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Tesla raises capital two weeks after Elon Musk said it wasn’t needed

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Tesla CEO Elon Musk was definitive during the company’s January 30 earnings call. Despite its current heat of expansion, “it doesn’t make sense to raise money because we expect to generate cash despite this growth level,” he said.

Then came today’s news that Tesla would sell another $2 billion in stock—with the common option for the underwriters to purchase another 15%, or $300 million. The cash raised will be used to “strengthen its balance sheet, as well as for general corporate purposes,” a company press release stated.

Shares jumped 4.8% over yesterday, reaching $804—the second highest value the stock has ever seen, the record being $887.06 earlier this month. At that price, even $2.3 billion (including the underwriters’ option) in value would be about 2.9 million shares, or a 1.6% addition to the outstanding 181 million shares, minimizing dilution for other shareholders.

Musk said he planned to buy up to $10 million in shares during this offering. Board member, strong Tesla supporter, and Oracle co-founder and executive chair Larry Ellison said he would purchase $1 million. (The Wall Street Journal reported today that the Security and Exchange Commission is taking another look at Tesla’s financing and accounting practices, though reportedly the interest predates the round’s announcement. Tesla did not respond to Fortune’s request for comment.)

A surprise? Not really. Musk u-turns are hardly new.

“[W]e’d like to see more consistency between the company’s actions and the words of CEO Elon Musk,” David Whiston, an industrials strategist for Morningstar, wrote in a note to clients today. “This is at least the second time Musk has said on an earnings call that raising capital is not happening and then shortly thereafter Tesla raises capital.”

The reversal may be Musk’s contrarian nature, according to Mauro Guillen, a professor of international management at the Wharton School of the University of Pennsylvania. “Musk loves to confuse journalists,” he said. Or it may be a strategic concern of being a chief executive. “The average CEO most of the time doesn’t want the market to anticipate their next move.”

Whatever the reason, the move is a smart one, according to experts.

Even with some heavy volatility, Tesla’s fast driving shares have left the company with the world’s second largest market capitalization of any auto manufacturer, behind Toyota. It’s quite the change from less than a year ago when a plunge in share price saw many investors and analysts jump ship. The current strength of the stock makes raising capital through issuing more stock cheaper than additional debt.

As of Dec. 31, 2019, Tesla had total unpaid debt of $12.5 billion, according to the company’s most recent 10-K filing. Of that, almost $1.4 billion, in the form of 1.25% notes, comes due in 2021. Another $978 million at 2.375% is due in 2022. Then, in 2024, another $1.84 billion at 2%, followed by $1.8 billion at 5.3% in 2025.

Interest payments run hundreds of millions of dollars a year and a number of the notes are convertible, which means the holders might require “cash and/or shares,” according to the 10-K.

Tesla “could probably refinance if they wanted to and on better terms,” said Joseph Osha, senior analyst and managing director in equity research at JMP Securities. (The firm currently has an interest in Tesla shares and looks to perform investment banking services for the company in the near future, according to the firm’s disclosure statement.)

But why refinance when issuing new equity is a possibility?

“It’s not surprising when a company does a re-offering when the stock price is high,” said Reena Aggarwal, a professor of finance and director of the Center for Financial Markets and Policy at Georgetown University. “They raise debts when interest rates are low. When market conditions are right, it makes sense for companies to raise capital.”

Although some of the money raised will go to strengthening the balance sheet—otherwise known as paying off debt—other amounts will likely fund further growth.

“The reason you go out and raise money now is you can potentially accelerate this rate of capital investment,” Osha said. “It’s not to pay down debt [only] and not because they’re running out of money. It’s to accelerate the rate at which they are adding capacity.”

Capacity at this point is critical. For years, Tesla has had to maximize revenue and profits from production that couldn’t keep up with consumer demand. And so, the company had to pick and choose where to sell.

For example, Tesla has strongly favored Norway as a European sales destination because of the tax incentives provided to people there. “It turns out it’s much cheaper to buy an electric car than internal combustion,” said Matthias Schmidt, a German automotive analyst. “Normally it’s around 40% of the market [in that country].” Tesla also focused heavily on the Netherlands in the fourth quarter of 2019 because of an impending tax change that drove demand. Now, with a new tax break, the U.K. will be the likely target for sales—because of an improvement in tax treatment.

But, ultimately, Tesla needs to satisfy markets with factories on each continent in which it does business. The U.S. factory can’t produce as many units as the company could sell.

“This is a cult guy and a cult product and a bull market, and he should sell shares,” said Jason Ader, founder and CEO of SpringOwl Asset Management and an owner of Tesla shares. “But the bulls better not kid themselves. If we were ever in a market like 2008 and 2009, there are a lot of stocks that would be repriced [downward]. Tesla is close to the top.”

For the time being, Tesla is going to grab the money while it can.



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Think long-term for your financial security

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Some opportunities only come once in a lifetime. With the release of CIMB Bank Philippines’ (CIMB Bank PH) new ‘One Shot at Love’ short film, the digital bank wants to show every Filipino out there looking for love how having good saving habits can make them ready for those unexpected, life-changing moments.

The film tells the story of the typical working-class millennial: hard-working, future-oriented… and bored. The routine of every day gets exhausting, and without someone special to spend them with the days just blur on by until the next paycheck.

But life’s biggest moments hardly ever come with warning. You never know what each day can bring. But when the opportunity of a lifetime comes knocking on your door, you’d be happy to have some money in the bank to seize it.

Whether it’s for an unexpected plane ticket, for the capital for a new business, or for the funds to supplement a scholarship application, money allows freedom. This is the true meaning of financial inclusion — to give Filipinos the ability to seize the opportunities that life throws their way.

Bringing more Filipinos towards financial inclusion

Since its foundation in December 2018, CIMB Bank PH has aimed to bring more Filipinos towards financial inclusion. As an all-digital, mobile-first bank, it has served around two million customers since its first year of establishment, earning its reputation as the most awarded digital bank in the country in 2019, securing eight international awards, including Global Finance’s Best Digital Consumer Bank, Asian Banker’s Best Digital Bank, and International Finance’s Fastest Growing Digital Bank Award.

The all-digital bank seeks to empower Filipinos by giving them access to flexible, innovative products and services specifically designed to prepare them for every opportunity. Through the CIMB Bank PH mobile app, Filipinos can open a savings account and apply for a personal loan without the hassle of waiting in line or the extensive paperwork required by traditional banks.

Applicants can open an UpSave account seamlessly in 10 minutes, anytime all-year round, all without an initial deposit, minimum balance, nor any penalty charges for anytime withdrawal.

To help more Filipinos in their financial journey, UpSave account holders also have access to one of the highest savings interest rates in the market at a no-time-limit 4% per annum — 1600% higher than other major banks in the country. Account holders with P100,000 and above average daily balance can also get free life insurance coverage worth up to P2 million.

CIMB Bank PH’s digital model further accounts for Filipinos’ increasingly busy work schedules by forming strategic partnerships with local payment gateways, giving their account holders access to over 8,000 convenience partners to make their transactions, or withdraw in over 20,000 ATMs nationwide for free.

The all-digital bank eliminates the barriers of traditional borrowing methods offered by other banks through an all-digital loan application system. No need to appear for a personal review, as the system allows for initial loan approval of up to P1 million in 10 minutes (with a minimum of P30,000), with zero processing fees and no hidden charges. Loans are payable within 12 to 60 months, providing flexibility and ease of mind for borrowers.

Giving everyone a chance to take charge of their life

Financial inclusion, after all, is giving every Filipino the chance to take charge of their life and make the decisions they need to create a better future.

How many people in the distant provinces remain unbanked without a choice? How many businesses failed to get off the ground because of a lack of capital? How much savings have been lost to inflation due to low interest rates?

With an always-accessible mobile app, best-in-market rates, and a hassle-free loan application system, financial inclusion for every Filipino might not be so far away.

“Highlighting how financial literacy is a main component of CIMB Bank’s operations in the Philippines as the company fulfills its mission in bringing Filipinos closer to their next step of achieving a comfortable future while enjoying today,” said CIMB Bank Philippines Chief Executive Officer Vijay Manoharan.

CIMB Bank PH is the newest member of the CIMB Group, one of ASEAN’s leading banks and is present in over 16 global markets. With the establishment of CIMB Bank PH, CIMB Group is able to extend its reach and transform the Filipino banking experience.

To know more about CIMB Bank PH, click here or download the app for Android and iOS.


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Nokia to Weigh Strategic Options as Profit Pressure Mounts

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(Bloomberg) — Nokia Oyj is exploring strategic options as fierce competition puts pressure on the Finnish network equipment maker’s earnings, people familiar with the matter said.The company is working with advisers to consider potential asset sales and mergers, the people said, asking not to be identified because the information is private.Nokia shares have lost roughly a third of their value over the past year before news of its deliberations. The company’s American depositary receipts rose as much as 13% Wednesday. The ADRs closed up 6.1% to $4.15 in New York trading, giving the company a market value of about $23.5 billion.The firm cut its outlook and suspended its dividend in October, saying it’s not expecting a major recovery in profit until 2021. That’s ratcheting up pressure on Chief Executive Officer Rajeev Suri to act.Deliberations are ongoing, and there’s no certainty they will lead to a transaction, the people said. A representative for Espoo, Finland-based Nokia declined to comment.Possible CombinationsOne possibility Nokia could also consider is combining with a competitor like Ericsson AB or partnering in certain business areas. Still, such a move would face significant hurdles including political pressure to preserve jobs as well as antitrust scrutiny. A representative for Ericsson declined to comment.The limited number of direct rivals to Nokia would also require the company to consider interest from further afield — like technology companies or wireless operators — if it were to ever seek a full sale.The December announcement that Nokia Chairman Risto Siilasmaa would step down stirred speculation about deeper changes at the company. The firm is in a fierce rivalry with Ericsson and China’s Huawei Technologies Co., as the three dominant players seek to benefit from phone carriers’ investments in next-generation mobile networks.“Nokia’s return to sustained growth and profitability has been delayed by its struggle to transition to a cost-competitive 5G hardware design, impeding its ability to compete, in our view. The 5G spending cycle is ramping up as commercial launches gain momentum, putting Nokia at risk of losing early awards.”\–John Butler and Boyoung Kim, telecom analysts, Bloomberg IntelligenceThe U.S. should be “actively considering” investments into Nokia or Ericsson to counter the threat posed by China’s dominance of emerging 5G technology, Attorney General William Barr said this month.Huawei RivalsLarry Kudlow, President Donald Trump’s top economic adviser, later said the U.S. government isn’t in the business of buying companies. He has since announced plans by the White House to hold a conference with Huawei rivals to try to accelerate development of affordable competing products.Nokia warned this month that, excluding China, its addressable market is likely to be stagnant this year compared with 2019.As it struggles to catch up with competitors, Nokia’s acquisition of French rival Alcatel-Lucent in 2016, which helped to broaden its offering, may have slowed down development of new products as it contended with a complicated integration process.(Updates with Ericsson response in sixth paragraph)\–With assistance from Matthew Monks.To contact the reporters on this story: Ed Hammond in New York at ehammond12@bloomberg.net;Dinesh Nair in London at dnair5@bloomberg.net;Myriam Balezou in London at mbalezou@bloomberg.net;Niclas Rolander in Stockholm at nrolander@bloomberg.netTo contact the editors responsible for this story: Aaron Kirchfeld at akirchfeld@bloomberg.net, Ben Scent, Michael HythaFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.



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Lowe’s anemic e-commerce growth is helping Home Depot deepen its lead

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In the era of the so-called retail apocalypse, reporting even modest in-store sales growth should seem close to miraculous.

But that’s not the case for Lowe’s. On Wednesday, the $72 billion-a-year home improvement giant reported a 2.6% increase in comparable sales for the fourth fiscal quarter of 2019. Up against its biggest competition, Home Depot, that figure underscored a major weakness in Lowe’s business: a lackluster e-commerce business.

Lowe’s said that sales on its website rose 3% in the quarter ending January 31. On a call with Wall Street analysts, Lowe’s CEO Marvin Ellison acknowledged that the company’s e-commerce trajectory “lags market growth.” He is right on that front: in the final three months of 2019, e-commerce sales in the U.S. rose 16.7%, according to the U.S. Census Bureau.

But of greater concern to Lowe’s, digital sales growth at archrival Home Depot was 20.8% during the same fiscal quarter, and data firm eMarketer estimates Home Depot’s e-commerce business has now hit the $10 billion mark. (Total Home Depot revenue was $110 billion.) Home Depot’s overall U.S. comparable sales rose 5.3%, continuing a years-long tradition of outpacing Lowe’s in quarterly sales growth.

“At the beginning of 2019, Lowes.com was sitting on a decade old platform,” Ellison explained to the analysts, noting that the “replatforming” of the site would not be complete until sometime in the second quarter of the current year.

Ellison tried to put a good spin on the numbers, saying, “there are very few large retailers in America delivering a 2.6% comp growth almost exclusively from the brick-and-mortar stores.”

Thin consolation. As results at countless big box retailers have shown, the stronger the e-commerce growth, the greater in-store sales growth is too since both avenues feed business to each other and reinforce the overall brand.

At Home Depot, for instance, some 50% of online orders last quarter were picked up in store. Such customers typically pick up an extra item or two while at the store, and the process saves Home Depot shipping money.

Ellison said he expects the trajectory of Lowe’s e-commerce business to change in the second half of 2020. Even so, the company will have a lot of catching up to do.

Home Depot has ramped up its business-to-business website that caters specifically to professional contractors, its biggest customer segment by sales. There are 1 million customers using the site. And, pairing with that site, in-store sales staff is equipped with customer relationship management tools that catalogs what customers bought previously and what they might need for a current project.

Meanwhile, Lowe’s is still looking to improve the basic functions of its main site. Ellison was candid about some its shortfalls and pointed to the labor intensive process of adding items to its online assortment, particularly for items that will be shipped by a brand directly to the customer rather than by Lowe’s. The process is currently manual, but Ellison said he is working on digitizing that. He also conceded that basic features like giving customers the ability to schedule a delivery in a narrow time window haven’t been added to the site yet. Ellison said new features like the tighter scheduling window will be “up and going by the second half” of 2020.

The CEO of J.C. Penney before joining Lowe’s in 2018, Ellison struggled to fix the department store chain’s ailing e-commerce business despite years of promises. While Lowe’s e-commerce is in better shape than Penney’s ever was, it remains a show-me story for Ellison.

E-commerce woes and all, Lowe’s has a lot of wind in its sails thanks to the booming housing market, a trend that has also lifted Home Depot. But, unless Lowe’s bridges the online shopping gap with Home Depot, it will be much harder to eke out sales gains when the environment gets tougher .

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