A reminder that Tesla follows its own rules: Morning Brief

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Friday, February 14, 2020” data-reactid=”15″>Friday, February 14, 2020

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<h2 class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Tesla rallies when most stocks would fall because those are the rules” data-reactid=”17″>Tesla rallies when most stocks would fall because those are the rules

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="If last week’s action hadn’t already sent you a clear enough signal that Tesla (TSLA) shares play by their own rules, maybe Thursday did the trick.” data-reactid=”18″>If last week’s action hadn’t already sent you a clear enough signal that Tesla (TSLA) shares play by their own rules, maybe Thursday did the trick.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="On Thursday morning, Tesla announced that it would be selling 2.65 million shares in a stock offering. This offering was worth just over $2 billion as of Wednesday’s closing price.” data-reactid=”19″>On Thursday morning, Tesla announced that it would be selling 2.65 million shares in a stock offering. This offering was worth just over $2 billion as of Wednesday’s closing price.

Stock offerings, for the uninitiated, are dilutive. This means existing shareholders will own a smaller piece of the company after a stock offering than before. As a result, the price of a company’s stock tends to drop following these events.

This is a normal thing that happens. What is less normal is a stock rallying 4.8% after such an offering. But normal things don’t happen to Tesla shares.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="And that is because the story for Tesla right now is also not normal. Collaborative Fund’s Morgan Housel on Thursday tweeted a simple outline of how investors are seeing the Tesla story.” data-reactid=”22″>And that is because the story for Tesla right now is also not normal. Collaborative Fund’s Morgan Housel on Thursday tweeted a simple outline of how investors are seeing the Tesla story.

Again, the negative read on stock offerings is largely because these events are viewed through the prism of what investors are losing — a portion of their stake in the company — rather than what the company is gaining.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="But as Matt Levine at Bloomberg outlined on Thursday, Tesla’s equity raise also sees the company use the stock market in the way it was intended, but isn’t often used. Which is primarily to raise money.” data-reactid=”26″>But as Matt Levine at Bloomberg outlined on Thursday, Tesla’s equity raise also sees the company use the stock market in the way it was intended, but isn’t often used. Which is primarily to raise money.

The public market allows companies to raise money from a lot of investors all at once. Except large pools of money in private equity, venture capital, and direct lending has made this option less attractive and less of a necessity.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="“Big public companies now mostly use the stock market as a way to&nbsp;return capital to investors; U.S. public companies now&nbsp;buy back hundreds of billions of dollars more stock&nbsp;than they sell,” Levine wrote Thursday. “Once you accept the&nbsp;consensus that public companies don’t benefit directly from their stock prices, you start to wonder why a company would want to be public at all.”” data-reactid=”28″>“Big public companies now mostly use the stock market as a way to return capital to investors; U.S. public companies now buy back hundreds of billions of dollars more stock than they sell,” Levine wrote Thursday. “Once you accept the consensus that public companies don’t benefit directly from their stock prices, you start to wonder why a company would want to be public at all.”

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Of course, Elon Musk himself agreed not too long ago. Except now, Tesla’s stock price is up a lot. And so Musk has made the fairly straightforward decision to benefit from that increase.” data-reactid=”29″>Of course, Elon Musk himself agreed not too long ago. Except now, Tesla’s stock price is up a lot. And so Musk has made the fairly straightforward decision to benefit from that increase.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Now, in its fourth quarter earnings report, Tesla said the company has grown to the point of being self funding. In other words, Tesla doesn’t — or didn’t — need any more investor capital to continue growing at the rate it hopes to grow.” data-reactid=”30″>Now, in its fourth quarter earnings report, Tesla said the company has grown to the point of being self funding. In other words, Tesla doesn’t — or didn’t — need any more investor capital to continue growing at the rate it hopes to grow.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="But as Housel outlines above, a way to read the rally in Tesla’s stock — both before Thursday’s announcement and particularly after this news — is to see it as the market essentially asking the company to take on more capital to grow more quickly.” data-reactid=”31″>But as Housel outlines above, a way to read the rally in Tesla’s stock — both before Thursday’s announcement and particularly after this news — is to see it as the market essentially asking the company to take on more capital to grow more quickly.

And so it did.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="By&nbsp;Myles Udland, reporter and co-anchor of&nbsp;The Final Round. Follow him at&nbsp;@MylesUdland” data-reactid=”33″>By Myles Udland, reporter and co-anchor of The Final Round. Follow him at @MylesUdland

What to watch today

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Economy” data-reactid=”35″>Economy

  • 8:30 a.m. ET: Import Price Index month-on-month, January (-0.2% expected, 0.3% in December)

  • 8:30 a.m. ET: Retail Sales month-on-month, January (0.3% expected, 0.3% in December); Retail Sales excluding Auto month-on-month, January (0.3% expected, 0.7% in December); Retail Sales excluding Auto & Gas month-on-month, January (0.3% expected, 0.5% in December)

  • 9:15 a.m. ET: Industrial Production month-on-month, January (-0.2% expected, -0.3% in December)

  • 9:15 a.m. ET: Capacity Utilization, January (76.8% expected, 77.0% in December)

  • 10 a.m. ET: University of Michigan Sentiment, February preliminary (99.2 expected, 99.8 prior)

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FILE - This April 12, 2016 file photo shows the Microsoft logo in Issy-les-Moulineaux, outside Paris, France. The Pentagon has awarded Microsoft a $10 billion cloud computing contract called JEDI, Friday, Oct. 25, 2019. The contentious bidding process for the contract pitted Microsoft, Amazon and Oracle, among others, against one another. (AP Photo/Michel Euler, File)FILE - This April 12, 2016 file photo shows the Microsoft logo in Issy-les-Moulineaux, outside Paris, France. The Pentagon has awarded Microsoft a $10 billion cloud computing contract called JEDI, Friday, Oct. 25, 2019. The contentious bidding process for the contract pitted Microsoft, Amazon and Oracle, among others, against one another. (AP Photo/Michel Euler, File)
FILE – This April 12, 2016 file photo shows the Microsoft logo in Issy-les-Moulineaux, outside Paris, France. The Pentagon has awarded Microsoft a $10 billion cloud computing contract called JEDI, Friday, Oct. 25, 2019. The contentious bidding process for the contract pitted Microsoft, Amazon and Oracle, among others, against one another. (AP Photo/Michel Euler, File)

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