During Tesla's (NASDAQ:TSLA) fourth-quarter earnings call Wednesday afternoon, management said it will likely raise more capital this year. A capital raise would extend Tesla's history of raising capital through debt or equity every year. 

Model X central assembly point in Tesla's car factory shows robotic arms assembling the SUV.

Tesla car factory. Image source: author.

Reducing risk

Going into 2017, Tesla CEO Elon Musk had already hinted that the company could raise capital ahead of Model 3. In the company's third-quarter earnings call, Musk said the Model 3 didn't look like it would "require" a capital raise, but the CEO was also careful to emphasize that this didn't mean Tesla shouldn't tap into debt or equity opportunities in order to help create "a larger buffer and to derisk the business."

But a capital raise appears all but certain now, based on Musk's comments during the company's fourth-quarter earnings call on Wednesday. 

[T]his is really a question of, 'What's the risk tolerance of the company, or how close to the edge do we want to go?' According to our financial plan, no capital needs to be raised for the Model 3, but we get very close to the edge. So, then that's probably not the best thing for shareholders on a risk-adjusted basis. So, we're considering a number of options, but I think it probably makes sense to raise capital to reduce risk.

A capital raise in 2017 comes after the company had indicated in August in a filing with the Securities and Exchange Commission related to its acquisition of SolarCity that it was planning to raise funds by the end of 2016, "including through potential equity or debt offerings."

The filing explained:

Such additional funds would be used primarily for tooling, production equipment and construction of the Tesla's Model 3 production lines, equipment to support cell production at Tesla's Gigafactory, as well as new Tesla retail locations, service centers and Supercharger locations and general corporate purposes. Secondarily, if the Merger with SolarCity is completed, a portion of the additional funds would also be used to support the additional capital needs of the Combined Company.

With these same statements remained even in an Oct. 7 filing with the SEC, investors assumed the company planned to raise capital during the fourth quarter.

But Tesla ended up deciding to delay a capital raise as record fourth-quarter deliveries helped the company report a rare profit, improving Tesla's cash position.

In retrospect, if Tesla opts to raise capital through equity instead of debt, delaying a capital raise looks like it will pay off for shareholders by significantly mitigating shareholder dilution. Tesla stock is up more than 30% since October.

Tesla car factory with "Tesla" in big letters on the outside of the factory.

Image source: author.

Big spending on the way

While Tesla's cash position improved again between the company's third and fourth quarter, increasing by over $300 million to $3.4 billion, raising capital would make sense ahead of the company's plans for aggressive spending ahead of Model 3. Tesla said it plans to invest between $2 billion and $2.5 billion in capital in the first half of 2017 as it prepares to bring Model 3 to market in July. With $1.3 billion in capital expenditures during the entire year of 2016, this represents a significant jump in the pace of Tesla's capital spending.

Editor's note: A previous version of this article misquoted Musk, saying Tesla needed to raise capital for Model 3. This version correctly quotes Musk, saying "no capital needs to be raised for the Model 3," but Tesla plans to raise capital anyway to reduce risk. The author regrets the error.