Categories Analysis, Industrials

The all-new Tesla (TSLA) has a big cash pile as it readies to join S&P 500

Raised about $12 billion so far this year through stock offerings, including the latest offering for $5 billion

After proving its critics wrong, Tesla, Inc. (NASDAQ: TSLA) is all set to join the S&P 500 index later this month amid expectations that the electric carmaker would enter 2021 on an upbeat note. This week, the spotlight was once again on Tesla’s cash balance after the management announced the second share offering in about three months.

With its market capitalization hovering near the $600-billion mark, the company looks to raise $5 billion from the latest offering and the announcement has elicited a mixed response from the market. The offering is viewed as a positive move ahead of Tesla’s inclusion in the S&P 500 on December 21. However, the bullish sentiment does not make the stock a safe bet as its entry into the benchmark index might put an end to the wild rally, especially after the recent offerings.

Buy TSLA?

It is natural for stocks to make sharp gains before joining the leading stock indexes, which are constantly tracked by millions of investors. From the investment perspective, a knee-jerk reaction to the recent developments might lead to disappointment since Tesla looks overvalued at the current price.

Meanwhile, the Silicon Valley tech firm’s impressive performance this year shows it has matured as an innovative automotive manufacturer – probably one of the factors that contributed to its S&P entry, after being left out in the index’s earlier quarterly rebalancing. But there is skepticism over the sustainability of the other ventures of CEO Eon Musk, like robotaxis, The Boring Company, and the solar energy business, as they are yet to generate profit.

Tesla Q3 2020 earnings infographic

Fundraising Spree

Tesla has raised about $12 billion this year from the capital market, including the latest stock offering, which would make it one of the richest S&P components – sixth biggest, to be precise. Ironically, the company that was mired in a liquidity crisis until recently, after a long period of cash burn, will have a comfortable cash balance of about $20 billion after the stock offering.

The recent cash haul could be an effective solution for the cost escalation the company has been witnessing, primarily related to infrastructure development and capacity expansion that is expected to eat into its profits going forward. The growth initiatives have positioned it to deliver around 500,000 vehicles annually, which would still leave a part of the production capacity unused.

On Target

The company surprised the market by beating the consensus production and delivery targets in recent quarters while staying profitable, contrary to expectations for a slowdown. Moreover, the production targets for the China facility have been achieved this year, despite the unfavorable market conditions and deteriorating US-China relations.

In the third quarter, earnings more than doubled to $0.76 per share, extending the ongoing turnaround. It needs to be noted that Tesla generated profit in every quarter this year. All business segments registered strong growth in the most recent quarter, driving total revenue up 39% to $8.77 billion. The highlight of the quarter was record deliveries and production that exceeded the market’s prediction.

Road Ahead

Terming the September quarter the best in the company’s history, Musk revealed plans to stay focused on achieving ‘full self-driving’ capability, despite widespread concerns about the reliability of the technology. Currently the second richest person in the world, Musk said in an interview with the Wall Street Journal this week that he is relocating to Texas from California to focus more on the core businesses. One reason behind the decision could be tax-saving.


Read management/analysts’ comments on Tesla’s Q3 2020 earnings


The performance of Tesla’s stock was phenomenal in 2020, registering a five-fold growth since the beginning of the year. Last month, it got a major boost after the company announced its inclusion in the S&P 500 index. In the past 30 days alone, the shares gained about 45%.

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Read the full conference call transcript here. It’s free!

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