Tesla stock is volatile in early trading on Friday morning after the company announced that it priced its recent $2 billion stock offering at an astronomical $767 per share.
For the company, it is an impressive valuation to raise several billion in cash at, especially given that Tesla's stock was trading more than 50% lower about 8 months ago. To the outside onlooker, it is a stunning display of either exceptionally dumb or exceptionally smart money that continues to show unrelenting interest in Tesla's "master plan". We'll know which soon enough.
And for the bankers, of course, it's millions of dollars in investment banking fees. With "so much winning" taking place every time Tesla does a capital raise, is it any wonder that the street is now so immune to risk that investors are simply willing to ignore a brand new SEC subpoena that was issued to the company in December of 2019?
Again, the company's decision to raise capital comes just two weeks after CEO Elon Musk said on his company's earnings call that "it doesn't make sense to raise money... we are cashflow positive."
But it does make sense - and always has for Tesla. To fund Elon's grand (and unprofitable) visions, Tesla has now raised $14 billion from Wall Street over the last decade, with the last raise assigning a $146 billion market cap to the company.
In addition to warning about the SEC subpoena, Tesla found a suitable scapegoat in its 10-Q, when it announced that it would be facing headwinds from the coronavirus outbreak in China:
Beginning in late 2019, the media has reported a public health epidemic originating in China, prompting precautionary government-imposed closures of certain travel and business. Gigafactory Shanghai was closed for a brief time as a result, before it reopened in February 2020 and rejoined our U.S. factories, which had continued to operate.
It is unknown whether and how global supply chains, particularly for automotive parts, may be affected if such an epidemic persists for an extended period of time. We may incur expenses or delays relating to such events outside of our control, which could have a material adverse impact on our business, operating results and financial condition.”
Meanwhile, it also crossed the wire during the afternoon yesterday that Tesla would be recalling 3,183 Model X vehicles in China, according to a statement posted on China’s State Administration for Market Regulation website - where the company has only been selling cars for just months - due to the same power steering bolt component that we highlighted less than 48 hours ago, when Tesla announced a recall of 15,000 other Model X vehicles.
The National Highway Traffic Safety Administration and Transport Canada pointed out the issue, stating that aluminum bolts that attach the electric power steering gear assist motor to the gear housing could corrode and break.
This could then cause a reduction or complete loss of power steering in some model 2016 vehicles. Tesla says it'll arrange for the replacement of the mounting bolts and will also replace the steering gear if necessary.
As we noted yesterday, these weren't even the cars that were built in a tent.
Hilariously enough, despite the Model X recall of 15,000 vehicles, there are still hundreds of thousands of Tesla vehicles that are Autopilot-enabled, allowed on the roads.
Perhaps instead of worrying about the impact of the coronavirus, Tesla investors buying stock at $767 per share should be more focused on its vehicles being recalled and falling apart just years after they were manufactured. Regardless, we have to give the company credit for one thing: striking while the iron is hot.
Enjoy that $2 billion, Elon. We'll catch back up to the company, inevitably, the next time Elon assures us he doesn't need capital just days before selling equity.