As the company used over $1.5B in just the first quarter of the financial year, unprofitability of Tesla has raised many eyebrows recently. However, the news that the innovative company is looking to raise up to $2.3 Billion funds by issuing convertible shares and debt has provided a sigh of relief to investors.
Musk seems to be parting ways from the ‘Spartan Diet’ he proudly mentioned some time ago. The funds are primarily expected to be utilized with respect to building a new factory in China and developing a new Model Y car along with some other new projects that have been in the pipeline.
Since the announcement, the share price of Tesla has increased by 3.7% and has reached to $242.616, which shows the confidence of investors in this decision.
32% Of The Finance Is Expected To Be In The Form Of Shares While The Rest In Debt
Previously, Elon Musk, the CEO of Tesla, was quoted as claiming for his company to remain profitable in all quarters of the year. However, Tesla has suffered a loss of more than $700 million in the first quarter and the situation does not seem any better for the near future. High-volume production and sale of new model Y are seen as an answer to the issue of profitability but it requires an investment of up to $2 Billion to set up the production and other facilities. Around $640 million is expected to be raised in the form of shares and the remaining as debt. Some sources have claimed that Musk himself is also going to contribute up to $10 million in the ’cause’.
Many Have Questioned The Timing Of This Decision
Over the years, Tesla has employed various means of raising funds, including but not limited to junk bond sale, convertible bonds, and bank loans. Recent decision to raise funds through a mixture of shares and debt is applauded by analysts; however, many have questioned the timing of this decision.
The Third quarter of the last financial year was one of only four quarters since 2010 (when Tesla went public) when Tesla reported a profit. It has been argued that the profit-yielding quarter of the last year would have been the most suitable time to raise more finance to fund future endeavors.
A rise in share price may have indicated positive sentiments in the market but only time will tell how successful Tesla is going to be in respect of raising the proposed finance and, more importantly, putting it into good use to turn some long-lasting profits.