Tesla's (NASDAQ:TSLA) recent $2 billion equity raise may very well be a stroke of genius on Elon Musk's part. By raising capital during the company's time of strength, Tesla provided itself with a notably large financial cushion, while buying some potential goodwill from Wall Street.
Gerber Kawasaki Wealth and Investment Management CEO and co-founder Ross Gerber recently noted to Benzinga that one of Elon Musk's best strategies during Tesla's historic run was the company's controversial decision to sell 2.65 million shares in a $2 billion equity raise. This was partly because just a few days before announcing the raise, Elon Musk noted that Tesla was already spending money as quickly as it could.
"Well, we're actually spending money as quickly as we can spend it sensibly. So if there's any sensible way to spend money, we're spending it. There is no artificial hold back on expenditures. Anything that I see that is what looks like it's got good value for money, the answer is yes immediately. But we're spending money I think efficiently, and we're not artificially limiting our progress. And then, despite all that, we are still generating positive cash. So in light of that, it doesn't make sense to raise money because we expect to generate cash despite this growth level," Musk said during Tesla's Q4 2019 Earnings Call.
It should be noted that when a company's stocks experience a meteoric rise, such as the one experienced by Tesla over the past six months, it is usually a good idea to take advantage of the high share price to raise capital. This allows the company to dilute shares from a position of strength, which, in a way, benefits shareholders as a whole. Sentiments from TSLA bulls online suggest that many did not mind the slight dilution resulting from the $2 billion raise.
But for Gerber, raising capital at a time when Tesla stock was above $760 per share could come with some advantages that investors have not really factored in. The executive explained that the equity raise was done with Goldman Sachs, Morgan Stanley, and other firms that are bearish on TSLA, and this could pay off in the long term.
"He also paid off Wall Street, which is one of the things he wasn't doing before. The secondary side of the raise was done with Goldman, Morgan Stanley, some of the biggest bears on Tesla. Clearly Elon understands the Wall Street game. If Tesla gives them $50-$60 million in some of the easiest cash they ever seen...watch the upgrades coming," Gerber said.
Time will tell if Tesla's decision to raise $2 billion in equity was a stroke of genius or not. As noted by Gerber, however, it's difficult to deny the fact that Tesla's timing for its capital raise was practically genius. Today, after all, the whole market is pretty much getting pressured amidst the spread of the COVID-19 virus. It remains to be seen exactly what adverse effects the novel coronavirus outbreak or any other unexpected event will have in the near future. But for now, Tesla will at least be weathering some challenging seas ahead with $2 billion more.Follow @PurplePanda88