Raising Capital for Tesla Acquisition

Raising Capital for Tesla Acquisition

In the first quarter of 2019, Tesla earned revenue of $4.5 billion from sales of its vehicles (Kopecki & Kolodony, 2019). In this context, raising capital that equates to 10x its revenue stream would translate to 45 billion. There are various approaches that Tesla can take to raise this amount. First, Tesla can increase the number of units sold, specifically, the models endeared in the market, for instance, the Model 3, which is a low-cost model that has proven to be a success for the firm in terms of generating sales in the previous fiscal year. Need help with your assignment ? Reach out to us. We offer excellent services.

Another approach to raising that capital would be issuing of stock in the capital market. Sales of stock would enable the firm to raise substantial capital for the acquisition. Nonetheless, this method is not recommended, given it dilutes the wealth of Tesla’s current shareholders (Rana, 2019). On the same note, Tesla could sell a chunk of its company to an institutional investor. This technique would be more effective in raising significant finances for the firm. Tesla could also issue convertible bonds as they are less risky because they can be converted to stock. These bonds can be issued in conjunction with junk bonds.

Given Tesla is seeking to raise a substantial amount of money, a combination of the three approaches would be more effective than adopting only one technique. At the same time, given Tesla has significant debt in the form of junk bonds and convertible bonds, debt would not raise substantial capital.  Additionally, given that the financial implications of the acquisition for the firm are unknown, Tesla should avoid the high cost and risky approach in raising capital. For instance, loans from banks would be risky since, in the event of default, the bank would liquidate Tesla’s assets.

References

Kopecki.D, Kolodony.L.(2019) Tesla misses big on first-quarter earnings as demand fell for its electric cars. Retrieved from https://www.cnbc.com/2019/04/24/tesla-earnings-q1-2019.html

Rana.A (2019). Tesla boosts capital raise to $2.7 billion; Musk buys more stock. Reuter. Retrieved from https://www.reuters.com/article/us-tesla-offering/tesla-boosts-capital-raise-to-27-billion-musk-buys-more-stock-idUSKCN1S90YT

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Consider that your project company must raise 10x of its current revenue stream for an acquisition. Propose the potential prospects for raising capital for that company for a meeting with your Board of Directors.