New York/San Francisco — Tesla has raised $2.35bn through debt and stock offerings that expanded from the company’s initial plans, helping to put some near-term liquidity fears to rest. 

The electric carmaker raised $750m selling common stock and $1.6bn from convertible bonds, up from originally offering $650m and $1.35bn. The capital raise sparked a relief rally in both Tesla’s stock and bonds, which had reflected investor worry over whether the company can be sustainably profitable.

“The raise should refute lingering concerns about Tesla’s ability to access capital markets,” Ben Kallo, a Robert W Baird & Co analyst who rates Tesla the equivalent of buy, said in a note on Friday. “Surplus cash should help alleviate investor concerns around liquidity.”

Tesla priced the stock at $243 per share and will pay 2% semiannual interest on the convertible bonds due 2024, which were issued with a 27.5% conversion premium, according to filings. Tesla stock, which had been down 30% this year, closed 4.3% higher on Thursday while the price of its bonds advanced.

Tesla tapped the markets again after Elon Musk overestimated the ability of the Model 3 sedan to generate enough cash for the company to be self-sustaining. The CEO said on several occasions in 2018 that Tesla would no longer need to raise capital as its first mass-manufactured car ramped up. Musk changed his tune after the first quarter, when a record decline in vehicle deliveries and the company’s biggest debt payment depleted its cash balance to a three-year low of $2.2bn.

Musk is participating in the equity offering by buying about $25m in stock, according to a filing on Friday, up from $10m. Tesla hired Goldman Sachs, Citigroup, Bank of America Corporation, Deutsche Bank, Morgan Stanley, Credit Suisse, Société Générale and Wells Fargo & Company to underwrite the share offering.

“We view this as a clear net positive for Tesla,” Dan Ives, an analyst at Wedbush Securities, said in a note. The electric carmaker needed to “take its medicine and clear the air of the very real investor worries.”

The convertible bonds priced at the high end of the initial range communicated to investors, allowing Tesla to boost the size of the offering. On Thursday, the securities were being marketed with a coupon of between 1.5% and 2%, according to people with knowledge of the matter. The conversion premium was being talked at a range of 27.5% to 32.5%, said the people, who asked not to be identified discussing the private deal terms.

Tesla’s 5.3% bonds due 2025 were trading higher early on Friday, quoted at 87c on the dollar, according to Trace data. They were among the best performers in the US high-yield market on Thursday, while credit default swaps tied to the debt rallied the most since October. It now costs about $1.6m upfront to insure $10m of Tesla bonds against a default for five years, down from $1.7m on Wednesday.

Tesla’s credit profile

The combined offering is positive for Tesla’s credit profile by boosting cash, Moody’s Investors Service analyst Bruce Clark said. It will help Tesla to repay a November debt maturity of $566m of outstanding convertible notes, fund the cash requirements from the expansion of Model 3 shipments into Europe, and cover the cash burn that might result from any softening in demand for the Models 3, S and X in the US, he said.

After reporting a loss per share that was double what Wall Street expected, Musk sought to assure investors on Tesla’s April 24 earnings call that the company would return to profitability in the third quarter. He told analysts there was “merit to the idea of raising capital” to expand.

Several Tesla analysts were expecting a capital raise of about $2bn. The infusion will get Tesla closer to a ratio of 15% of cash to sales, a historical level among traditional vehicle manufacturers and suppliers, according to Bloomberg Intelligence analyst Joel Levington. Tesla has stayed at around half that level, he said.

“This indicates Tesla can’t yet rely on cash from operations to fund its deeper penetration into autonomous-driving technology, advanced chips, insurance and China. Tesla’s 31% delivery decline in quarter one versus quarter four signalled that US demand isn’t sustainable at the elevated 2H levels, while its international rollout is just beginning,” said Kevin Tynan, senior autos analyst

Tesla is planning as much as $2.5bn in capital expenditures in 2019 as it develops new vehicles including the Model Y crossover, Semi truck and Roadster sports car. It is also building a battery and vehicle factory near Shanghai where it plans to begin producing Model 3s later in 2019.