Tesla Inc shares slide following the announcement that it will sell up to $5 billion worth of its stock over time on Tuesday, as the electric-car maker cashes in on a stellar rise in its shares this year.
This is Tesla’s second such move in three months, as Elon Musk wants to make the most of Tesla’s eye-watering valuation.
The automaker has struck an equity-distribution agreement with Ten major banks, including Bank of America, Goldman Sachs, Citigroup Global Markets, and Morgan Stanley
These banks will act as sales agents and earn a commission, or buy the shares themselves, generating up to $5 billion in aggregate sale proceeds for Tesla according to its filing.
The shares will go on sale “from time to time” through an “at-the-market” or follow-on offering program. Tesla and the banks will decide how much stock is sold and at what price on a daily basis. The automaker will use the proceeds to bolster its balance sheet and fund its operations.
Tesla’s stock price has skyrocketed more than 600% this year. The company earned about $21 billion in revenue and only $1.4 billion in operating income in the first nine months of this year.
On Monday Tesla’s shares touched a record high, pushing its market value above $600 billion and further cementing its position as the most valuable auto company in the world despite production that is a fraction of rivals such as Toyota Motor, Volkswagen, and General Motors.
Following the announcement, on Tuesday the shares slid from the record high of $659.26 per share to close at $646.20 per share down from a close of $649.03 per share on Monday.
Tesla extended the decline on Wednesday as the share price is down by 1.73% to $638.62 per share.
The stark disconnect between Tesla’s size and its stock-market valuation has raised plenty of eyebrows.
Demand for Tesla’s shares has been further fueled by the decision last month to add the company to the S&P 500 index, making it one of the most valuable firms ever to join the main U.S. stock market benchmark.
The rally in Tesla’s shares this year has also boosted Chief Executive Officer Elon Musk’s net worth making him the world’s second-richest person.
By: Ifunanya Ikueze