Two Cheers for Tesla!

Two cheers for Tesla (Nasdaq: TSLA  ) ! Hip-hip ... boo?

Bad news first: Yesterday, Tesla Motors basically admitted that developing its Model X electric "crossover" vehicle is going to cost a whole lot more cash than it's got handy. (Not surprising. As we discussed last week, developing the company's Model S sedan alone will run a cool $400 million.) To fund creation of its third electro-buggy, Tesla yesterday announced plans to:

  • Issue 5.3 million common shares in a public offering.
  • Float another 795,000 shares as an "overallotment option" if the offering proves popular.
  • Increase the share count by another 2.1 million shares through a pair of private placements.

In all, these follow-on share offerings will increase Tesla's float by as much as 8.2 million shares -- diluting away 8.6% of the ownership stakes of existing shareholders.

So why'd the shares jump 8%?
This, as I say, is the bad news. Now here's the good news: You know those two private placements I mentioned at the end? They're both going to existing shareholders who are doubling down on their investments. Tesla founder Elon Musk is in for 1.5 million shares. Tesla investor Daimler is in for an additional 644,475 shares -- which, at 12.7% of the total offering, represents an increase in its ownership stake in Tesla. (No word yet on whether Toyota (NYSE: TM  ) and Panasonic (NYSE: PC  ) , also Tesla shareholders, will follow suit.)

Another thing to cheer about: Both Musk and Daimler are paying through the nose. While the final share price of the various offerings is not yet set in stone, preliminary data from the firm's S-1 filing assume a sales price of $26 for the public offering and overallotment portions of the share issuance -- but $26.35 for Musk's and Daimler's investments. That's right. Both Musk and Daimler have so much confidence in Tesla that they're both prepared to pay more than anyone else is asked to shell out.

Foolish takeaway
Any Fool betting that Tesla would wither on the vine, and cede the electric car market to mass-marketeers Nissan, General Motors, and Ford, had better think again. Investors who are "short" the stock -- and I know there are a lot of you -- should also feel nervous today. Because whether Tesla ultimately succeeds or fails, one thing's now clear:

Tesla's not going down without a fight.

Ah, but will it win the fight? Add Tesla to your Watchlist and read along as we follow this story.

Fool contributor Rich Smith holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of Ford Motor and General Motors. 

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (3)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 27, 2011, at 10:48 PM, ramon123 wrote:

    Tesla NEVER claimed it had enough cash to develop the Model X, but note that the cash for that model (which is based on the Model S) will run roughly half of what it cost to develop the Model S. As for the apparent surprise that the Model S will cost $400 million, well, that's less half of what GM spent to develop their humble Chevy Volt. Shows that Tesla can produce a whole lot more for a whole lot less. I predict that GM will go belly up once more long before Tesla has any problems. Tesla is a company with a brain, unlike the guys at GM.

  • Report this Comment On May 28, 2011, at 11:25 AM, maxivak wrote:

    I believe in Tesla and the technologies they do.

  • Report this Comment On May 28, 2011, at 11:26 AM, maxivak wrote:

    Follow Tesla Stock on interactive chart and add your comments:

    http://explainum.com/chart/83

  • Report this Comment On May 29, 2011, at 3:54 AM, rapnjoe wrote:

    Tesla is going to be like AAPL , and Elon Musk is the next Steve Jobs of the High Tech Automotive Industry, 95 million shares outstanding to 100 million with almost half being the float is right on track for a company with a outstanding Business plan at the right time .Tesla Motors is backed by Toyota, Panasonic and the DOE and the American Recovery and Reinvestment Act of 2009

    Oil is not a renewable resource, as much as it hurts to fill up my truck I hope the price of oil doubles so that CLEAN alternative forms of Energy can evolve faster.

  • Report this Comment On May 30, 2011, at 3:33 PM, ScottBBB wrote:

    I'm not convinced this is dilutive, despite what the article says. The shares already exist and have been held by the company until now. They're not issuing new shares.

  • Report this Comment On May 31, 2011, at 6:26 PM, jl3793 wrote:

    Let Musk and Daimler double down if they want. Tesla doesn't have enough cash to even bring the S to market, and the fine print in the offering memo says as much. And as for actually producing the S, well, they are a long way from that. Let's see the Beta's and the test crashes and all the other milestones be met, and then see some people put their real cash down. When they could be putting it down on a BMW or a 370 or a 911. Long way to go before Tesla is a success. Looks to me like the shorts are the ones in control right now. So dilute, dilute and dilute some more. Ain't life grand!

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