May 17, 2013 / 5:31 PM / 7 years ago

UPDATE 1-Tesla Motors raises more than $1 billion from debt, equity

By Stephen Lacey

May 17 (IFR) - Tesla Motors has upsized its debt and equity offerings, as the electric car maker capitalizes on surging investor demand to raise more than $1 billion in cash.

The US company late Thursday increased the size of the convertible bond offering to $600 million, after increasing it earlier that day to $525 million from an initial $450 million.

Meanwhile on Friday Tesla finalized a per share price of $92.24 for the sale of 3.39 million common stock shares. It had originally planned to offer 2.7 million shares.

With overallotment options included on both offerings, total fundraising is $1.02 billion.

The move comes after Tesla, co-founded by Silicon Valley billionaire Elon Musk, last week reported an $11 million profit for the first quarter - the first profit in the company’s 10-year existence.

The success of the new fund-raising, and the company’s recent share price explosion, point to strong investor belief in Tesla’s long-term prospects.


The California-based company has been on a roll of late, with its new Model S car getting a near-perfect rating from the influential magazine Consumer Reports.

Tesla’s share price is up almost two-thirds since May 8, and some in the market believe that the company could be the next big thing when it comes to the still-young electric car sector.

“Either they become a niche manufacturer like Porsche or Maserati and make 50,000 high-end cars annually, or they crack the code on a $30,000 car that would put them on the inflection point of a large industrial,” one banker told IFR.

“Musk has a vision of creating a $50 billion-plus company in five years.”

The strong market belief has been forcefully backed up by Musk himself, who purchased $45 million of the shares in the latest sale and pledged to invest another $55 million later.

Investor sentiment allowed the company to increase the size of both the convertible bond and stock offerings. Goldman Sachs was lead-left bookrunner for both deals.

The stock offering was intended to price off Thursday’s closing price - $92.25 - but because the shares were quoted on some systems at $92.248, the deal priced at $92.24, according to a source close to the transaction.

Meanwhile the five-year convertible bond priced at a coupon of 1.5% and conversion premium of 35%, the source said. It had been launched with price talk of 2%-2.5% and a conversion premium of 30%-35%.

The terms set a conversion price of $124.52, above which investors would be able to convert each $1000 par bond into roughly eight shares.

“Sure, you’re giving up the firstof upside but who cares? Worst case, you get your money back,” the banker said.

“There is a fundamental view of a scenario where Tesla becomes the next GM or Ford.”

But many in the market do not share that vision - and in fact the company’s recent successes have caught many investors off guard.

Investors betting against the company had shorted 27.5 million shares, fully 37.5% of its free float, as of April 30, when the stock price stood at $53.99.

Part of the strategy employed by the underwriting banks in Tesla’s fund-raising was to target long-only fundamental investors - forcing short-sellers to cover their positions and thus driving up the stock price.

In the wake of the higher $92.24 price of the new offering, a tug of war between Tesla’s believers and doubters seems to have begun anew.

The share price was vacillating strongly on Friday, with volume in the name three times higher than normal. In early afternoon it was down 1.3% to $91.08. The day’s low was $87.50.

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