Although Tesla Inc. has plenty of options for raising more funds, it is becoming increasingly more expensive for the company to obtain new financing.
For now, the popular electric car maker is exploring different opportunities to expand its business.
Tesla’s Loss Was Even Worse Than Expected
Wall Street analysts had predicted a loss, but this first quarter drop in revenue far exceeded expectations. Elon Musk had previously reported that his company did not need more funds, but recently in an earnings call he said that “there’s merit to the idea of raising capital at this point.”
And then more recently, following these recent losses, it was announced that Tesla is looking to raise up to $2.7 billion from new stock and debt offerings in an effort to fund Musk’s bold—and expensive—plans. It may be more difficult to raise that kind of money than it would have been in the past. As of this writing, shares have dropped 36 percent since December 2018, now hovering around $241.47 per share.
The corporation may be forced to sell more shares in order to raise the necessary money. If shares continue to decline, it will mean selling a larger percentage of the company at an even lower rate in the future. Investors may be wary of purchasing stock after previous losses, and would be looking for a significant discount to ensure against further drops in value.
A Variety of Financing Options
The last time Tesla issued new stocks or bonds was mid-2017, when it sold its first unsecured bonds, raising $1.8 million. The company has generated funds through its own operations since then, with success in 2018, but falling short in the first quarter of 2019. Tesla recently opened new credit lines through Chinese banks, worth about $520 million in total, to help finance a new factory in Shanghai.
Tesla had $2.2 billion of cash available as of March 31. That number is down 40 percent from three months earlier. The company is expecting a loss in the second quarter of 2019, but hopes to see profit in the third quarter after new car deliveries.
There’s Still Hope for Tesla
Although the stock has been falling, Tesla is still capable of raising significant funds. Since its market capitalization has stayed above $40 billion, on par with Ford Motor Company and many other very successful corporations, there’s ample evidence that Musk’s electric car company is far from out of the game.
That means the cost for Tesla to issue new shares is still relatively inexpensive. It will still be easy for Tesla to issue various types of debt and convertible bonds, since the company is worth more than its debt. Tesla will still have the option to issue additional shares in this situation if necessary.
There may still be a large base of buyers that are interested in purchasing shares and see a bright future for the company.