Tesla eyes investor big league as bond offering passes $1bn

Tesla’s award-winning electric vehicles might not have hit the mainstream in the automotive market quite yet, but in the financial world the US cleantech company is looking more and more like a mainstream investment.

Not only did Elon Musk’s Silicon Valley-based company post its first quarterly profit last week – and score a near-perfect rating for the Model S from Consumer Reports magazine – but Tesla shares have increased in value by more than 50 per cent in little over a week, adding to what amounts to a 150 percent rise on the Nasdaq this year.

On Friday, Tesla again surprised investors and analysts by selling just over $1 billion in debt and equity after increasing the size of its convertible bond offering, first to $525 million and then to $600 million, up from an initial $450 million.

The company announced its new plans for a stock and bond offering on Wednesday, and on Friday finalised a per share price of $92.24 for the sale of 3.39 million common stock shares – up from its original plans to offer 2.7 million shares. With overallotment options included on both offerings, total fundraising was $1.02 billion.

The company says it will use the bulk of these funds to pay back its $452.4 million US Department of Energy loan, which was extended to Tesla in June 2009 to cover the cost of engineering and building the Model S.

As Reuters reports, it is high demand from investors that has allowed Tesla to secure more attractive terms for its bond offering than originally planned. So where is demand coming from?

According to US investment guru Jim Cramer, a lot of the current interest is coming from so-called mum-and-dad investors. “Twice this weekend I heard parents lament that they wished they had bought Tesla,” the Mad Money host told CNBC. “When I asked why, in each case the parents said because their kids knew cars, and because they care about the environment.”

As CNBC’s Lee Brodie notes, the interesting part about Cramer’s observation is that in both cases the commentary came from parents, in turn suggesting “young people knew instinctively that Tesla and its electric cars weren’t a fad – rather they saw Tesla on the cusp of something big.”

Cramer says emerging consumer trends like this are sometimes more indicative of what’s going on in the market than specialist analyst reports. “Most analysts are in New York City,” Cramer said, stressing that they don’t see how quickly electric cars appear to be catching on in other parts of the country.

Investors may also be catching on to the fact that, as Forbes last week put it, Elon Musk is no dummy. The man who has founded or co-founded the likes of PayPal, Tesla and SpaceX, and who has degrees in economics and physics, quit a PhD in applied physics and materials science to become an entrepreneur, which appears to have been a smart move. Today, says Forbes, the 41 year-old “is worth an estimated $US4.3 billion after strong gains in Tesla shares, along with Solar City, where he is chairman and owns 28 per cent.”

And now he’s proving to be savvy ways that could help make others money. By using Tesla’s share market momentum to increase the bond offering, and thus paying off the $465 million loan early, Musk is distancing Tesla from past and future political controversy on EV funding, says Forbes – he even gets out ahead of Ford and Nissan, who also borrowed government billions to fund green car development.

“And by putting more skin in the game by purchasing about $45 million in the public sale and about $55 million in a private placement, Musk is sending a strong message that he thinks the stock can go even higher,” Forbes says.