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Tesla Announces Offerings of Common Stock and Convertible Senior Notes

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Tesla Announces Offerings of Common Stock and Convertible Senior Notes

May 02,2019

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Tesla Announces Offerings of Common Stock and Convertible Senior Notes

PALO ALTO, Calif., May 02, 2019 (GLOBE NEWSWIRE) — Tesla, Inc. today announced offerings of $650 million of common stock and $1,350 million aggregate principal amount of convertible senior notes due in 2024 in concurrent underwritten registered public offerings. In addition, Tesla has granted the underwriters a 30-day option to purchase up to an additional 15% of each offering. Elon Musk, Tesla’s CEO, will participate by purchasing $10 million of common stock.

The aggregate gross proceeds of the offerings, assuming full exercise by the underwriters of their option to purchase additional securities, would be approximately $2.3 billion before discounts and expenses. Tesla intends to use the net proceeds from the offerings to further strengthen its balance sheet, as well as for general corporate purposes.

The notes in this offering will be convertible into cash and/or shares of Tesla’s common stock at Tesla’s election. The interest rate, conversion price and other terms of the notes are to be determined. With respect to the notes, Tesla intends to enter into convertible note hedge transactions and warrant transactions to limit dilution of its common stock. In connection with establishing their initial hedge of the convertible note hedge and warrant transactions, the hedge counterparties or their affiliates expect to enter into various derivative transactions with respect to Tesla’s common stock concurrently with or shortly after the pricing of the notes, including with certain investors in the notes.

Goldman Sachs & Co. LLC and Citigroup are acting as lead joint book-running managers for the offering, with BofA Merrill Lynch, Deutsche Bank Securities, Morgan Stanley and Credit Suisse acting as additional book-running managers, and Societe Generale and Wells Fargo Securities acting as co-managers.

An effective registration statement relating to the securities was filed with the Securities and Exchange Commission on May 2, 2019. The offering of these securities will be made only by means of prospectus supplements and the accompanying prospectus. Copies of the preliminary prospectus supplements and the accompanying prospectus may be obtained from (i) Goldman Sachs & Co. LLC, Attn: Prospectus Department, 200 West Street, New York, NY 10282, telephone: 866-471-2526, facsimile: 212-902-9316 or email: prospectus-ny@ny.email.gs.com or (ii) Citigroup Global Markets Inc. c/o Broadridge Financial Solutions, 1155 Long Island Avenue, Edgewood, New York 11717, telephone: 800-831-9146.

This press release shall not constitute an offer to sell or a solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such an offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such jurisdiction. The securities being offered have not been approved or disapproved by any regulatory authority, nor has any such authority passed upon the accuracy or adequacy of the registration statement, the prospectus contained therein or the prospectus supplements.

Forward-Looking Statements

Certain statements in this press release, including statements regarding the proposed public offerings of common stock and notes, the convertible note hedge and warrant transactions, and Tesla’s intended use for the proceeds of the offerings, are “forward-looking statements” that are subject to risks and uncertainties. These forward-looking statements are based on management’s current expectations, and as a result of certain risks and uncertainties, actual events or results may differ materially from those contained in the forward-looking statements. Please refer to the registration statement on Form S-3 on file with the SEC and the prospectus and prospectus supplements included or incorporated by reference therein, as well as the other documents Tesla files on a consolidated basis from time to time with the SEC, specifically Tesla’s most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q. These documents contain and identify important factors that could cause the actual results for Tesla on a consolidated basis to differ materially from those contained in Tesla’s forward-looking statements. Tesla disclaims any obligation to update information contained in these forward-looking statements.

Source: Tesla, Inc.

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China’s sliding auto sales may be obscuring a change in buyers’ tastes

Sebastian Rothe | EyeEm | Getty Images

China's auto industry has hit a soft patch, but there may be a bright spot.

Auto sales have fallen in China for nine straight months, including a 5.2 percent decline in March.

But electric-powered cars were on display from start-ups and foreign auto giants alike at this week's Shanghai Auto Show. For some in the industry, they say it will be the smartphone-like interface of the new vehicles that will really attract buyers. Those consumers are increasingly using internet-connected services such as food delivery for daily life, especially in China.

So-called new energy vehicles are booming, with sales jumping 62 percent last year. And not just because of the way they're powered.

“The key point is not new energy. The key is smart,” Fu Qiang, president and co-founder of electric vehicle start-up Aiways, said Wednesday in a Mandarin-language interview translated by CNBC.

China battery-electric vehicle unit sales forecast (in millions)

Source: Morgan Stanley Research

“The entire decline in the auto industry, much more, in my personal view — of course has some small connection to the economy — but I think the greater reason is that customers right now are not satisfied with the product mix,” said Fu, formerly president and CEO of Volvo Cars China.

Thenine-month slide in automobile sales in the world's largest vehicle market has many worried about a significant slowdown in the Chinese economy, and the wallets of a population of more than 1 billion. Last year, uncertainty about the fallout from the U.S.-China trade war and Beijing's efforts to reduce reliance on debt for growth put a chill on spending, especially on big-ticket items such as cars.

Much of the decline in auto sales in the last two years was the result of a tough comparison with rapid growth in 2016, Alan Kang, Shanghai-based senior market analyst at LMC Automotive, said on Tuesday. He noted a major drop came from decreased demand from China's smallest cities for domestic auto brands, while premium foreign brands had less of an impact.

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“This year will be overall a year of recovery,” Kang said in a Mandarin-language interview translated by CNBC. And despite subsidy cuts, he said he expects sales volume in “new energy” vehicles to increase to 1.5 million from 1 million last year.

The category — which includes both pure battery-powered vehicles and hybrids — has been a bright spot in China, helped by favorable government policies. Sales grew 62 percent last year, while overall auto sales fell for the first time in more than 15 years, according to data from the China Association of Automobile Manufacturers accessed through the Wind Information database.

“The electrification, internet connectivity and smartness of automobiles has become the industry's future trend,” Victor Ai, head of China Everbright's new economy fund, said in a written response translated from Chinese by CNBC.

Young people's positive views on technology will “thoroughly revolutionize the traditional auto industry,” Ai said. He cited third-party statistics implying that, by 2027, those born after 1990 will account for the largest segment of China's buyers of new cars, at 41.8 percent.

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Tastes can change quickly in China. Wen Shuang, a Chinese social media influencer in the auto industry since 2012, said SUVs were in favor at the turn of the century, but now there's more interest in having multiple cars of different kinds. Wen has 750,000 followers on Weibo, China's version of Twitter, and says she was born in 1990.

She also noted in a Mandarin-language interview translated by CNBC that enthusiasm for the future of Chinese car consumption has been generally waning, and this week's Shanghai Auto Show was not as hectic and exciting as it had been the last two years. However, she added that Chinese brands have become more attractive relative to foreign brands, except for those from Germany and Japan. She said she expects more of the industry's emphasis will be put on services.

That's the strategy of many Chinese electric car start-ups, which are often selling directly to consumers or trying to create ecosystems that build customer loyalty.

Services can also be a weak point for traditional automakers in China. A customer's poor experience at a Mercedes-Benz dealership in the central city of Xi'an went viral on social media earlier this month, prompting parent company Daimler to suspend the franchise's operations this week, Reuters reported.

The technology-driven change in consumers' habits and a lower barrier to entry in producing electric cars is forcing the auto industry to revamp itself, Aiways' Fu said. In this environment, he said, there should be as many new automakers as there were old ones.

At least 100 new energy vehicle companies now exist in China, Fu estimated.

This is a completely new playing field, he said: “How many old ones can transform themselves is an unknown number. How many new ones can survive, that's (also) an unknown number.”

For a country of rapid change in consumer tastes and the adoption of technology, the auto industry may still be trying to catch up.

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Wall Street analysts say Tesla’s first-quarter deliveries were ‘substantially worse’ than expected

Tesla shares sink on poor deliveries — Watch four experts break down what's next for Elon Musk and the company
50 Mins Ago | 03:56

Wall Street analysts were very disappointed in Tesla's first-quarter delivery and production figures.

Shares of the company plunged 9 percent late Wednesday after Tesla said it delivered 50,900 Model 3 cars in the first quarter, below the 52,450 analysts expected in a consensus estimate from FactSet. Overall deliveries also fell short of consensus estimates.

The stock is still down over 9 percent in early trading to $265.35.

“Tesla's 1Q19 vehicle production & deliveries report was substantially worse than expected,” J.P. Morgan analyst Ryan Brinkman said in a note to clients.

“Altogether, we think the delivery results will put pressure on TSLA's shares, and corroborates our belief that volume expectations for the company's products in 2019 are too high with consumer demand likely lower as subsidies phase out in the US,” said Goldman Sachs analyst David Tamberrino who reiterated his sell rating. “Further, this likely puts downward pressure on our EBITDA and FCF estimates (as well as consensus) given the lower volume levels and worse utilization than anticipated.”

Here's what the analysts are saying about the Tesla delivery numbers:

J.P. Morgan- Underweight rating, lowering price target to $200 from $215

“Tesla's 1Q19 vehicle production & deliveries report was substantially worse than expected…Deliveries tracked just 63,000 units vs. JPM 70,500 and consensus as recently as March 27 of 74,930, suggesting materially less 1Q revenue, margin, and free cash flow… We believe the market postulated that if Tesla were to miss, it would be due solely to a materially greater than expected number of vehicles in transit (vehicles that could be sold in early 2Q, suggesting little need to lower full year estimates), but this appears to be only partly the case, with vehicles in transit at quarter-end totaling 10,600 vs. our estimate of 10,000, in our view implying lower underlying domestic demand…While most attention is being paid to the Model 3 ramp, deliveries of the higher price Model S & X declined substantially in 1Q, totally just 12,100 between them — less even than the Model S alone used to sell in some quarters preceding the full production ramp of the Model X, again in our view implying a deceleration in underlying demand unrelated to temporary delivery difficulties (maybe due to tax credit expiration?).”

Canaccord Genuity- Buy rating, lowering price target to $391 from $450

“While we were disappointed in the shortfall of deliveries in Q1 versus expectations, we continue to believe that the new lower-priced Model 3 variant will spur additional demand. Importantly, the company cited roughly two weeks of inventory in North America which may help temper concerns of an inventory build. We maintain our BUY rating given the overall opportunity that we see for Tesla and EVs in general, but are lowering our PT to $391 which is based upon 30x our new FY20 EPS of $13.05.”

Morgan Stanley – Equal-weight rating

“1Q19 is shaping up to be one TSLA may want to forget, but needs to explain to shareholders who own it as a LT disruptor. We felt the #1 2019 determinant for TSLA's share price was if it could prove to the mkt. it can be self-funding on a sustainable basis.”

Bank of America- Underperform rating

“Ultimately, given what appears to be slower than anticipated progress on the Model 3 production ramp, TSLA's past production/ logistics challenges on the Model S/X, and now potentially new challenges with deliveries to Europe and China, we expect it will take some time before the Model 3 production/sales reaches mass scale; and thus, costs related to the ramp and lower priced variants may outweigh potential benefits of operating leverage for some time. .. .Moreover, there still remain a number of major hurdles ahead for TSLA, including: 1) ongoing Model 3 production ramp and future operational challenges associated with expanding the product lineup; 2) what could be a very material cash burn in coming quarters (from ongoing delivery/logistic issues, Shanghai factory construction, etc.) which could pressure TSLA's liquidity even with recent capital inflows and require future capital raises; 3) faster than usual spike and burnout pattern for Model S/X; and 4) the prospect of new competition and longer term obsolescence. As such, we continue to question TSLA's longer term profitability, cash flow, and valuation.”

Goldman Sachs- Sell rating

“We think the disappointing results likely put pressure on consensus estimates for the full year especially for Model S/X deliveries (with company-compiled consensus for Model S/X deliveries at 91k and Model 3 at 282.5k versus an annualized rate of 1Q19 results indicating around 50k Model S/X deliveries in 2019 and 204k Model 3 deliveries). Further, we think the result likely fuels bearish investors' concerns about waning demand — especially as these disappointing results came even as the company expanded Model 3 deliveries internationally and began offering $35k variants of the Model 3. Altogether, we think the delivery results will put pressure on TSLA's shares, and corroborates our belief that volume expectations for the company's products in 2019 are too high with consumer demand likely lower as subsidies phase out in the US. Further, this likely puts downward pressure on our EBITDA and FCF estimates (as well as consensus) given the lower volume levels and worse utilization than anticipated. As a result, we reiterate our Sell rating on shares.”

Bernstein- Market-perform rating

“While we see myriad possible explanations for Model S and X weakness (reduction of US tax credit; phasing out of Dutch tax incentives; Q1 seasonality; model fatigue; incremental competition), we remain perplexed by the magnitude of the decline. Perhaps more importantly, our analysis suggests that non-in-transit inventory of S/X could be 15,000 – 20,000 units, or more than one quarter's demand. We found Model 3 deliveries less concerning, given (1) the high-end Model 3's unsustainably high U.S. market share in 2H 18 (33% of its segment) and (2) the invariable logistical bottlenecks that have emerged overseas (Tesla is now delivering 5x more cars internationally than it ever has before). We remain less worried about the key investor controversy of underlying Model 3 demand – our analyses suggest 400,000+ cars a year is very possible. We have lowered our estimates for S, X deliveries in 2019 to 68K from 80K, and expect Model 3 deliveries of 291K (vs. 295K). We forecast TSLA to use $1.1B in cash in Q1 (including $200M in restructuring expenses) and now model FCF of about -$200M per quarter in Q2 and Q3, and break-even in Q4 19. We model Tesla's Q1 ending cash balance at $1.7B. We believe that TSLA should have raised capital in the 2H18 and eschewed near-profitability to press its first-mover advantage & grow as quickly as possible in 19 and 20. It is now in the uncomfortable position of likely needing to raise capital from a position of relative weakness.”

Citi- Sell/High Risk rating

“Though Tesla bulls might look past the Q1 Model 3 miss, the S/X numbers will likely spark some legitimate demand & company margin concerns, particularly given the risk for some incremental cannibalization from the recently introduced Model Y. We expect the stock to come under pressure on this and perhaps test recent lows—maintain Sell/High Risk. A few implications from here: (1) First, it's setbacks like these that underscore the need for greater balance sheet cushion—after all Tesla's quarterly financial DNA now resembles far more “auto” than “tech”. Tesla noted that it had “sufficient” cash to end Q1, but we doubt the word “sufficient” will inject much comfort; in fact it might even draw more scrutiny to Tesla's balance sheet issues, in our view. (2) At the very least, Q1 deliveries will likely cause the bull camp to revisit assumptions about the NT demand trajectory. Tesla confirmed its 2019 delivery targets, which of course now look quite aggressive requiring ~100k deliveries on average in each remaining quarter. So demand will likely be scrutinized even more so, and the outcome in the coming months could meaningfully re-shape the entire Tesla bulls/bear debate.”

Baird- Outperform rating

“Model 3 deliveries were in line with our expectations but Model S+X deliveries missed both our and consensus estimates; TSLA indicated lower-than-expected delivery volumes and pricing adjustments are expected to negatively impact net income in the quarter. Additionally, a high number of cars in transit at the end of the quarter could impact cash flow, though the company indicated it had “sufficient” cash on hand at quarter-end. TSLA also announced it will host an investor day on autonomous driving initiatives on April 19.”

This is a developing story. Check back for updates.

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