Tesla, Inc. TSLA stock regained some momentum in the past three sessions on the back of a positive analyst rerating after being stuck in a range, and an analyst offered an “out-of-the-box” idea to increase its competitive positioning in the electric vehicle market.
What Happened: Tesla can market the capital raised as a competitive weapon and use it to continue to grow its EV market share globally irrespective of the economic situation and competitive dynamics, said Datatrek co-founder and former automotive analyst Nicholas Colas, Barron's reported.
Colas comments come as Tesla is found flush with cash, with $23 billion of cash in its balance sheet at the end of the second quarter, the report said. Additionally, the company generated $1.4 billion in free cash flow for the first half and is on track to generate an incremental $4.8 billion in the second half.
Between Tesla turning cash flow positive around 2019 and till the second quarter, it has generated $18 billion in free cash flow, the report said.
“Tesla's cash balance [has not increased] much over the last six months even though its manufacturing footprint continues to grow,” Colas reportedly said. He said a capital raise could boost Tesla's valuation, adding that if more than $15 billion were raised, investors would worry about dilution of equity capital.
Tesla is on track to sell 1.8 million EVs in 2023 and is expected to begin marketing its Cybertruck later this year. Additionally, the company has plans to launch a lower-priced EV.
See Also: Everything You Need To Know About Tesla Stock
Not Capital Constrained: Future Fund's Managing Partner Gary Black, however, does not see the need for a capital raise. Tesla is not capital-constrained, he reportedly said. He added that the fund manager sees the company generating more cash flow than it needs for investments.
Black is on the camp of analysts who would rather like Tesla initiating a buyback. “Some investors get confused and think buybacks compete with internal growth projects. They don't,” he reportedly said.
Colas countered by stating that unlike big techs, which return cash through buybacks, Tesla sells technology and software but is still a low-margin vendor in a fragmented automaker. Also, EV adoption is still in the nascent stage, he added.
In premarket trading, Tesla stock rose 0.46% to $272.54, according to Benzinga Pro data.
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