On May 30, Tesla Motors Inc (NASDAQ:TSLA). officially received a large bump in confidence from the company’s CEO. Mr. Elon Musk carried through with his well-publicized commitment to buy $100,000,000 worth of common stock according to the Form 4 filed here. The filed document noted that 487,857 shares were purchased as part of the public offering closed on May 22. The remaining 596,272 shares were purchased directly from the issuing company in a private placement on May 30.
Two weeks prior on May 15, the company issued a press release indicating that the CEO would lead the common stock offering as the electric car manufacturer released plans to raise an expected $830 million in stock and convertible senior notes that are due in 2018. Altogether, this latest insider purchase raises Musk’s holdings in Tesla Motors Inc (NASDAQ:TSLA) to 28,287,366 common shares owned through The Elon Musk Revocable Trust. At today’s prices of $97.76, this brings Musk’s controlled position in the company to a total of $2.77 billion. The average purchase price of his latest transaction was at $92.24, representing a discount of 5.6% to the current price.
As previously announced, the offering would allow the growing company the ability to pay back the loans issued in 2010 by the U.S. Department of Energy. On May 22, Tesla Motors Inc (NASDAQ:TSLA)’s followed through in doing so as the company used a portion of the $1 billion in funds raised from the offering. The repayment makes Tesla Motors Inc (NASDAQ:TSLA) the only American car company to have fully repaid the government
Ironically, the electric vehicle industry hasn’t exactly been something to boast about as it continues to face relatively weak demand across the board. While American manufacturers General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) support their own electric car lines (the Chevy Volt and the Ford Motor Company (NYSE:F) Focus Electric, respectively), neither has managed to truly live up to their expectations. General Motors Company (NYSE:GM) had hoped to sell 40,000 Volts in the United States for 2012 but came up short by selling only 23,461. The company even stopped its production line for five weeks in order to realign its supply with its demand. For its part, Ford Motor Company (NYSE:F) stated that its battery-electric vehicles will only make up 5% of the 100,000 electrified vehicle sales it expects to have. This assigns a high-end expectation of only 5,000 units and thus far the demand has proven to be weak. In all of 2012, the company only sold a mere 685 Focus Electrics.
Indeed, this has made the sales beat of Tesla Motors Inc (NASDAQ:TSLA) in the first quarter of 2013 all the more exciting. Tesla Motors continues to capitalize on the strong momentum it has found over the past few months. The company beat estimates on car sales, leaving investors elated over the strong demand. Upon following the announcement of the secondary offering, Tesla’s stock actually rose 8.7% despite the dilutive nature of the event. Altogether, the company’s stock has been riding a strong wave of investors support since the beginning of April with shares peaking on May 28 at $110.33. This represented a gain of more than 150% over the short time period.
Cracks in the sharp rise have since begun to surface, however, as evidenced by the recent pullback that occurred over the past week. After topping around $111 on May 29, the company’s shares have fallen over 11% to close at $97.76 on May 31. Despite all the tangible progress being made thus far, it remains to be seen whether the company will be able to sustain this level of investor support.
Much of the company’s recent rise can actually be attributed to the rather strong short position held in the company. As of May 15, there were 23.04 million shares short which represented 36.9% of the company’s trading float. On March 15, this amount was 32.32 million shares or 43.6% of the float. At that time, the company’s low trading volume also meant that the days to cover this amount led to a whopping 19.87 days. As the company continued to rise, therefore, it’s clear to see that the large short interest played a decisive role in the most recent spike as investors shorting the stock sought to cover their positions at ever higher prices.
Conclusion
Tesla Motors Inc (NASDAQ:TSLA) now trades at a market capitalization of $11.30 billion, a rather hefty sum considering the significant amount of risk that lies ahead for the developing electric car company. While the CEO’s latest purchase represents a strong amount of confidence in the company he founded, it still amounts to a mere 3.8% of his current position in the company. Tesla now trades at a price-to-sales ratio of 12.83 and a forward price-to-earnings ratio of 94 based on analyst estimates of $1.04 in 2014.
Despite the lucrative valuation, the company’s latest offering may have indeed fortified the balance sheet in a decisive manner. The company increased its cash position by almost four times what it previously had on the books. As a result, this will likely place the company on the frontlines of product innovation for some time to come. Altogether, investors may be wise to just sit on the sidelines for now as the stock’s volatility decreases. It’s steep rise and outstanding short position suggests that the correction can be just as strong going the other way.
Kevin Quon has no position in any stocks mentioned. The Motley Fool recommends Ford, General Motors, and Tesla Motors . The Motley Fool owns shares of Ford and Tesla Motors. Kevin is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Elon Musk Finalizes His Tesla Purchase, so Is Now the Time to Buy? originally appeared on Fool.com is written by Kevin Quon.
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