What's going on?
Electric car darling Tesla wound the window down on Thursday on its plans to raise around $2 billion from investors, recharging its batteries after burning through almost $1 billion last quarter.
What does this mean?
Production problems early last year led to Tesla building fewer cars than expected – and investors were worried the company’s cash might run out of road. Two back-to-back profitable quarters briefly silenced the critics; but in April, Tesla drove over a banana skin. Fresh logistics issues meant that it didn’t deliver as many cars as forecast – and once again racked up a heavy quarterly loss.
With only $2 billion left in the bank, there was a chance Tesla could be caught short. Selling new shares in the company and “convertible” bonds (which may eventually turn into shares too) should give Tesla a much-needed fuel injection – particularly as Chinese rival BYD speeds ahead (tweet this).
Why should I care?
For markets: Safety first for Tesla’s stock.
According to Genuine Impact, which ranks over 3,000 public companies based on their financials, Tesla scores poorly for both its availability of cash and how it’s spent: the company doesn’t pay shareholders a dividend, instead spending money on expansion. An additional $2 billion in the trunk could help improve Tesla’s rating on the first point, thereby making it a more attractive investment. Crucially, Tesla’s CEO is putting his money where his rather voluble mouth is, buying $10 million of the fresh stock. His confidence may well have led investors to buy up Tesla’s existing shares on Thursday.
Zooming out: A different kind of comeback.
Sprawling American conglomerate 3M last week reported weaker-than-expected results – and job cuts to come. On Thursday, however, it announced its largest-ever acquisition, the $7 billion purchase of a medical products company. Healthcare is the worst-performing sector of the US stock market this year, but its “defensive” qualities could help 3M out of its murky market muddle.