In early August, the world’s famous electric veichle(EV) maker, Tesla, annouced that the company will issue debt worth 1.5 billion to fund the Model 3 production. As Tesla has receved “455,000 reservations” (Carey, N. August 07, 2017) for the Model 3, it reveals consumers; growing interest in EVs. Simutaneously, the price of Tesla’s share has been growing rapidly from the beginning of 2017. Despite the negative retained earnings on balance sheet, Tesla gains additional paid in capital(APIC) through the thriving share price which sets the total equity back to positive. In the cash-flow statement, Tesla has arrived at negative net-income in four consecutive years, and is currently at negative 798 million dollars from the second quater report.
Tesla has demonstrated its leadership by bring a revolution on world’s energy utility trend: from fossil fuel to electric. As a result, multiple nations, including the largest developing country, China, is in progress on promoting environmental friendly policies by banning internal combustion engines(China banning internal combustion engine September 14, 2017). In other words, Tesla is seen as the driving force, by both governments and consumers, to change consumers’ behavior on energy consumption. As a response, investors’ expectation for Tesla, shown by the significant increase in share price, grows beyond merely an EV maker, but a future energy resource that will be potentially treated in similar manner as the OPECs nowadays. This faith from investors does not simply come from the increasing numbers of Teclas on road, but from the merger between Tesla and SolarCity(Ferris, R November 17, 2017).
SolarCity is a company that provides solar panels for both small scaled units, homes, to large units such as business or even government. Through this acquisition, Tesla conveyed its future direction to promote increasingly environmental sustainable products, just like CVS taking its stand on promoting public wellness via the Tabaco ban. Thus, Tesla presents its public image as a leader in new energy trend, which raises the question: are vehicles with high engine-displacement made unethical in environmental aspect?
However, all the expectations on Tesla is not sufficient to support the growing share price while Tesla continuously issue debt to balance the spend on investment activities. It is clear that the only positive number displayed on the cash-flow statement is financial actives, and it is highly possible that investors are out looking for a practical benefit being announced from the acquisition synergies as well as a return from bond issued.
Carey, N., & Lienert, P. (2017, August 07). Tesla seeks $1.5 billion junk bond issue to fund Model 3 production. Retrieved September 27, 2017, from https://www.reuters.com/article/us-tesla-offering/tesla-seeks-1-5-billion-junk-bond-issue-to-fund-model-3-production-idUSKBN1AN13I
China moves towards banning the internal combustion engine. (2017, September 14). Retrieved September 27, 2017, from https://www.economist.com/news/business/21728980-its-government-developing-plan-phase-out-vehicles-powered-fossil-fuels-china-moves
Ferris, R. (2016, November 17). Tesla and SolarCity merger gets approval from shareholders. Retrieved September 27, 2017, from https://www.cnbc.com/2016/11/17/solarcity-shareholders-vote-on-tesla-merger.html