Wall Street is celebrating Tesla Inc.’s better-than-expected quarterly results, but the company’s spending needs still are a top worry, leading to fresh chatter among analysts that the electric-car maker is likely to tap capital markets again.
Shares recently traded up 7% to around $348 in premarket action after Tesla TSLA, +1.98% late Wednesday posted a smaller-than-anticipated loss and higher-than-expected revenue.
Yet concerns about another potential capital raise aren’t going away.
Positives in the latest updates include the mass-market Model 3 sedan’s production starting as planned, and Model S pre-orders coming in at about 500,000 — up from a prior level of 373,000, said Efraim Levy, senior equity analyst at CFRA Research, in a note.
“However, while cash increased to $3 billion at quarter-end, we think that is timing related and that second half spending will be an above-consensus $2 billion, and could likely necessitate a capital raise in 2018,” wrote Levy, who has a sell rating on the stock. The CFRA analyst lowered his rating to sell from hold in February, citing execution risks and other issues.
See:Tesla is a big public company, and Elon Musk must start acting like it
Baird analysts also are thinking about Tesla passing the hat for funding again. Back in March, Tesla raised $1.2 billion to have a cushion for the rollout of the Model 3.
The timing of another potential move to tap capital markets will “continue to become an area of focus as TSLA invests in new products and facilities,” wrote the Baird team led by Ben Kallo in a note.
Tesla “did not rule out raising debt capital,” Kallo and his colleagues said. “Importantly, [CEO] Elon Musk expects to provide additional details on Gigafactories 3, 4, 5 and 6 in the intermediate term, and expects to maintain the majority of production in the United States, though management indicated factories in China and Europe would be useful to increase access to those markets.”
The Baird team — which has touted Tesla as a top stock pick for 2017 — has an outperform rating on the stock, along with a price target of $368.
“Although TSLA is now in ‘production hell,’ we recommend investors own shares into the Model 3 ramp, which should be a several-month period and coincide with positive catalysts as cars are delivered and reviewed,” the analysts wrote.
“Demand commentary was positive for all models, and TSLA indicated it saw an acceleration in net orders for vehicles leading up to, and following, the Model 3 launch event,” they said.
Tesla’s stock price isn’t accounting for what could go wrong, and investors should keep an eye on the company’s money needs, suggested RBC analysts.
“What TSLA has accomplished is extremely impressive, but [the] stock discounts that a lot goes perfectly and smoothly for a very long time,” wrote RBC’s Joseph Spak and George Clark.
“Near-term we would put wide error bands on forecasts and watch for self-funding.”
The RBC analysts have a rating of sector perform, or neutral, on the stock, and they’ve hiked their price target to $345 from $314.
Tesla shares have gained 53% in 2017 as of Wednesday’s close, while the S&P 500 SPX, +0.05% is up 11%.
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