SAN FRANCISCO: Tesla Inc will raise up to US$2.3 billion in new capital, renouncing what Elon Musk called a"Spartan diet" and easing Wall Street concerns about the money-losing company's ability to overcome a drop in sales and build new product lines.
For over a year, Musk had insisted that the money-losing Silicon Valley automaker had no need for a capital raise, saying that high Model 3 volume and efficiency would push the company to profit in all quarters of 2019. That changed with a US$702 million loss in the first quarter, and warnings that profit would be delayed until the latter half of the year.
Tesla has made a series of moves to rework pricing strategies for its cars following the reduction of a federal tax credit for Tesla buyers to US$3,750 a car from US$7,500. Tesla has raised funds through bank loans, several rounds of equity sales, convertible notes, a junk bond sale, securitization of its vehicle leases and solar asset-backed notes.
That conversion rate is worse for investors than Tesla's last convertible bond, issued in March 2017, a US$977.5 million security maturing in March 2022 that featured a 2.375per cent coupon with a 25per cent conversion premium to the stock's reference price of US$262 per share at the time of the sale. That means the bond can be converted to equity at a price of US$327.50 per share, which is currently around 36per cent above Tesla's current share price of around US$240.
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