Tesla acknowledges 'health epidemics' as new risk in financial filing amid coronavirus outbreak

Key Points
  • Tesla recently estimated that the coronavirus outbreak would only cause its business a week-and-a-half production delay.
  • On Thursday, Tesla changed its tone and said in an annual financial filing the coronavirus outbreak may have a material adverse impact on its business.
  • Tesla also announced on Thursday that it plans to offer $2 billion of common stock.
Elon Musk, CEO of SpaceX and Tesla
Justin Chin | Bloomberg | Getty Images

On Thursday, Tesla acknowledged in an annual financial filing that the COVID-19, or coronavirus outbreak may have a material adverse impact on its business.

In the Risk Factors section of the 2019 10-K filing, Tesla included — for the first time ever — a mention of "health epidemics."

The filing also stated:

"Beginning in late 2019, the media has reported a public health epidemic originating in China, prompting precautionary government-imposed closures of certain travel and business. Gigafactory Shanghai was closed for a brief time as a result, before it reopened in February 2020 and rejoined our U.S. factories, which had continued to operate. It is unknown whether and how global supply chains, particularly for automotive parts, may be affected if such an epidemic persists for an extended period of time. We may incur expenses or delays relating to such events outside of our control, which could have a material adverse impact on our business, operating results and financial condition."

Addressing shareholders' coronavirus concerns in an earnings call on January 30, 2019, Tesla CFO Zach Kirkhorn downplayed the likely impact of the health epidemic:

"At this point, we're expecting a one to one-and-a-half week delay in the ramp of Shanghai built Model 3 due to a government required factory shutdown. This may slightly impact profitability for the quarter, but is limited as the profit contribution from Model 3 Shanghai remains in the early stages. We are also closely monitoring whether there will be interruptions in the supply chain for cars built in Fremont. So far we're not aware of anything material."

He added that Tesla would monitor the evolving situation, and assured investors the electric vehicle maker already had sufficient cash to continue its expansion plans, while further strengthening its balance sheet.

Tesla CEO Elon Musk said on the same call that, even though shares were soaring higher by the week, he had no plans to raise capital, and Tesla would focus on lowering the cost of its battery production instead. "We are still generating positive cash. In light of that, it doesn't make sense to raise money because we expect to generate cash despite this growth level," he said.

Two more weeks of coronavirus fears apparently helped to change Tesla's mind -- on Thursday, Tesla announced it plans to offer $2 billion of common stock. Board member Larry Ellison will buy up to $1 million worth of those shares, and CEO Elon Musk will purchase up to $10 million worth.

So far, COVID-19 has taken at least 1,369 lives and infected more than 60,300 people. China is grappling to keep its population as healthy as possible but lacks a large enough supply of test kits, reagents and other resources that could help it identify and assist or quarantine all people with the virus.

Tesla shares popped earlier this week when the company re-opened its Shanghai-based car plant, with the assistance of Shanghai's municipal government. It is not clear when Tesla's factory, and other automakers in China, will be back up to full capacity, or at least back to the capacity they had achieved before the mandated factory shutdowns, which started late last month.

Tesla has also temporarily closed its stores throughout China.

—Dawn Kopecki and Mike Wayland contributed to this report.

Correction: Elon Musk will buy up to $10 million of Tesla stock from the new offering announced Thursday.

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