Tesla Slides After Disclosing New SEC Subpoena And $2 Billion Capital Raise

Tesla shares are extending overnight losses (following the Model X recall) after announcing a $2 billion secondary stock offering and revealing in their newly filed 10-K that they were issued a new subpoena by the Securities and Exchange Commission relating to “certain financial data and contracts, including Tesla’s regular financing arrangements”.

The company’s disclosure in its 10-K, which is buried in a bit of lawyer speak that appears to us to be arranged to hide the new subpoena behind news of a previous investigation ending, says:

On December 4, 2019, the SEC (i) closed the investigation into the projections and other public statements regarding Model 3 production rates and (ii) issued a subpoena seeking information concerning certain financial data and contracts including Tesla’s regular financing arrangements.  Separately, the DOJ had also asked us to voluntarily provide it with information about the above matters related to taking Tesla private and Model 3 production rates.

Regarding the newly issued financing, the company stated:

Tesla today announced that it intends to offer approximately $2 billion of common stock in an underwritten registered public offering. Tesla has also granted the underwriters a 30-day option to purchase up to approximately $300 million of additional common stock.

Elon Musk, Tesla’s CEO, will participate by purchasing up to $10 million of common stock in this offering. In addition, Larry Ellison, a member of Tesla’s Board of Directors, will purchase up to $1 million of common stock.

The aggregate gross proceeds of the offering, 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 offering to further strengthen its balance sheet, as well as for general corporate purposes.

This decision comes just two weeks after Musk said on his company’s earnings call that it doesn’t make sense to raise money… we are cashflow positive.”

The stock offering is reportedly set to trade February 14th.

And for those that are “wowed” by the fact that Musk is participating in the financing himself, his purchase of $10 million of stock in this offering represents about 0.03% of his ~$30B net worth. Now that’s confidence!

Additionally, the company offered capex guidance, stating that it sees average annual capital expenditures in 2020 and the two succeeding fiscal years to be $2.5 billion to $3.5 billion. The estimate for 2020 is $2.49 billion, compared to a Bloomberg consensus range of $1.80 billion to $3.30 billion. Tesla said it expects operating expenses as a percentage of revenue to continue to decrease in the future.

The market is bemused with the new information; shares are down about 5% in the pre-market session so far.

Will this break the momentum monkeys’ rule?