Tesla’s founder and CEO Elon Musk flummoxed financial analysts and debt market experts by consistently reiterating that his company could survive without raising capital. Elon repeatedly said that Tesla could continue doing business by exploiting profits and startup-style mindset. Market analysts always wondered why the electric carmaker should be opposed to raising funds for a capital-intensive enterprise.
However, their doubts were settled when the electric automaker announced recently that it was planning to raise $2 billion in funds. The company unveiled plans to raise $1.35 billion by redeeming convertible debts. The balance of $650 million by selling common stock. Elon himself is thinking of buying back about 42, 000 shares valued at an estimated $10 million.
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Stock Market News – Impact of the Sudden Decision
The sudden decision to raise capital led to the appreciation of Tesla’s share by nearly 2.7%. The electric car maker’s stock was trading at $240.37 in Wall Street on Thursday. The irony behind the company’s taking the funding route (which Musk had vehemently refused to follow) is that bullish and bearish analysts’ confidence will receive a boost.
Bullish traders and market watchers believe that the funds might enable it to fuel and sustain growth. On the other hand, bears strongly believe that the move could add to its liabilities, and delay its unavoidable bankruptcy. Both bulls and bears could be correct in their predictions.
Advantages of the Funds to the Company
The funds could prove to be a lifeline for the electric auto major. It is because the company is planning to start production of Semi and Model Y in 2020. On the other hand, using the capital might also ward off any inescapable doom which bears had predicted based on Tesla’s Q1 earnings report.
It’d be worth noting that Tesla’s stock prices reached new lows last month while it’s 2025 bonds performed well.
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