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Tesla Jumps Again on Secondary Offering

By Jeremy Bowman – Updated Nov 17, 2016 at 4:24PM

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Is this meaningful? Or just another movement?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Tesla Motors (TSLA 2.90%) were revving up once again today, gaining as much 12% after the carmaker announced a secondary share offering last night.

So what: Subsequent share offerings usually send stocks down as they dilute current shareholders, but Tesla is a special case. The electric-car maker is one of the more exciting companies in the market, and is coming off its first quarterly profit last week, not to mention that its Model S sedan just won Consumer Report's highest-ever car rating. Shares have more than doubled in the last month, and are up 50% since the earnings report so now seems like a great time to sell new shares from a company perspective. The new offering will include both stock and convertible bonds, and will allow Tesla to pay off its Department of Energy loan early. The new funding round should raise near $830 million, and founder Elon Musk also plans to invest $100 million of his own money into the carmaker

Now what: The cash infusion will help allay previous fears about a cash crunch as the visionary car company spends on R&D to develop new vehicles such as the Model X, its new crossover SUV due out in 2014. Even as the carmaker is hitting on all cylinders, it's not without its naysayers. The stock has 44% of its shares sold short as of the end of April, meaning nearly half the market is betting against it, but that could also create a short squeeze, sending shares even higher. There's clearly a lot of volatility here, and risk-averse investors would be advised to stay away. At a market now north of $10 billion, I think Tesla's momentum has run its course for now, but there's no question this will be an exciting stock to watch.

Motley Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla 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.

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