Are shareholders all watching the secondary issuance? Understand how stock prices change by looking at Tesla and TSMC cases

Secondary offering is a topic that investors are paying close attention to. Many believe that when a company announces a cash increase, it’s automatically a positive signal and the stock price should go up. However, in reality, the stock price’s rise or fall after a secondary offering is a completely different matter.

What Exactly Is a Secondary Offering

Simply put, a secondary offering is when a company needs money and issues new shares to existing shareholders. At first glance, it doesn’t seem like a big deal, but the underlying logic is actually quite complex.

Companies usually conduct secondary offerings for several reasons: to expand business scale, invest in new projects, pay off debts, repair capital structure, or respond to unexpected situations. The entire process appears well-regulated— the company sets a target amount for the offering → informs shareholders of the offering price and number of shares → shareholders decide whether to participate → after calculations, new shares are issued → capital increases, and ownership proportions change accordingly.

Why Stock Prices May Not Rise After a Secondary Offering

This is the key point. Many novice investors make the biggest mistake of treating a secondary offering as a guaranteed signal of rising stock prices. But in fact, market reactions to secondary offerings vary widely.

The first impact is the increased supply of new shares. Next is market sentiment—investors evaluate whether the offering is worthwhile, how the raised funds will be used, and whether the company can generate future profits. The third variable is the existing shareholders’ ownership ratio; if no one buys the new shares, the “share of the pie” for existing shareholders gets smaller.

Therefore, stock prices may fall after a secondary offering: if there’s an oversupply of shares and market demand doesn’t keep up, the price will be pressured downward. If investors start doubting the plan, worried about dilution of their rights or harming the company’s future earning capacity, sell orders will come in. The most direct reason is dilution—existing shareholders’ ownership percentage decreases, which can be psychologically uncomfortable.

Conversely, a secondary offering can also push stock prices higher. If market demand for the new shares is strong, it can support the price. If investors believe that the funds will bring good returns and help the company grow, their attitude turns positive. Existing shareholders who are optimistic about the company’s prospects may continue buying new shares to maintain their ownership ratio, creating upward momentum.

Real Cases Showing Two Possible Outcomes of Secondary Offerings

Tesla’s Secondary Offering Rally

In 2020, Tesla announced a cash increase, planning to issue $2.75 billion worth of new shares at $767 per share. The goal was clear—expand production globally, build new factories, and meet increasing market demand.

Logically, when new shares are issued, existing shareholders’ rights are diluted. But at that time, Tesla’s market popularity was extremely high. Investors were full of confidence and even eager to buy. The market logic was: this capital will enable Tesla to expand its business, develop new technologies, and capture more market share, further boosting its valuation. So when the announcement came out, the stock price didn’t fall; it actually rose.

However, it’s important to remember that stock price movements are influenced by many factors—profitability, market sentiment, industry outlook, macroeconomic environment, policy changes, and more. Focusing solely on the secondary offering to predict stock price is very risky and can easily lead to disappointment.

TSMC’s Stable Rise After Secondary Offering

In December 2021, Taiwan’s TSMC announced a cash increase to raise funds for expansion. The news was well received, with investors optimistic that this would lay a solid foundation for future growth, and the stock price responded with an increase.

As a leading player in the industry, TSMC’s operations and performance are stable and reliable. Existing shareholders confident in the company’s prospects are likely to support the offering by continuing to buy new shares to maintain their stake. Therefore, the change in ownership ratio caused by this secondary offering had little impact on the company’s equity structure.

While the offering itself doesn’t immediately generate profits, the funds can be used for R&D, expanding factories, or investing in new technologies—laying the groundwork for future growth. As a global semiconductor foundry leader, TSMC has always been steady. The secondary offering enables it to further improve performance and accelerate growth.

The Bright and Dark Sides of Secondary Offerings

Advantages of Secondary Offerings

Secondary offerings help companies raise significant capital for business expansion, new project investments, debt repayment, or acquisitions—crucial for corporate development.

After capital increase, the company’s financial structure improves. Debt burdens are reduced, credit ratings may rise, and financing costs decrease.

Secondary offerings are often viewed as positive signals—showing the company’s ability to raise funds and willingness to develop further. This can enhance market confidence and push stock prices higher.

Risks of Secondary Offerings

Issuing new shares means existing shareholders’ ownership will be diluted. Especially if the offering price is below the market price, dilution becomes more severe.

Market reactions are unpredictable. Investors’ attitudes toward the offering directly influence stock price movements. If the market is pessimistic, the stock price can drop sharply.

Secondary offerings also incur costs—such as handling fees and issuance expenses—which increase the company’s financing costs. If the offering price is below market value, the company’s overall valuation may decrease accordingly.

When Will Investors Receive New Shares After a Secondary Offering

After participating in a secondary offering, investors must wait some time before they can actually hold the new shares. The specific timing depends on several factors.

First, the company’s own arrangements. The company sets a deadline for the offering, and investors need to pay within that period. After payment, the company performs calculations and completes various procedures before issuing the new shares.

Second, approval from the stock exchange. If the stock is listed, the new share issuance must be approved by the exchange, which takes time.

Third, internal shareholder registration procedures also require a certain cycle.

Therefore, after participating in a secondary offering, investors should be patient and wait for the company to complete all procedures. Meanwhile, when choosing investment targets, it’s important to analyze the company’s fundamentals and market conditions—don’t get carried away by the signal of a secondary offering alone.