Elon Musk has announced plans to sell $5 billion in shares amid ongoing challenges for the Gigafactory being constructed near Berlin. The challenges now appear to include a legal fight over endangered snakes near the location of the Gigafactory.
This will be the second sale of shares in recent months, which may raise concerns that Tesla is expanding too fast and running out of cash. This would not be the first time that Tesla has run into financial problems. It was previously almost bankrupt due to difficulties with manufacturing the Model 3, which largely seem to be ironed out now.
Profitability is not likely to be an issue in the near term, however. Tesla reportedly posted a fifth consecutive quarter of profitability with $331 million in profits in the third quarter of 2020. It has especially earned $397 million by selling electric car credits to other producers, as required by environmental and fuel economy regulations.
The shares will be sold through up to ten brokerages, each of which make a commission of 0.25%. Musk may be capitalizing on the 600% gain made by Tesla stock this year. This indicates that investors are enthusiastic about the idea of electric cars and confident in Musk’s ability to turn his businesses around despite challenges that include reports of faulty on-board computer systems and recalls due to faulty suspensions. Consumer Reports has downgraded some Tesla models in its annual Auto Reliability Report due to these reported issues.
Tesla may need the money to finance Gigafactory Berlin, which is reportedly being challenged by environmentalist groups who say that construction-related activity is affecting the habitat of an endangered snake. Earlier this week, a court called for a pause on clearing trees in the snakes’ habitat until it could make a ruling. Most recently, it ruled that Tesla’s efforts to capture and relocate snakes in the area were sufficient and clearing could continue. Tesla plans to put the Gigafactory’s logistics facility in the area impacted by the court challenge.
Tesla is also forging ahead with its plans for the Gigafactory in Austin, Texas, and is likely to be spurred along by Elon Musk’s decision to move from California to Texas. Musk cites California’s response to COVID-19, which he and other Silicon Valley entrepreneurs and professionals have criticized as overly restrictive, as a major reason for the move.
Tesla may also use part of the money to further plans for its semi and tow trucks. Part of its profits are likely to be from pre-orders of its truck lines, which includes Walmart Canada’s recent tripling of its order of electric semi trucks as part of its efforts to be net carbon neutral within the next few years. Although some pundits say that there will be a limit on how far companies like Tesla can push the range of battery-powered semi trucks, Walmart Canada says that the current range rating will be sufficient for the majority of its truck hauls, which usually last less than a day.
Investors may also be attracted by expansions of its product lines into new markets, such as Tesla’s announcement of its new UK energy plan and plans to sell cars in India. Tesla had previously avoided India due to high tariffs, but may eventually build a factory in the country.
In the meantime, Tesla can use for the $5 billion that it plans to raise through its latest stock offering for its aggressive expansions, including the German Gigafactory now that it has been given the go-ahead by German courts.