to bearish investors.
Shares of Tesla dropped as much as 4.2% on Thursday after the company said it would offer about $2 billion of common stock. But the shares quickly pared those losses and were about 2% higher in late morning trading.
Chief Executive Officer Elon Musk had said just two weeks ago that Tesla wouldn’t need to raise capital, but analysts covering the company have been saying that such a move is prudent given Tesla’s expansion plans and the incredible rally in the stock over the past few months.
“In a technical sense, the share dilution will of course depress Tesla’s stock price,” financial analytics firm S3 Partners’ Ihor Dusaniwsky said, adding that shorts were up $241 million in mark-to-market profits when the shares were down 1.5%.
But there’s a “good chance the share issuance will just be feeding the bull rally in the long run as a cash rich balance sheet will allow for quicker manufacturing growth,” Dusaniwsky added.
Wall Street analysts echoed that sentiment.
Robert W. Baird analyst Ben Kallo, who has a hold-equivalent rating on Tesla, said the offering provides an opportunity for analysts to upgrade from sell ratings, since the company’s debt load and the potential for dilution from a capital raise were two factors used to justify those pessimistic ratings.
Meanwhile, the short interest in Tesla has continued to come down steadily, currently standing at 15.3% of the free float, which is the lowest since 2016, which is how far S3 data goes back.
According to IHS Markit, the short interest is hovering around 9% of the free float, which is the lowest since 2010.
The latest offering is also not expected to have an impact by way of a greater availability of shares for short sellers to borrow, since there is currently no shortage of stock for bearish investors to borrow, IHS Markit’s Samuel Pierson said.
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