On 1 Sept 2020, Tesla (TSLA) announced a $5 billion capital raise through equity distribution agreement. I thought it was a brilliant move as written in my previous article. (Is Tesla in trouble? Why is Tesla raising $5 billion now?). Just when the world just began to understand the news, they completed the deal on the 4th Sept 2020. Do they really need the money that urgently?
I never expect to write this article that quickly. In any case, this presents my thoughts on why TSLA is doing this so quickly.
Non-inclusion into the S&P 500 Index
Previously, I speculated that the equity raise was to give more liquidity to prepare for the inclusion in the S&P 500 Index. However, that idea was snubbed out when TSLA were passed over for inclusion. Instead, Etsy, Catalent and Teradyne was included into the Index as part of the portfolio re-balancing.
The reason remains unknown. Personally, I feel that whoever is making this decision wants to make the S&P 500 Index less speculative in nature. TSLA has a relatively higher short ratio as compared to the other companies. An inclusion of TSLA might make the S&P 500 “correct” more often. (Donald Trump won’t want that to happen).
Buy Low. Sell High.
In any case, TSLA isn’t doing any buying. They are merely issuing out new shares. The best way to get more bang for its’ buck is to sell it at a higher price. We all know that TSLA YTD is around 325%. This is perhaps the best to time to “sell high” for whatever purpose they want to use the money for.
With regards to dilution, it is roughly around 1% dilution.
You can view their SEC Filing Form 8-K here.
Final Thoughts
This is not a buy/sell recommendation. Personally, I still think that Elon Musk is an expert in raising capital. I like his vision but have trouble understanding the valuation of TSLA. I have no positions in TSLA nor do I intend to start a position soon.
Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.
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