TSLA Tesla Inc

By Tim Higgins and Dave Sebastian 

Tesla Inc. is facing fresh regulatory scrutiny over its finances as it looks to raise more than $2 billion from a stock sale to help bolster its balance sheet.

The Securities and Exchange Commission issued Tesla a subpoena in early December seeking information regarding certain financial data and contracts, which include its regular financing arrangements, the electric-car maker said Thursday.

The return to capital markets comes amid a rally in Tesla's share price. It also represents an about-face for Chief Executive Elon Musk who last month dismissed the idea when facing questions from analysts about capital plans.

"It doesn't make sense to raise money because we expect to generate cash despite this growth level," Mr. Musk said.

Mr. Musk has had a complicated relationship with fundraising. As a CEO with a showman's flair, he has been successful in drumming up investor enthusiasm in Tesla, while also expressing a reluctance to issue stock over concerns it would dilute value for existing shareholders. He is the largest owner of Tesla stock.

Despite those concerns, the cash demands of creating a rapidly expanding car company have proven expensive. Tesla last year completed a roughly $2.7 billion stock-and-bond sale at a time when its future looked bleak. Ahead of that offering the Palo Alto, Calif., car maker was fresh off a steeper-than-expected quarterly loss and burning cash in its efforts to increase electric-vehicle production and overcome logistical hurdles.

After a painful first half last year and low delivery figures spooked investors about the company's prospects, Tesla reported two consecutive profitable quarters, met the low end of 2019 delivery goals and opened a factory in China. Those successes have sent the stock soaring more than 83% this year through Wednesday's close, much to the chagrin of short sellers. The stock Thursday rallied more than 5% on the plan to raise more capital.

Some analysts had questioned why Tesla wasn't taking advantage of raising money while it could. Tesla faces a long list of expenses to fund Mr. Musk's ambitious growth goals, including plans to expand production at the new China factory and to build a new assembly plant in Germany.

Daniel Ives, an analyst for Wedbush Securities, called the decision to raise funds a smart move.

"This will be a bit of a shock to some given the company talked about no need to raise capital on its recent conference call, although the bulls (which we agree with) will say this essentially rips the band-aid off and takes the doomsday cash crunch scenario some predicted down the road now off the table," he said in a note to investors.

In the public offering Mr. Musk agreed to buy up to $10 million of stock, while board member Larry Ellison, the co-founder of Oracle Corp., is expected to purchase up to $1 million of the stock, Tesla said Thursday.

Tesla said it has granted underwriters an option to buy up to about $300 million of additional stock.

While Thursday's filing included the disclosure of the new SEC inquiry, it contained other good news for Tesla, which has tangled publicly with the SEC since 2018 when Mr. Musk surprised investors with a failed plan to take the auto maker private. That dispute between Mr. Musk and the SEC already had been settled and the company Thursday said the regulator had closed an investigation into the company's Model 3 production projections.

The SEC declined to comment and Tesla didn't immediately respond to requests for comment.

Tesla's longtime auditor, PricewaterhouseCoopers LLP, has raised "critical audit matters" following its review of the company's financial statements, Tesla disclosed in its regulatory filing. PwC, which has examined Tesla's books since 2005, highlighted that auditing the car maker had particular complexities, including in how the company was reserving money for potential future warranty expenses and the promises it made to guarantee a resale value or buyback option for some of the vehicles it sold.

Write to Tim Higgins at Tim.Higgins@WSJ.com and Dave Sebastian at dave.sebastian@wsj.com

(END) Dow Jones Newswires

February 13, 2020 15:12 ET (20:12 GMT)

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