They don't need to, and it would make no sense to further dilute current shareholders. They have enough cash for operations and investments, free cash flow is increasing fast and will continue to do so, it makes no sense for shareholders to do a secondary to be included in the SP500 (the SP500 board may ask Tesla to offer liquidity but that is the index funds' problem not Tesla's, and such a concession would only benefit front runners instead of long terms investors). Besides, if market cap continue to grows as expected, SP500 will have to add TSLA at any price (otherwise the whole concept of SP 500 Index would be at risk). Also, many are waiting for Batter and Powertrain day to assess Tesla's ability to ramp production to 10+ million EVs in ~2030) so unless those plans disappoint, raising equity before September would be a let down.

It doesn't seem to me like current shareholders are paying a lot of attention to the fundamentals, and will be just as happy to bid the price into the stratosphere after a further dilution as they were to bid it into the stratosphere after the most recent dilution.

The fact of the matter is that the entire purpose of the stock market is supposed to be to direct capital into productive investments. There is absolutely no way that Tesla management can look at the next 10-20 years of global economic and business developments (a period in which Tesla will likely be fighting for its survival as traditional automakers finally begin to compete in the EV space) and conclude that "gosh, there is no set of circumstances in which we could execute better with a few billion dollars of additional reserve capital in the bank."

I think the Feb raise by Tesla was probably done because they (Musk) thought that COVID-19 would hit the US and cause a lot problems, unlike most people at the time. Diluting his holdings to put $2 billion in the bank for Tesla to get through the COVID problems seemed like a good idea. Now it looks like Tesla is not going to be hit as hard as he predicted and Musk would like to keep his percent ownership in Tesla as high as possible. He has said that when he needs personal cash he borrows against his stock holdings rather than selling them(at the tune of about $1 billion at the moment, iirc).

Musk has also said that growth in his companies are mostly people constrained and not capital constrained. His companies can raise capital any time they decide it is a good idea.

I guess I'm old enough to remember 2019, when Elon Musk raised the specter of the company running out of cash if they didn't engage in massive cost cutting [1,2]. Or even 2018, when Tesla's stock price crashed because Musk was joking about bankruptcy [3].

But leaving recent history aside: the fact of the matter is that Tesla is now valued at 136% the market capitalization of Toyota, an organization that currently ships about 50x more vehicles each year than Tesla does.

The only possible way for Tesla to achieve earnings from car sales that justify this stock price* (on a reasonable time scale) is to build out their manufacturing capabilities at an unimaginable scale and pace. The amount of capital that this will require is vastly higher than anything Tesla has raised before. And since the period we're discussing is long enough that we can't predict global market conditions, Tesla may find themselves doing this remarkable build-out during a period where capital isn't easy or inexpensive to come by.

* I'm assuming here that the market cap of Tesla reflects some realistic theory about future earnings, and isn't just a massive and unjustified bubble. Which it probably is.

[1] https://www.theverge.com/2019/5/17/18629166/elon-musk-tesla-... [2] https://finance.yahoo.com/news/tesla-may-avert-bankruptcy-bu... [3] https://www.wsj.com/articles/tesla-shares-sink-as-musk-jokes...

Of course they don’t need to, that’s not the point at all. They have, essentially, free money sitting there for the taking. A There is no guarantee the stock price will keep climbing, it could very well fall based on the P/E of 740. Borrowing against today’s inflated price in order to make acquisitions and investments actually seems like the fiscally responsible move.

Wait, do you support raising equity or borrowing from banks, at today's rate? I'm not sure what you consider being cheaper, and for who.

Not OP but pretty sure he means a raise, at an incredibly cheap price for the company and shareholders.

Let's assume that the company has more cash that it can spend now, that its free cash flow grows faster than capex + opex. Then, if an equity raise is "incredibly cheap for shareholders", that would mean shareholders consider the stock price to be higher than what they expect in the future, i.e many would be selling and the stock price would come down. I don't assume the stock market to be rational but this thesis does not hold much, as the company can easily raise debt now, at a much cheaper price for shareholders than equity. Let's wait and see.

They can easily raise debt, but it will still be a liability on their balance sheet and they will have to pay it back.

What if the stock price falls by the time they have to re-pay the loan? What if free cash flow dries up (as most of it comes from selling credits, not cars)?

You’re assumptions paper over the risks/liability of debt while also assuming the stock price stays at today’s level (or keeps rising).

"They have enough cash for operations and investments"

I dont think they do; I dont think they have enough to finance producing 10 million cars a year with the money they have on hand + selling their current cars. Eventually they will have to either tap the debt markets or issue more stock.

maybe their price will be significantly higher later, maybe it wont be - thats up for them to decide. But it makes sense people are suggesting it

It's more complex. Basically, you have to be careful when playing with a bubble, or you'll pop it.

Their astronomical stock growth, with no underlying business reasons (as in - nothing fundamentally changed about their business, or their competitors), that even CEO says made company overvalued, 50% ago is a bubble.

They may grow into it, or slowly deflate it. But big pop of the bubble can be deadly to a company.

> Their astronomical stock growth

Meanwhile, bond holders are asking for 4% more than similarly-size companies:

> This is remarkable data, Tesla’s five-year bonds are yielding nearly 400bps more than their possible market capitalization neighbors in the S&P 500.

* https://www.thebeartrapsreport.com/blog/2020/07/19/gaming-th...

It's definitely a good idea. Companies seem to do equity raises when they perceive their stock price as overvalued. Musk has outright said this when their stock price was even lower too. The question will be if they need to do one though.

How is that a good idea? They are already building 3 giant factories (Shanghai cont, Berlin, Austin), have enough cash for that and some more. They are profitable, free cash flow continues to increase as Model Y are delivered globally. They couldn't spend their money faster. Why would existing shareholders support a secondary?

They seem to, but then if you had bought Tesla shares the day they announced the raise, you would be looking at a huge speculative gain in your investment.

I suppose the day before, because the price would jump in the first few seconds of trading.