Why Elon Musk Is Raising Billions in Cash for Tesla – New York Magazine

Why Elon Musk Is Raising Billions in Cash for Tesla – New York Magazine

Elon Musk
Tesla’s stock has gone up a lot since this. Photo: Frederic J. Brown/AFP via Getty ImagesIf you are lucky enough to be the founder, CEO, and largest shareholder of a major company whose stock price triples in four months for difficult-to-discern reasons: First of all, congratulations. That’s pretty awesome!But does it have implications for how you should run the company? Specifically, does it have implications for how you should run the company’s finances?Back when Tesla’s stock price was much lower, Elon Musk’s instinct was that it would be nice not to have a public stock price at all. He wanted to take the company private, and he famously and problematically told the world he was taking the company private, even though he wasn’t.
Still, his instinct made some sense: He thought his company’s stock price was unreasonably low, those naysaying short-sellers were really bringing him down, why wouldn’t he want to get together with some friends to buy up all the stock at $420 a share and prove those losers wrong? Given what’s happened since then, obviously he should have; too bad the Saudis were too busy lighting their money on fire by giving it to SoftBank.I’m sure Musk was ....


And so if Musk’s instinct in 2018 was to buy shares when the price was low, it makes some sense that Tesla is now selling stock when the price is high. The company says it will raise $2 billion in new equity.What’s a little unusual is that Musk said just days ago, on an earnings call, that “it doesn’t make sense to raise money” because Tesla already has lots of cash, is generating positive cash flow, and is “spending money as quickly as we can spend it, sensibly.” In other words: Why sell more shares when we wouldn’t have any use for the cash?Of course, one option is to use the cash to pay down debt. But it could make sense for Tesla to raise equity even with no particular plan to use the cash proceeds in the near term. If you, like everyone else, are wondering whether the run-up in your stock price is durable, then you should probably raise equity now while it’s so cheap for you to do so.
Sell those shares at $800 while someone is willing to buy them. .

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