Tesla Raises Money, But Will It Be Enough?

Colin Langan of UBS reiterated his Sell rating on Tesla Inc TSLA as he's skeptical whether the recent capital raise would suffice its liquidity needs.

Capital Raise

In its second capital raise in a year, Tesla announced a $250 million stock offering and $750 million in convertible senior notes due in 2022. With underwriter option, Tesla expects to raise $1.15 billion, which is at the low end of the analyst’s estimate of $1-$2 billion.

Though the recent capital raise will boost Tesla’s cash position to $4.6 billion, Langan said the lower-than-expected amount implies another raise later if the Model 3 is delayed.

“We forecast cash burn of $2.3bn in 2017 (note first half capex guidance is $2-2.5bn) and continued burn into 2018, assuming the Model 3 ramp starts in the second half,” Langan wrote in a note.

Cash Burn Key Risk

Langan noted that the Model 3 beta prototype is not yet approved by the board. If the launch is delayed, cash burn would be worse, putting them close to the $1 billion cushion they need.

“[L]iquidity and cash burn remain key near-term risks, and investors may grow weary of continued raises as this is the second capital raise in a year,” Langan added.

At last check, shares of Tesla rose 3.22 percent to $263.96. Langan has a price target of $160, implying a potential downside of 39 percent.

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