Why are Tesla shares losing ground today

what happened

CEO Elon Musk Has Big Expansion Plans For Tesla (TSLA -0.37%), This means more spending in the future. Investors are cautious, which sent Tesla shares down nearly 4% on Friday morning.

so what

Tesla’s annual meeting took place Thursday night, and the big item brought up was the planned 3-for-1 stock split. Shareholders approved the split, which Tesla said would make electric vehicle stock more accessible to employees and individual investors.

Musk is known for his bold goals for growth, and this meeting was no exception. Musk wants Tesla to sell 20 million cars a year by 2030, up from 936,222 last year. With Tesla aiming to produce 1.5 million to 2 million vehicles annually at each plant, this means that Tesla will need more than a dozen assembly plants by the end of the decade to meet these goals.

Tesla currently has four plants, with its original operation in California and its facility in China carrying the payload at the moment. In June, Musk described the two newest plants, in Texas and Germany, as “giant money incinerators.”

If Tesla is to reach Musk’s productivity goals for 2030, it will require massive capital expenditures. The German plant is said to have cost between $5 billion and $7 billion. Musk must also figure out how to do future construction more efficiently, so that it doesn’t become the same drain on cash he described with existing plants.

What now

Tesla ended the quarter with more than $18 billion in cash, but auto manufacturing is capital-intensive and requires automakers to keep billions in reserve at any time. If Tesla were to build new factories, it would have to raise more money.

It’s possible that at least part of that will come from debt financing, but it seems inevitable that Tesla will tap the stock markets again at some point to fund its expansion plans. Secondary offerings, as opposed to a stock split, affect the existing investor’s total ownership stake and may be a cause of the stock’s negative reaction to the meeting.

Not only does this mean this will be a surprise, but it also means that there is no chance of Tesla paying a dividend anytime soon. Old economy automakers have always been income-focused investments, and although most companies in the sector have stopped paying dividends during the pandemic. Ford Motor Company restarted his program and General motors It will likely follow at some point.

If there was any doubt before, Tesla has reaffirmed that it is focused on growth. That comes at a price, and investors are weighing the cost in Friday’s trading.

Lou Whiteman has no position in any of the stocks mentioned. Motley Fool has positions at and recommends Tesla. Motley Fool has a disclosure policy.

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