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Why Tesla Stock Jumped Thursday

By Daniel Sparks – Feb 13, 2020 at 2:40PM

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The Street approves of the electric-car maker's well-timed stock offering.

What happened

Shares of Tesla (TSLA 2.51%) jumped on Thursday, rising 5% as of 2:05 p.m. EST, putting shares over $800.

The stock's gain follows news this morning that the automaker decided to raise capital despite previously asserting it wouldn't make sense to do so. Wedbush analyst Daniel Ives, who has a neutral rating on the stock and a $710 12-month price target, said the stock offering is a "smart move," positioning the company to better capitalize on growth opportunities.

A person driving a blue Tesla Model Y

Model Y. Image source: Tesla.

So what

Tesla said on Thursday that it plans to raise approximately $2 billion to $2.3 billion before discounts and expenses as part of an offering of common stock. The cash will be used to strengthen the company's balance sheet and for general and corporate purposes, management said.

Tesla CEO Elon Musk said he plans to buy as much as $10 million worth of stock in the offering, and board member Larry Ellison indicated interest in purchasing up to $1 million worth.

Management had previously said an equity raise wouldn't make sense because the company believed it had enough cash on hand and sufficient enough cash flow from operations to fund both regular operations and growth investments from internal funds. But a 30% jump in the stock price since management said these things seems to have made an equity offering too good to pass up, as it will dilute shares less than it would have based on a lower stock price.

Now what

Having an extra $2 billion on hand reduces the risk of running into a cash crunch as the electric-car maker spends money to ramp up production of its Model 3 in China, launch its Model Y this quarter, and continue development work on the Tesla Semi and next-generation Roadster.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

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