Tesla Raises Money, But Will It Be Enough?

Colin Langan of UBS reiterated his Sell rating on Tesla Inc (NASDAQ: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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