In principle whoever holds TSLA at $238 does so because they think it's worth more than that. And they are being diluted, the intrinsic value of their shares is now worth less than before the capital increase. Stock holders who find TSLA overvalued should be happy, but I don't think there are many of those.
(Edit: I don't disagree with the parent comment, the effect on the stock price will be because people will re-evaluate the company and not because of the new shares themselves, which by the way are not priced yet. I was addressing the dilution part of GP's questions).
You need to know more about an investor's view of the world to figure out whether an investor thinks this is good or bad. Given the capital-intensive nature of the business, I think many investors would be expecting TSLA to spend at least some of its lifetime running negative cash-flow (as indeed it as for the last three quarters). Depending on how much investment you see as being required in the future, you may or may not have predicted that they would need additional financing in the future (ie, after your investment). If you did not predict the need for additional financing, this is probably bad news for you. If you did predict it, than what matters most is how the terms of this financing compare to the terms you were expecting. If you think the stock is worth $1000/share, and expected them to do a secondary at some point, you're probably happy they're doing it now as opposed to later, when you suspect the price will be converging to your value. If you thought they would be able to raise all needed capital with 30 year bonds paying 2% interest, you're probably not happy about this.
> If you think the stock is worth $1000/share, and expected them to do a secondary at some point, you're probably happy they're doing it now as opposed to later, when you suspect the price will be converging to your value.
The only reason I see to be happy with the new shares being issued sooner rather than later is if I'm going to keep buying shares, they won't be diluted because it already happened. Otherwise I don't get why would I prefer the new shares to be issued at a lower price. If they raise $500mn at $250 it will take longer to get to $1000 than if they can wait until the stock trades at $500 (because the dilution would be lower in the second case).
> In principle whoever holds TSLA at $238 does so because they think it's worth more than that.
Not really, more like:
- Investors holding TSLA think its fair priced at 238.
- Investors buying TSLA think its worth more than 238.
- Investors selling TSLA think its overpriced
Obviously these roles can overlap, but if you are a shareholder whos thinks TSLA its worth more than 238 you should take part in this offering and buy more stocks - even just to avoid the dilution.
If you think the current price is fair, why would you hold the stock? Unless you think they're going to declare a dividend (not likely) then you might as well sell while the price is at a fair level and keep the cash.
Because it fits the asset allocation you want? Because selling costs you transaction costs without gaining anything? (if its a fair price the stock is worth exactly as much as the same amount in cash)
I assumed that the likelihood and size of possible dividends is already included in your estimate of what the stock is worth.
A better way to think about this is to look at what they will do with the capital they are raising. If they can put it to work in very high return-on-capital projects that have a return that is higher than their cost of capital, then the net impact will be to increase their earnings per share, which presumably will lead to a still higher valuation for the stock.
