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Tesla Launches $5 Billion Refinancing: Is Musk "Showy" Or "Really Short Of Money"?

2020/9/4 16:19:00 0

TeslaRefinancingFinance And Technology

Recently, Tesla announced the launch of a round of $5 billion in refinancing.

According to the new securities trading agreement between the SEC and other investment banks, Tesla and other securities companies will be issued soon.

This is not the first time Tesla has refinanced since it went public. According to media statistics, in the past 10 years, Tesla has raised $14 billion by issuing new shares at a high level, and this time the scale is the highest.

This is not surprising in itself. As a new car and technology company still in the market development stage, Tesla needs a lot of funds to support its daily operation and new business reserves, including the construction of production base, the development of new models and the development of innovative technologies such as software, etc.

However, unlike in the past, Tesla's refinancing has not been well received by the capital market. On September 1, American Eastern time, after the above-mentioned documents were published, Tesla's share price changed from the situation of soaring before and fell by 4.67%. In the following trading day, with the news of the largest external shareholder's cash withdrawal and reduction of the company's shares, Tesla's share price fell by 5.83%. As of press release, Tesla opened down nearly 9% at 9:30 EST on September 3.

One of the reasons why the refinancing is cold this time is that Tesla failed to clearly explain the purpose of the fund, only vaguely indicated that it would be used for "strengthening the balance sheet" and general corporate purposes, which disappointed investors. In addition, combined with the company's recent sales performance in major markets, some investors suspect that Tesla is still far from getting rid of the need for external blood transfusion - even though it has been profitable for four consecutive quarters, Tesla is obviously not self-sufficient.

According to the latest data, Tesla's sales volume in Europe and China both showed different degrees of correction. Some analysts said that Tesla's performance in the third quarter was not optimistic. In this context, Tesla will raise funds to repay past debts and reduce financial expenses, which will immediately beautify the financial statements.

Tesla logo on the ground floor of Tesla Tesla China headquarters, Dawanglu, Beijing, August 20, 2020. Visual map of China

Is Tesla short of money?

Although Tesla didn't make it clear, it said in general that the $5 billion refinancing round will continue to be used for the company's daily operations. Some auto industry analysts who once owned Tesla shares told 21st century economic reporter that it was "no surprise" that Tesla raised funds under the current node, because it had entered a new stage of expansion.

One of the more obvious projects is the German factory on its way to construction. According to the plan, the plant will start production in July 2021 to supply model y to the European market. "Tesla has not really been in the European market for a long time." The above-mentioned people said that with the gradual landing of European strong brands in the field of new energy vehicles, Tesla had to speed up its pace to meet the challenge.

Where does the capital for the construction of German factories come from? Tesla has not yet made public disclosure. It has been reported that in order to support Tesla to build a factory in Germany, Brandenburg of Germany has also given Tesla investment subsidies of more than 1 billion euro (about 7.7 billion yuan), but this has not been confirmed. Generally speaking, it is difficult for Tesla to obtain the support similar to that provided by the Chinese government and enterprises for the establishment of Tesla factory in Germany.

Tesla has publicly disclosed the financing support it has received in China. First, a loan of 3.5 billion yuan was made in March 2019. Then, in December of the same year, Tesla and Chinese banks reached a guaranteed term loan agreement of up to 9 billion yuan, and an unguaranteed revolving loan agreement of up to 2.25 billion yuan. In May this year, Tesla won another 4 billion yuan loan contract.

From the silent loan situation, the construction and operation of German factories may need more own funds of Tesla. In addition, Tesla's production base in the United States is also in the process of reconstruction and expansion, which also needs financial support. Tesla's second U.S. super factory is said to be in Austin, Texas, and is expected to start construction in the third quarter of this year.

It's just factory level spending. In fact, as a technology company steered by an ambitious dreamer, Tesla has a lot of to do lists, including further research and development of future models, technology development in the field of energy storage such as batteries, etc. - all of which make Tesla's high fund-raising seem justifiable.

However, in the eyes of some investors, Tesla's fundraising activities are still too frequent for a company with improved performance.

With the breakthrough of "mass production hell" of model 3 and the completion and commissioning of China's factories, Tesla's sales volume has experienced a qualitative rise. In the past four quarters, Tesla has been able to achieve record continuous profits even in the face of emergencies such as the new coronal pneumonia outbreak. As of the end of June this year, Tesla's cash and its equivalents were $8.615 billion, 37.4% higher than at the end of last year.

In a number of quarterly financial report meetings, musk also said that Tesla is not short of money and will not conduct new fund-raising activities in the short term. But what is said is often not true. The actual situation is that Tesla has raised funds frequently and massively in the past year, with an accumulated scale of more than 30 billion yuan.

Or to make a good performance?

Tesla's announcement of new stock raising does not rule out other considerations.

The industry insiders who have been observing Tesla for a long time said that Tesla's IPO after the stock split may be to beautify the financial statements with a smaller degree of equity dilution, which is a wise move in the "uncertain" period.

According to his analysis, if Tesla raises all 5 billion dollars, it is expected to double its profits. Specifically, according to Tesla's latest quarterly report, the company's debt in the second quarter was $10.6 billion, and the interest expense was $170 million. If Tesla would use all the $5 billion it raised to repay its debt, the interest expense would be reduced by half (about $85 million). Given that the company's average profit over the past four quarters was $92 million, this reduced interest expense will nearly double the profit.

Of course, the above analysis only presents an extreme situation, that is, Tesla raised the full amount of $5 billion in a certain quarter (in fact, Tesla did not specify the start and end time of this additional issue), and used it all for debt repayment - in fact, this is unlikely to happen in reality, but it also provides an idea that Tesla can support through the refinancing market, Achieve better results.

This is not groundless. Some recently released data suggest that Tesla may be forced to adjust after a few quarters of boom. On August 31, according to a report released by auto data provider JATO dynamics, Tesla registered only 1050 new cars in Europe in July, down 76% from a year earlier.

Tesla's sales in Europe increased by nearly 1.5 million from 2015 to 2015, which was 1.4 times higher than that in Europe. But now that growth is about to be reversed. In the first half of this year, Tesla's sales in Europe were only 37000, down 18% from a year earlier, according to the above-mentioned institutions.

Although sales in Europe do not account for a large proportion of Tesla's total sales, the loss of sales of thousands of vehicles will obviously affect the financial statements. At the same time, the European market may not be an example. Judging from the data in July, Tesla's sales volume in the Chinese market also shows a downward trend - Tesla may indeed need to "rescue the fire".

After all, four consecutive quarters of earnings have not been easy, and investors have begun to acquiesce that Tesla's logic has worked, which is bound to put forward higher practical requirements for this tech upstart: continue to make profits, and it is better to have significant growth. But even for Tesla, this is not a small challenge at this stage.


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