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How Tesla Could Use Its $2B In Offering Cash: A Cybertruck Plant, China, Debt Payoff

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How Tesla Could Use Its $2B In Offering Cash: A Cybertruck Plant, China, Debt Payoff

On Friday, Tesla Inc (NASDAQ: TSLA) priced its surprise $2-billion equity offering at $767 per share, a 4.6% discount to Thursday’s closing price.

Tesla will sell 2.65 million shares of stock, and CEO Elon Musk will buy $10 million in stock himself.

Now that the offering has been priced, Tesla experts and investors are shifting their attention to how exactly Tesla will put the cash to work. 

Tesla Factory In Detroit Or Texas? 

Ross Gerber, co-founder and CEO of Gerber Kawasaki Wealth and Investment Management, told Benzinga that Tesla is likely thinking ahead to building its Cybertruck manufacturing facility.

Tesla already has roughly $5 billion in costs on the books in coming years between its China Gigafactory and its Germany Gigafactory, he said. 

“They want to build something in the Midwest because of the way they deliver cars. They prefer to take a car from the factory and just drive it to the customer." 

That delivery process is cheaper and easier than a more complicated delivery system involving dealerships, Gerber said.

“What they wanted to do is see where do we get Cybertruck orders from, where do we have our semitruck orders from and where would be the smartest place to do this? And what they’ve found so far is that they’re getting a ton of interest in the Midwest,” he said. 

Gerber initially speculated that Tesla could build its factory in Detroit, given the city's access to cheap real estate and experienced auto workers.

“When I talked to them, they were saying, 'well, we’re getting a lot of orders from Texas.'"

Gerber said he inferred that it would be a great move for Tesla to build in Texas due to the state's cheap sources of solar energy and its convenient positioning for national deliveries. 

Houston may be an ideal location for a factory given its large port, he said. 

A Chinese Expansion For Tesla?

Tesla likely won’t spend much of the $2 billion in China given that the automaker has already made so much progress with its first factory there, Gerber said. 

Chinese sales will start rolling in soon, providing the coronavirus outbreak doesn’t create further delays, he said. 

On Thursday, Tesla acknowledged that the “health epidemic” is a material business risk moving forward after the company was forced to briefly close its Shanghai factory due to the COVID-19 virus outbreak. 

Despite the concerns, ARK Invest founder and CEO Cathie Wood said Thursday that Tesla could pour the $2 billion into ramping up its China presence.

“We wouldn’t be surprised if Elon announces plans for another #Gigafactory in China, a vote of confidence in the resilience of that country,” Wood wrote.

Could Tesla Pay Down Debt?

Earlier this month, Cascend Securities' Chief Investment Strategist Eric Ross called for Tesla to raise capital simply to pay down its debt.

"With $13.5 billion in debt, a $20 billion raise would dilute valuation by roughly 13.5%," Ross said at the time.

While Tesla’s actual raise was only 10% of Ross’ suggested size, it could still go a long way in reducing debt-related risk and shoring up Tesla’s balance sheet.

The stock was trading 0.43% higher at $807.43 at the time of publication Friday.

Benzinga’s Take

Tesla CEO Musk has always taken an extremely aggressive approach to Tesla’s financing, so it seems unlikely he will change course and focus on the balance sheet.

Whether it be an acquisition, a new factory, a new product or some combination of the three, investors will likely see Tesla spend the $2 billion rather than using it to pay down debt.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Related Links:

Tesla's Unexpected Capital Raise Leads To Surprising Stock Surge

Teslamania Runs Wild! Now What?

Photo courtesy of Tesla. 

Latest Ratings for TSLA

DateFirmActionFromTo
Feb 2020Cowen & Co.MaintainsUnderperform
Feb 2020Morgan StanleyMaintainsUnderweight
Feb 2020BernsteinMaintainsMarket Perform

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