Tesla's $5B Equity Sale: What You Need To Know

Tesla Inc TSLA said Tuesday that it has entered into an equity distribution agreement with major investment banks to sell up to $5 billion in shares.

What Happened: The EV maker's offering leverages the strong rally in its stock in 2020.

Tesla shares closed at a fresh record of $641.76 on Monday. 

The equity distribution was initially unveiled in a filing with the SEC in late August.

The shares will be sold in at-the-market offerings, which suggests investors who buy shares at different times will likely pay different prices, depending on the prevailing price, Tesla said.

The investment banks serving as sales agents include Goldman Sachs Group Inc GS, Citigroup Inc C, Barclays PLC BCS, BNP Paribas ADR BNPQY, Credit Suisse Group AG CS, Bank of America Corp BAC, Morgan Stanley MS, Wells Fargo & Co WFC, SG Americas Securities and Deutsche Bank AG DB.

As of Sept. 30, Tesla had cash and cash equivalents of $14.53 billion. The offering is likely to bolster its cash reserves to about $20 billion.

The company said it expects to use the net proceeds to further strengthen its balance sheet, as well as for general corporate purposes.

Related Link: Why Tesla Is Unlikely To Buy A Traditional Automaker Outright

Why It Matters: Tesla's shares have been on fire since late last year after reversing to a profit in the third quarter of 2019.

The fundraising leverages the strong run in the shares, which have added about 650% year-to-date. Tesla's market capitalization is now more than the combined market capitalization of major legacy automakers.

The company announced a 5-for-1 stock split in September as the stock skyrocketed.

Tesla, which operates in a capital-intensive industry, is on an expansion spree, as it is working on new Giga factories and plans to build new ones. The company is also increasing production capacity at existing factories. 

The offering should help the company with the financial wherewithal to successfully execute on these investment plans.

Click here to check out Benzinga's EV Hub for the latest electric vehicles news.

TSLA Price Action: In premarket trading Tuesday, Tesla shares were slipping 1.12% to $634.58. 

Related Link: Tesla Gets China Go-Ahead To Sell Shanghai-Made Model Y EVs

Photo courtesy of Tesla. 

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