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Tesla's Stock Surges

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Tesla's Stock Surges

Aug 14 2015, 10.39am GMT


News of a dilutive share offering by Tesla Motors Inc. as well as the re-entry into the market of Fisker Automotive, manufacturer of the Fisker Karma plug-in electric hybrids after a 2013 bankruptcy filing, did not deter investors as Tesla (TSLA, +1.82%) surged in midday trade on Thursday.

The second quarter results from Tesla, in which the company reduced its forecast of sales of 55,000 vehicles for the year to the 50,000 to 55,000 range, had seen the stock fall by 7% after the release of its report on August 5. The stock fell to its lowest intraday level on Wednesday, losing as much as 2% to trade at $243.06, its lowest price since May 7.

The stock broke a four session losing streak as it picked up just over 1% in value before falling to close 0.3% up at $242.51 for the day. The stock, which had an almost 11 month high at $282.26 on 20 July, was still up 9.4% year-on-year. This compares well to the S&P 500 index (SPX, -0.13%) which has moved up by only 1.2% year- to- date.

Fisker Automotive was purchased by Wanxiang Group, a Chinese auto parts giant, a year after the bankruptcy filing. The company has leased property in Riverside County city with an 11 year lease and intends to once again start producing the Karma which had sold at around $100,000 previously. They plan to be back on the market by mid-2016 at a rumored selling price of $135,000.

The price increase was spurred by a Tesla announcement at J.P. Morgan's automotive conference in New York that its long awaited new Model X would be shown publicly by the end of September. The company also intimated that cost cutting measures would be introduced in the production of its Model 3 car which would result in a lowering of the price range for the vehicle.

Ryan Brinkman, analyst at J.P. Morgan said in a note to clients, “Management expressed enthusiasm for when the X will finally be shown. There was also a significant discussion surrounding the Model 3, including the drivers of lower cost … to support [an approximate] $35K base price/ [about] $45K ASP.”

The issue of additional shares by a company generally results in a drop in the share price as it reduces the percentage of the company that each share represents. The offering from Tesla will mean an increase in the number of shares outstanding by 1.7 million, and should the underwriters to the offering exercise their option to purchase additional shares, the number of outstanding share will increase to 1.9 million.

According to the regulatory filing, Tesla said it would employ the proceeds from the offering, expected to raise about $500 million and possibly almost $600 million if the underwriters exercise their options, to stimulate the growth of its business both in the U.S. and internationally. This stimulation would include the development of the battery manufacturing Gigafactory, the growth of its Supercharger network and other general company uses.

The Wall Street Journal reported meanwhile that the electric car manufacturer has plans to make Tesla ownership easier by installing an additional twelve charging stations in Manhattan parking garages. The charging stations provide for a faster rate of charging than the 240 volt chargers generally found in garages and on city streets around the United States.

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