Tesla's Capital Raise May Come A Year From Now

Tesla Motors Inc TSLA reported solid Q3 2016 results.

The company may need to raise capital in Q3 2017, Goldman Sachs’ David Tamberrino said in a report. He maintained a Neutral rating on the company, with a 6-month price target of $190.

Bear Thesis

Tamberrino mentioned that Tesla’s Q3 results reflected capital as well as operational efficiency, with positive free cash flow generation and sequential gross margin expansion. Also, new orders for Model S and X grew 68 percent year-over-year, versus 67 percent year-over-year growth in the prior quarter.

Bull Thesis

On the other hand, Tesla’s capex indicates that the company would need to raise capital sometime in 2017. Tamberrino added Tesla’s bottom-line profitability in Q3 was driven by ZEV credit sales of $139 million.

Strong Quarter Not Enough

“A solid quarter, but not enough Automotive mojo to overcome what we see as increased risk from the company’s capital deployment strategy and 2017 uncertainty from the Model 3 launch,” the analyst commented.

Although Tesla reported an EPS beat for Q3, the estimates for 2016, 2017 and 2018 have been reduced from $(0.59) to $(1.93), from $0.57 to $(2.03) and from $3.50 to $0.14, respectively, to reflect Citi’s move to GAAP revenue and lower gross margin due to a stronger headwind in 2017/2018 from the Model 3 launch.