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Why Tesla Stock Moved Higher Thursday

By Daniel Sparks – May 2, 2019 at 12:25PM

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A capital raise will give Tesla more flexibility.

What happened

Shares of electric-car company Tesla (TSLA 0.29%) jumped on Thursday, rising as much as 5.6%. As of 12:10 p.m. EDT, however, the stock was up 2.6%.

The stock's gain follows the company's move to raise about $2 billion of capital through a combination of debt and stock.

Tesla's Model S, 3, X, and Y

Image source: Tesla.

So what

Tesla announced it is offering convertible senior notes worth $1.35 billion, with an option for underwriters to purchase an additional $200 million. The company is also offering 2,723,198 shares of its common stock, worth $650 million as of market close on April 30. Underwriters will have the option of purchasing up to 15% more shares. 

Tesla CEO Elon Musk has expressed interest in purchasing $10 million worth of stock in the offering, indicating he believes shares are compelling at this price.

Now what

Tesla's global expansion has been taking a toll on the electric-car maker's finances. In the first quarter, Tesla lost more than $702 million, or $4.10 per share. In addition, Tesla's cash and cash equivalents took a massive hit, falling by $1.5 billion sequentially to $2.2 billion. But this was in part because Tesla paid off a $920 million bond during the quarter.

Fresh capital will give Tesla more flexibility as it works toward its goal to become sustainably profitable.

In its filing with the U.S. Securities and Exchange Commission about the capital raise, Tesla said it will use the proceeds "to further strengthen our balance sheet, as well as for general corporate purposes."

Daniel Sparks owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

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