Corporate Law Blog

Tesla announces stock sale to expand business

Most of our Kentucky readers have probably heard of Tesla Motors, the auto manufacture which produces electric vehicles and sells them directly to consumers rather than going through a dealer. At present, there are only several states which allow direct sales of Tesla vehicles. There are also several states where such sales are prohibited. In states where Tesla vehicles may not be sold, Tesla locations may only serve as showrooms. Kentucky is among the states where there are no Tesla locations.

Tesla has had a hard time getting its business model to really pick up, and recently announced that it would be selling $500 million worth of stock in an effort to raise money. The stock sale is primarily aimed at increasing the company’s showroom presence, as well as establishing more service centers and expanding its energy-storage business. Will the stock sale be successful? 

The success of any stock sale depends on the circumstances in which a company finds itself. One of the risks that has to be taken into consideration is stock dilution. In Tesla’s case, experts have said that the company is able to raise money through stock sales without significant dilution—current investors in Tesla stock are expected to experience a 1.6 percent decrease in value.

For Tesla, the situation is rather good, given that standard accounting shows the company is not expected to actually make a profit until 2020 by ordinary accounting calculations. Much of the situation is dictated by investor optimism in Tesla products. After the announcement was made, Tesla shares rose by 1.8 percent.

With stock sales, it is always important for businesses to consider tax ramifications. In our next post, we’ll take a look at this issue and how an experienced attorney can provide guidance in this area.