Is Tesla Discounted Too Much?

Chris Lange

Tesla Inc. (NASDAQ: TSLA) has been a market darling over the past six months, with the stock more than doubling in this time. As a result, founder and CEO Elon Musk is looking to capitalize on this move with a secondary offering. This move by Musk is twofold. It gives more investors the opportunity to buy into Tesla stock, while raising capital to support further development at the company. The question here is whether shares are being discounted too much.

According to its filing with the U.S. Securities and Exchange Commission, Tesla will be offering 2.65 million shares at $767 apiece. This is a discount of 4.6% from the most recent closing price of $804. There is an overallotment option for an additional 397,500 shares.

Also as part of this offering, Musk will be purchasing up to 13,037 shares of common stock for roughly $10.0 million. Additionally, Larry Ellison, another board member and the founder of Oracle, has indicated a preliminary purchasing interest in 1,303 shares for approximately $1.0 million.

For this offering, Tesla has a broad array of underwriters, including Goldman Sachs, Morgan Stanley, Merrill Lynch, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Wells Fargo and Societe Generale.

Tesla expects to receive net proceeds of $2.01 billion from the offering, or $2.31 billion in the total overallotment option is exercised. Management detailed its intentions for the net proceeds in the filing:

We intend to use the net proceeds from this common stock offering to further strengthen our balance sheet, as well as for general corporate purposes. Pending use of the proceeds as described above, we intend to invest the proceeds in highly liquid cash equivalents or United States government securities.

Tesla stock traded at $805.13 on Friday, in a 52-week range of $176.99 to $968.99. The consensus price target is $433.41.