Wall Street Weighs In On Tesla's Capital Raise

After telling investors repeatedly throughout 2018 that the company would not need to raise additional capital, Tesla Inc TSLA announced last week it would be raising approximately $2.3 billion in capital. In a conference call with investors, CEO Elon Musk said Tesla’s driverless vehicle technology will increase the value of the company by 10 times.

Several Wall Street analysts have weighed in on the capital raise and the outlook for Tesla's stock, which is down 25 percent in the past six months. Here’s a sampling of what they’ve had to say.

Demand In Focus

Morgan Stanley analyst Adam Jonas said Tesla is creating a bridge to its China business starting in 2020.

“We see the capital raise as a stop-gap for near-term liquidity to ride out volatility in working capital (payables/inventory) as well as to de-risk a reduction in customer deposits,” Jonas wrote in a note. He said Tesla’s biggest problem remains demand, especially for the for the Model X and Model S.

RBC Capital Markets analyst Joseph Spak said Tesla’s timing on the capital raise was far from ideal and could have been done last year from a position if strength rather than weakness.

“This should fund what we expect to be a continued cash burn, another ~$760mm 2Q-4Q19 and ~$640mm in 2020 as well as the ~$566mm SolarCity converts due November 2019,” Spak wrote. He said Tesla may be attempting to pivot the narrative toward robotaxis, but the technology is much farther away that the company has led investors to believe.

Wedbush analyst Daniel Ives said the capital raise is good news for Tesla bulls.

“We view this as a clear net positive for Tesla as the company needed to take its medicine and clear the air of the very real investor worries that the company would not having enough capital to meet its debt obligation this November and future capex needs,” Ives wrote.

While the capital raise removes the overhang for the stock in the near-term, Ives said Tesla will need to show some progress in driving U.S. and European Model 3 demand in the next several quarters.

Ratings And Price Targets

• Morgan Stanley has an Equal-Weight rating and $230 target.
• RBC Capital has an Underperform rating and $190 target.
• Wedbush has a Neutral rating and $275 target.

Tesla's stock traded around $257 per share at time of publication.

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