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Why Tesla Stock Is Trading Lower Today

By John Rosevear – Sep 1, 2020 at 1:39PM

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A $5 billion stock offering might have investors confused.

What happened

Shares of Tesla (TSLA -0.19%) are trading lower today, down 3.5% as of 1 p.m. EDT, after the electric-vehicle maker said that it plans to raise $5 billion by issuing new stock.

So what

In a series of regulatory filings on Tuesday morning, Tesla said that it has entered into agreements with several investment banks to sell up to $5 billion in stock. It's an "at-the-market" offering, meaning that the shares will be sold over time at prevailing market prices, rather than in one big batch at a set price. 

A Tesla logo on a vehicle charger.

Image source: The Motley Fool.

Somewhat surprisingly, Tesla doesn't seem to have a major plan for the cash at the moment. The company said only that it would use the proceeds of the offering to bolster its balance sheet and for "general corporate purposes." (That's a standard catch-all phrase that usually means, "We don't have a big plan for the cash right now.") 

Tesla does have some expensive projects in the works, including a factory under construction in Germany and a plan to build another in Texas. And it never hurts to bolster the balance sheet, particularly in uncertain economic times. (That might in fact be the company's goal here.) 

But it doesn't appear to be in urgent need of cash: As of June 30, it had about $8.6 billion in cash on hand versus about $7.8 billion in long-term debt, excluding debt related to its leasing programs.

Now what

All that said, it's not entirely clear why Tesla's stock was down on Tuesday. At its current sky-high valuation, the dilution from this new offering is fairly minimal, and the extra cash will give the company an additional cushion against a prolonged recession. 

On balance, that seems modestly bullish for auto investors holding Tesla stock. But it's possible that Tesla's investors and fans were disappointed by the lack of a grand plan for the money, and perhaps that's why shares were down today.

John Rosevear 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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