Tesla (NASDAQ:TSLA) has announced that it is initiating a $5 billion capital raise on Tuesday. The move, which will result in a dilution of about 0.8%, is poised to provide an additional $5 billion to the company’s already formidable balance sheet.
Tesla’s new capital raise announcement comes on the heels of TSLA shares hitting new all-time highs on Monday, pushing the electric car maker’s market cap to over $600 billion. This further cemented Tesla’s position as the world’s most valuable automaker, while emphasizing the company’s opportunities in other industries such as energy storage, solar, and autonomous driving solutions.
As noted by Tesla in a filing, ten major banks, including Goldman Sachs, Citigroup Global Markets, and Morgan Stanley, will be conducting the $5 billion sale. Tesla did not provide an estimated timeline for the capital raise’s completion.
Considering TSLA’s current stock price, its $5 billion capital raise will likely involve the sale of less than 8 million shares. While notable, such a number will likely be a tiny fraction of the estimated number of shares needed by passive index funds that will be buying into TSLA when the electric car maker joins the S&P 500.
With $5 billion more in its war chest, Tesla is poised to end the year with almost $20 billion in cash. Such a figure would have been inconceivable last year, when TSLA stock was just recovering from the blows in the first and second quarter of 2019. Such an amount, however, should provide Tesla with a good amount of cash for projects such as Gigafactory Texas and Giga Berlin, both of which are expected to start producing electric vehicles next year.
Tesla has so far seen an impressive 670% rally in 2020, turning the company into one of the S&P 500’s largest inclusions to date. When Tesla joins the index, it would likely sit just ahead of Warren Buffett’s Berkshire Hathaway, and about $200 billion below social media giant Facebook. Amidst Tesla’s rally, Elon Musk’s net worth has also seen a rise, with the serial entrepreneur now being listed as the second richest person in the world, just behind Amazon founder Jeff Bezos.
Disclaimer: I am long TSLA.